<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2000
REGISTRATION NO. 333-93499
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ALAMOSA PCS HOLDINGS, INC.
(AND CERTAIN SUBSIDIARIES IDENTIFIED IN FOOTNOTE 1 BELOW)
(Exact name of co-registrant as specified in its charter)
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DELAWARE 4812 75-2843707
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification no.)
</TABLE>
4403 BROWNFIELD HIGHWAY
LUBBOCK, TEXAS 79407
(806) 722-1100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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DAVID E. SHARBUTT
CHIEF EXECUTIVE OFFICER
4403 BROWNFIELD HIGHWAY
LUBBOCK, TEXAS 79407
(806) 722-1100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of communications to:
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WM. S. KLEINMAN MARC S. ROSENBERG
HAYNES AND BOONE, LLP CRAVATH, SWAINE & MOORE
901 MAIN STREET, SUITE 3100 WORLDWIDE PLAZA
DALLAS, TEXAS 75202-3789 825 EIGHTH AVENUE
(214) 651-5000 NEW YORK, NEW YORK 10019
(212) 474-1000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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(1) The following direct and indirect subsidiaries of Alamosa PCS Holdings, Inc.
are Co-Registrants (the "Guarantors"), each of which is organized in the
state indicated below and has the I.R.S. Employer Identification Number
indicated: Alamosa PCS, Inc., a Delaware corporation (74-2938804), Alamosa
Wisconsin GP, LLC, a Wisconsin limited liability company (75-2775324),
Alamosa Wisconsin Limited Partnership, a Wisconsin limited partnership
(74-2938839), Alamosa Delaware GP, LLC, a Delaware limited liability company
(75-2775324) and Texas Telecommunications, LP, a Texas limited partnership
(75-2851320).
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 19, 2000
PROSPECTUS
$
[ALAMOSA LOGO]
ALAMOSA PCS HOLDINGS, INC.
% SENIOR DISCOUNT NOTES DUE 2010
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We are offering $ aggregate principal amount at maturity of our
% Senior Discount Notes due 2010. We are also currently offering 10,714,000
shares of our common stock in a separate offering. The issue price of the notes
will be $ per $ principal amount at maturity, which represents a yield
to maturity of %, calculated from .
Interest on the notes will be payable semi-annually on and
beginning , 2005. The notes will be unsecured senior
obligations and will rank equally with all of our existing and future senior
debt. The subsidiaries of Alamosa PCS Holdings, Inc. own substantially all of
our operating assets. All of those subsidiaries will guarantee the notes on a
senior subordinated basis. The guarantees will be subordinate to all of the
subsidiaries' designated senior debt.
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INVESTING IN THESE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER NOTE TOTAL
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Principal amount at maturity of the notes % $
Price to investors % $
Underwriting discount % $
Proceeds to Alamosa PCS Holdings, Inc. (before expenses) % $
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Original issue discount on the notes will accrete from until the
date of delivery.
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes to purchasers on or about ,
2000.
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
, 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................................................ 8
This Prospectus Contains Forward-Looking Statements......... 21
Ratio of Earnings to Fixed Charges.......................... 22
Use of Proceeds............................................. 22
Capitalization.............................................. 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Our Affiliation Agreements with Sprint PCS.................. 56
Management.................................................. 65
Principal Stockholders...................................... 77
Certain Relationships and Related Transactions.............. 80
The Reorganization.......................................... 83
Regulation of the Wireless Telecommunications Industry...... 84
Description of Other Indebtedness........................... 89
Description of Notes........................................ 96
United States Federal Tax Consequences...................... 138
Underwriting................................................ 142
Legal Matters............................................... 143
Experts..................................................... 143
Where You Can Find Additional Information................... 143
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 notes. 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 notes.
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. Prior to
the closing of this offering, we will reorganize into a Delaware holding company
structure. Alamosa PCS Holdings, Inc., the issuer of the notes, is a holding
company for our operating subsidiaries. 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 our initial public offering of
common stock, 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
Senior Discount Notes...... $ million aggregate principal amount at stated
maturity of % senior discount notes due 2010. We
will issue the senior discount notes at a price to
investors that will yield gross proceeds to us at
issuance of approximately $156.0 million.
Issuer..................... Alamosa PCS Holdings, Inc.
Issue Price................ %
Maturity Date.............. , 2010
Accretion.................. Accretion means adjustment of the price of a note
to reflect the difference between the price of a
note bought at an original issue discount and the
stated amount of maturity of the note. The
aggregate accreted value of the senior discount
notes will increase from approximately $156.0
million at issuance at a rate of %, compounded
semi-annually, to a final accreted value equal to
their aggregate principal amount of $ million at
, 2005.
Interest Rate.............. Prior to , 2005, no cash interest
will accrue on the senior discount notes. The
senior discount notes will accrue interest at the
rate of % per annum, payable semi-annually in
cash in arrears on and of each year,
commencing , 2005.
Subsidiary Guarantees...... The senior discount notes will be guaranteed on a
senior subordinated basis by our current
subsidiaries and all of our future domestic
restricted subsidiaries. See "Description of
Notes -- Subsidiary Guarantees."
Ranking.................... The senior discount notes will be:
- senior unsecured obligations of Alamosa PCS
Holdings, Inc.;
- equal in right of payment to all of the existing
and future senior debt of Alamosa PCS Holdings,
Inc.; and
- senior in right of payment to all of the existing
and future subordinated debt of Alamosa PCS
Holdings, Inc.
The guarantees will be unsecured obligations of the
guarantors and will be:
- subordinated in right of payment to each
guarantor's obligations under the Nortel
financing and other credit facilities with banks
or institutional lenders, referred to as
designated senior debt;
- equal in right of payment to all existing and
future senior subordinated debt of each
guarantor; and
- senior in right of payment to all existing and
future subordinated debt of each guarantor.
Our guarantors generate all of our operating income,
and we are dependent on them to meet our obligations
under the notes.
See "Description of Notes -- Ranking."
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Optional Redemption........ During the first 36 months after this offering, we
may use the net proceeds from an equity offering to
redeem up to 35% of the accreted value of the senior
discount notes originally issued at a redemption
price of % of the accreted value as of the date
of redemption, provided that at least 65% of the
accreted value of the senior discount notes
originally issued remains outstanding immediately
after the redemption. See "Description of
Notes -- Optional Redemption."
On or after , 2005, we may redeem all or
part of the senior discount notes at redemption
prices set forth under "Description of
Notes -- Optional Redemption," together with
accrued and unpaid interest, if any, to the date of
redemption.
Change of Control.......... If we experience a change of control, we will be
required to make an offer to repurchase your senior
discount notes at a price equal to 101% of the
accreted value, if before , 2005, or 101% of
the principal amount at maturity thereafter, as
applicable, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Notes -- Repurchase at the Option
of Holders Upon a Change of Control."
Restrictive Covenants...... The indenture governing the senior discount notes
will contain covenants that, among other things and
subject to important exceptions, will limit our
ability and the ability of our subsidiaries and
certain of our future 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.
See "Description of Notes -- Certain Covenants."
Original Issue Discount.... The accretion of the senior discount notes from
their issue price to their principal amount at
maturity will produce taxable ordinary interest
income in the amount of the accretion for holders
of the senior discount notes during the accretion
period. The Internal Revenue Code calls this
original issue discount. Thus, although interest
will not be payable on the senior discount notes
prior to , 2005, U.S. holders will be
required to include original issue discount amounts
in gross income for U.S. federal income tax
purposes over the term of the senior discount notes
in advance of receipt of cash payments to which
such income is attributable. See "United States
Federal Tax Consequences."
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Use of Proceeds............ We will use a portion of the proceeds of this
offering of our senior discount notes to prepay
$75.0 million of indebtedness outstanding under the
Nortel credit facility. We may decide to use the
remaining proceeds 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.
THE COMMON STOCK OFFERING
We are also offering common stock in a separate initial public offering
pursuant to a separate prospectus. This prospectus relates only to the offering
of notes and not to the offering of common stock.
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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 PERIOD JULY 16, FOR THE PERIOD JULY 16, FOR THE NINE-MONTH FOR THE PERIOD JULY 16,
1998 (INCEPTION) 1998 (INCEPTION) PERIOD ENDED 1998 (INCEPTION)
THROUGH DECEMBER 31, THROUGH SEPTEMBER 30, SEPTEMBER 30, THROUGH SEPTEMBER 30,
1998 1998 1999 1999
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(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA, SUBSCRIBER DATA
AND RATIO OF EARNINGS TO FIXED CHARGES)
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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:
EBITDA(3)............... (956) (401) (16,311) (17,267)
Adjusted EBITDA(3)...... (956) (401) (9,489) (10,445)
Ratio of earnings to
fixed charges(4)..... -- -- -- --
Number of subscribers... -- -- 9,850 9,850
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AS OF
SEPTEMBER 30, 1999
AS OF ------------------------
DECEMBER 31, 1998 ACTUAL AS ADJUSTED(5)
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BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
Cash and cash equivalents........................... $13,529 $ 7,454 $237,587
Construction in progress............................ 1,979 28,940 28,940
Property and equipment, net......................... 114 36,930 36,930
Total assets........................................ 15,674 88,412 323,585
Total debt.......................................... 752(6) 60,885(7) 157,207
Equity.............................................. 14,076 13,210 152,061
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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) Included in Other Data are EBITDA and Adjusted EBITDA amounts. EBITDA
represents earnings before interest, income taxes, depreciation and
amortization. Adjusted EBITDA represents earnings before interest, income
taxes, depreciation and amortization and equity participation compensation
expense. EBITDA and Adjusted EBITDA are used by management and certain
investors as indicators of a company's historical ability to service debt.
Management believes that increases in EBITDA and Adjusted EBITDA are
indicators of improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements.
However, EBITDA and Adjusted EBITDA are not intended to represent cash flows
for the period, nor have they been presented as alternatives to either
operating income, as determined by generally accepted accounting principles,
as indicators of operating performance or cash flows from operating,
investing and financing activities, as determined by generally accepted
accounting principles, and are thus susceptible to varying calculations.
EBITDA and Adjusted EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings or loss before income taxes and
extraordinary items and fixed charges. Fixed charges are the sum of (1)
interest costs, (2) amortization of deferred financing costs, and (3)
one-third of operating lease rental expense (deemed to be interest).
Earnings were inadequate to cover fixed charges by 923,822 and 18,341,790
for the period from July 16, 1998 (Inception) to December 31, 1998 and the
nine-month period ended September 30, 1999.
(5) As adjusted Balance Sheet Data reflects (a) the sale in the common stock
offering of 10,714,000 shares of common stock at an initial offering price
of $14.00 per share, the midpoint of the range on the cover of the common
stock prospectus, less underwriting discounts and commissions and estimated
offering expenses of $11.1 million, (b) the issuance of an aggregate
principal amount at maturity of $ million in senior discount notes with
estimated gross proceeds of $156.0 million, less underwriting discounts and
commissions and estimated offering expenses of $5.0 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.
(6) Reflects capital lease obligations of $728,219 and other notes payable of
$23,637.
(7) Reflects indebtedness incurred under the Nortel facility of $59,678,288,
other notes payable of $353,988 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 notes.
RISKS RELATED TO OUR SUBSTANTIAL DEBT
WE MAY NOT BE ABLE TO SERVICE OUR SUBSTANTIAL DEBT OR OBTAIN ADDITIONAL
FUTURE DEBT FINANCING
As of December 31, 1999, adjusted for the offering of the senior discount
notes and the prepayment of amounts outstanding under the Nortel financing, our
outstanding long-term debt totaled $157.0 million. In addition, under our
current business plan, we expect to incur substantial additional debt before
achieving break-even operating cash flow.
Our substantial debt will have a number of important consequences for our
operations and our investors, including the following:
- we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
- we may not have sufficient funds to pay interest on, and principal of,
our debt;
- we may not be able to obtain additional financing for currently
unanticipated capital requirements, capital expenditures, working capital
requirements and other corporate purposes; and
- we may be more highly leveraged than some of our competitors, which may
put us at a competitive disadvantage.
WE ARE A HOLDING COMPANY AND THE SENIOR DEBT OF OUR SUBSIDIARY GUARANTORS
MAY RESTRICT PAYMENT ON THE NOTES
The notes are unsecured obligations of Alamosa PCS Holdings, Inc. We are a
holding company that derives all operating income from our subsidiaries. We are
dependent on the earnings and cash flow of our subsidiaries to meet our
obligations with respect to the notes. We cannot assure you that our
subsidiaries will be able to, or be permitted to, pay to us amounts necessary to
service the notes. The Nortel financing permits our subsidiaries to make
distributions with respect to scheduled interest payments on the notes, but only
so long as there is not a default under the Nortel financing. The Nortel
financing contains financial covenants that our subsidiaries must adhere to in
order to avoid a default. The indenture governing the terms of the notes permits
our subsidiary guarantors to enter into other agreements that can similarly
limit our ability to receive distributions from our subsidiaries. In the event
we do not receive distributions from our subsidiaries, we would be unable to
make required principal and interest payments on the notes.
Although the notes will be guaranteed by our subsidiaries, these guarantees
will be unsecured and subordinate in right of payment to all designated senior
debt of the subsidiaries. The guarantees will be equal in right of payment to
other senior subordinated debt of our subsidiaries. In particular, the
guarantees will be subordinate in right of payment to the Nortel financing. As
of December 31, 1999, assuming the reorganization of Alamosa into a holding
company structure, the subsidiary guarantors would have had approximately $71.9
million outstanding under the Nortel financing. The indenture governing the
terms of the notes permits the subsidiary guarantors to incur substantial
amounts of additional designated senior debt. In the event of bankruptcy,
liquidation or reorganization of our subsidiary guarantors, the assets of the
subsidiary guarantors will be available to pay the notes only after all
designated senior debt of the subsidiary guarantors has been paid in full.
Sufficient funds may not exist to pay amounts due on the notes in such event.
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<PAGE> 13
Furthermore, the Nortel financing is secured by liens on substantially all
of our assets and the assets of our subsidiaries. Therefore, if Alamosa PCS,
Inc. were to default on the payment of the Nortel financing, the lenders could
foreclose on the collateral that secures the Nortel financing regardless of any
default with respect to the notes. If this were to happen, we would be incapable
of generating revenue sufficient to pay amounts due on the notes.
In addition, the subordination provisions of the indenture governing the
notes provide that no cash payment may be made with respect to the subsidiary
guarantees during the continuance of a payment default under any designated
senior debt of the subsidiary guarantors. Therefore, if we fail to make a
required payment in respect of any designated senior debt, including the Nortel
financing, we would be unable to make any payments with respect to the
subsidiary guarantees. The indenture governing the terms of the notes also
provides that Nortel and other lenders can prevent payments under the subsidiary
guarantees for up to 180 days in the event there are non-payment defaults under
any designated senior debt. For further information on the risks associated with
designated senior debt of our subsidiaries, see "-- Risks Particular to
Alamosa -- If we do not meet all of the conditions required under our Nortel
financing arrangements, 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."
THE TERMS OF THESE NOTES WILL PLACE RESTRICTIONS ON US WHICH MAY LIMIT OUR
OPERATING FLEXIBILITY.
The indenture governing the notes will impose material operating and
financial restrictions on us. These restrictions may limit our ability to engage
in some transactions, including the following:
- designated types of mergers or consolidations;
- paying dividends or other distributions to our stockholders;
- making investments;
- selling assets;
- repurchasing our common stock;
- changing lines of business;
- borrowing additional money; and
- transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.
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 in conducting our business.
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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 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.
- 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.
- Sprint PCS could breach its payment or other obligations under our
affiliation agreements, which could result in a substantial reduction in
our revenues, difficulty in obtaining important financial or subscriber
information or a severe restriction on our ability to conduct business.
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 things, 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.
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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.
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 lender that is senior to the holders of the
notes 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 and in conflict with the
interests of the holders of the notes.
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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
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.
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 devotes 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.
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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 investment 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 MAY LIKELY RESULT IN OUR
INABILITY TO MAKE PAYMENTS ON THE NOTES
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, we may be unable to make interest or principal payments on the notes 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 capital losses through the
year 2001 were approximately $283 million. We plan to finance these requirements
using the funds received from the initial public offering of our common stock
and the remaining $178.1 million available under the Nortel financing as of
December 31, 1999. Funds in addition to the proceeds from our initial public
offering of common stock and the commitments under the Nortel financing 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.
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.
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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
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
- make it extremely difficult for us to obtain any future financing.
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;
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- 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
- 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.
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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.
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."
OUR EXISTING STOCKHOLDERS, DIRECTORS AND OFFICERS MAY BE ABLE TO CONTROL
THE OUTCOME OF SIGNIFICANT MATTERS PRESENTED TO STOCKHOLDERS FOLLOWING THE
COMPLETION OF OUR INITIAL PUBLIC OFFERING OF COMMON STOCK
Upon completion of our initial public offering of common stock, our
existing stockholders, directors and officers, if they act as a group, will be
able to control the outcome of matters submitted for stockholder action
including the election of members to our board of directors and the approval of
significant change in control transactions. This may have the effect of delaying
or preventing a change in control. For more information on this subject, please
refer to "Management" and "Principal Stockholders."
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ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS COULD DELAY A TAKEOVER
OR CHANGE IN CONTROL OF ALAMOSA
Our certificate of incorporation provides that our board of directors may
issue preferred stock without stockholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. These provisions, among others, may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of Alamosa, even though a change in ownership might be economically beneficial
to us.
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."
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' 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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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 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.
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."
18
<PAGE> 23
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 NOTES OFFERING
BECAUSE OTHER INVESTORS IN OUR SUBSIDIARIES WILL HAVE A RIGHT TO SHARE IN
ANY DISTRIBUTIONS MADE BY OUR SUBSIDIARIES, THERE WILL BE LESS FUNDS AVAILABLE
WITH WHICH TO PAY ANY AMOUNTS DUE ON THE NOTES
In addition to us, certain minority investors also hold an interest in our
subsidiaries. To the extent that any interest in such subsidiaries is owned by
persons other than us, such persons are generally entitled to receive a pro rata
share of any distributions made by such subsidiaries to us. In particular, the
Wisconsin local telephone companies that own a minority interest in Alamosa
Wisconsin Limited Partnership would be entitled to receive a pro rata share of
any distribution made by Alamosa Wisconsin Limited Partnership. Distributions to
such minority investors will reduce the funds available with which to pay any
amounts due on the notes.
BECAUSE FEDERAL AND STATE STATUTES MAY ALLOW COURTS TO VOID THE GUARANTEES
OF THE NOTES BY OUR SUBSIDIARIES, YOU MAY NOT HAVE THE RIGHT TO RECEIVE ANY
MONEY PURSUANT TO THE GUARANTEES
Although the guarantees of the notes by our subsidiaries provide you with a
claim against the assets of the applicable subsidiary guarantor, creditors of a
bankrupt subsidiary guarantor may challenge the guarantee. If a challenge were
upheld, then the applicable guarantee would be invalid and unenforceable, junior
to all creditors, including trade creditors, of that subsidiary guarantor.
The creditors of a bankrupt subsidiary guarantor could challenge a
guarantee on the grounds that the guarantee constituted a fraudulent conveyance
under bankruptcy laws. If a court were to rule that the guarantee did constitute
a fraudulent conveyance, then the court could void the obligations under the
guarantee or subordinate the guarantee to other debt of the guarantor or take
other action detrimental to holders of the notes. In addition, any of the
guarantees could be subject to the claim that, since the guarantee was incurred
for our benefit, and only indirectly for the benefit of our subsidiary that
provided the guarantee, the obligations of the applicable guarantor were
incurred for less than fair consideration.
WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL
Upon a change of control event, we would be required to offer to purchase
the notes in cash at a price equal to 101% of their accreted value or principal
amount at maturity, plus accrued and unpaid interest, if any. The terms of the
notes may not protect you if we undergo a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction that may adversely
affect you unless the transaction is included in the definition of a change of
control.
19
<PAGE> 24
A change of control under the terms of the notes is likely to constitute an
event of default under the Nortel financing. If this occurs, then Nortel or
other lenders pursuant to the Nortel financing may declare their debt
immediately due and payable. Since the guarantees of our subsidiaries are
subordinate in right of payment to the Nortel financing, our subsidiary
guarantors would first be obligated to pay any Nortel debt declared immediately
due and payable before repurchasing any notes. The same could be true of any
future debt incurred by our subsidiaries pursuant to credit facilities with
banks or other institutional lenders. We cannot assure you that we will have the
financial resources necessary to repurchase the notes and satisfy other payment
obligations that could be triggered upon a change of control. If we do not have
sufficient financial resources to effect a change of control offer, we would be
required to seek additional financing from outside sources to repurchase the
notes. We cannot assure you that financing would be available to us on
satisfactory terms.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE
RESALE OF THESE NOTES
The notes are a new issue of securities for which there is currently no
trading market. We have applied for listing of the notes on the New York Stock
Exchange, however, we cannot guarantee that the notes will qualify for listing.
We cannot assure you that a market for the notes will develop in the future or
that the market will have sufficient liquidity to enable resale of the notes. In
addition, we cannot guarantee the price at which holders might sell their notes.
YOU MAY SUFFER ADVERSE CONSEQUENCES IN A BANKRUPTCY CASE BECAUSE THESE
NOTES ARE BEING ISSUED AT A DISCOUNT FROM THEIR PRINCIPAL AMOUNT
In the event Alamosa commences a bankruptcy case, your claim as a holder of
these notes may be limited to an amount that equals the total of the initial
offering price and the portion of the original issue discount which is not
deemed to constitute "unmatured interest" under the Bankruptcy Code. Any portion
of the original issue discount that we have not amortized as of the date of a
bankruptcy filing is considered "unmatured interest." In addition, to the extent
that the Bankruptcy Code differs from the Internal Revenue Code in determining
the method of amortization of the original issue discount, you may realize
taxable gain or loss on payment of a claim in bankruptcy.
20
<PAGE> 25
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 8.
21
<PAGE> 26
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
FOR THE PERIOD FROM JULY 16, 1998 PERIOD
(INCEPTION) THROUGH DECEMBER 31, 1998 ENDED SEPTEMBER 30, 1999
------------------------------------- ------------------------
<S> <C> <C>
Ratio of earnings to fixed charges....... -- --
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings or loss before income taxes and extraordinary
items and fixed charges. Fixed charges are the sum of (1) interest costs, (2)
amortization of deferred financing costs and (3) one-third of operating lease
rental expense (deemed to be interest). Earnings were inadequate to cover fixed
charges by $923,822 and $18,341,790 for the period from July 16, 1998
(Inception) through December 31, 1998 and the nine-month period ended September
30, 1999.
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the
senior discount notes will be approximately $151 million. We believe that the
proceeds from this offering will not be needed to fund our current business
plan. We will use a portion of the proceeds of this offering of the notes to
prepay $75.0 million of indebtedness outstanding under the Nortel credit
facility. We may decide to use the remaining proceeds of the 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 this offering for these
purposes, we may decide to:
- prepay additional debt outstanding under the Nortel credit facility, or
- avoid drawing additional amounts under the Nortel credit facility.
We entered into the $123.0 million Nortel credit facility effective June
10, 1999. We have since entered into a commitment letter with Nortel to increase
the credit facility to $250.0 million effective as of the closing of our initial
public offering of common stock. As of December 31, 1999, we had borrowed $71.9
million under the facility. This facility is used to purchase equipment from
Nortel, to fund the build-out of our portion of the Sprint PCS network and to
fund costs associated with the financing.
The interest rate under the amended 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%. The interest rate under this facility was
LIBOR + 3.5%, or 9.5%, at December 31, 1999. The facility matures 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 facility matures on the sixth
anniversary of the closing date.
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. We do not have plans to make
any material acquisitions at this time.
Pending these uses, we expect to invest the net proceeds from this offering
in short-term investment grade securities, which will earn interest.
22
<PAGE> 27
CAPITALIZATION
The following table shows our cash and cash equivalents, short term debt
and capitalization:
- as of September 30, 1999; and
- as adjusted to reflect (1) the sale in our initial public offering of
10,714,000 shares of common stock at an initial offering price of $14.00
per share, the midpoint of the range on the cover of the common stock
prospectus, less underwriting discounts and commissions and estimated
offering expenses of $11.1 million, (2) the issuance of an aggregate
principal amount at maturity of $ million in senior discount notes
with estimated gross proceeds of $156.0 million, less underwriting
discounts and commissions and estimated offering expenses of $5.0 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
ACTUAL(1) ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 7,454 $237,587
======== ========
Short-term debt
Notes payable............................................. $ 144 $ 144
Long-term debt:
Nortel financing.......................................... 59,678 --
Senior discount notes..................................... -- 156,000
Other notes payable....................................... 209 209
Capital lease obligations(2).............................. 854 854
-------- --------
Total long-term debt...................................... 60,741 157,063
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; 48,500,000 shares outstanding, actual;
59,214,000 shares outstanding, as adjusted............. 485 592
Additional paid-in capital................................ 35,709 174,453
Unearned compensation..................................... (4,372) (4,372)
Accumulated deficit....................................... (18,612) (18,612)
-------- --------
Total stockholders' equity (deficit)................... 13,210 152,061
-------- --------
Total capitalization.............................. $ 74,095 $309,268
======== ========
</TABLE>
- ---------------
(1) Reflects the reorganization as if it had occurred upon the inception of
Alamosa PCS, LLC.
(2) Includes current maturities.
23
<PAGE> 28
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data," "Per Share Data," "Selected 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 PERIOD JULY 16, FOR THE PERIOD JULY 16, FOR THE NINE-MONTH FOR THE PERIOD JULY 16,
1998 (INCEPTION) 1998 (INCEPTION) PERIOD ENDED 1998 (INCEPTION)
THROUGH DECEMBER 31, THROUGH SEPTEMBER 30, SEPTEMBER 30, THROUGH SEPTEMBER 30,
1998 1998 1999 1999
----------------------- ----------------------- ------------------ -----------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA, SUBSCRIBER DATA
AND RATIO OF EARNINGS TO FIXED CHARGES)
<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)
SELECTED OTHER DATA:
EBITDA(3)............. (956) (401) (16,311) (17,267)
Adjusted EBITDA(3).... (956) (401) (9,489) (10,445)
Ratio of earnings to
fixed changes(4)... -- -- -- --
Number of
subscribers........ -- -- 9,850 9,850
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
-----------------------
AS OF AS
DECEMBER 31, 1998 ACTUAL ADJUSTED(5)
----------------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $13,529 $ 7,454 $237,587
Construction in progress............................ 1,979 28,940 28,940
Property and equipment, net......................... 114 36,930 36,930
Total assets........................................ 15,674 88,412 323,585
Short-term debt(6).................................. 44 165 165
Long-term debt...................................... 708(7) 60,720(8) 157,042
Total liabilities................................... 1,598 75,202 171,524
Equity.............................................. 14,076 13,210 152,061
</TABLE>
24
<PAGE> 29
- ---------------
(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) Included in other financial data are EBITDA and Adjusted EBITDA amounts.
EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Adjusted EBITDA represents earnings before interest, income
taxes, depreciation and amortization and equity participation compensation
expense. EBITDA and Adjusted EBITDA are used by management and certain
investors as indicators of a company's historical ability to service debt.
Management believes that increases in EBITDA and Adjusted EBITDA are
indicators of improved ability to service existing debt, to sustain
potential future increases in debt and to satisfy capital requirements.
However, EBITDA and Adjusted EBITDA are not intended to represent cash flows
for the period, nor have they been presented as alternatives to either
operating income, as determined by generally accepted accounting principles,
as indicators of operating performance or cash flows from operating,
investing and financing activities, as determined by generally accepted
accounting principles, and are thus susceptible to varying calculations.
EBITDA and Adjusted EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as earnings or loss before income taxes and
extraordinary items and fixed charges. Fixed charges are the sum of (1)
interest costs, (2) amortization of deferred financing costs, and (3)
one-third of operating lease rental expense (deemed to be interest).
Earnings were inadequate to cover fixed charges by 923,822 and 18,341,790
for the period from July 16, 1998 (Inception) to December 31, 1998 and the
nine-month period ended September 30, 1999.
(5) As adjusted Balance Sheet Data reflects (a) the sale in our initial public
offering of 10,714,000 shares of common stock at an initial offering price
of $14.00 per share, the midpoint of the range on the cover of the common
stock prospectus, less underwriting discounts and commissions and estimated
offering expenses of $11.1 million, (b) the issuance of an aggregate
principal amount at maturity of $ million in senior discount notes with
estimated gross proceeds of $156.0 million, less underwriting discounts and
commissions and estimated offering expenses of $5.0 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.
(6) 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.
(7) Reflects capital lease obligations of $708,074.
(8) 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.
25
<PAGE> 30
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
$75.1 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.
26
<PAGE> 31
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 $704,341 related to the
start up of our business and the development of our systems. In addition, we
incurred $167,246 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.
27
<PAGE> 32
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
$110.29 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 $54,000 and amounts retained by Sprint PCS for customer service of
$212,000, 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.
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<PAGE> 33
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 Other
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 our initial public offering of common stock. 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.
Our financing with Nortel will be used to purchase equipment, pay interest
and cover approved working capital costs. Under the terms of the amended Nortel
financing, we are required to prepay $75.0 million of Nortel indebtedness with
the proceeds of this offering. For more information on the financing facility,
see "Description of Other Indebtedness -- The Nortel Credit Facility."
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<PAGE> 34
The senior discount notes will be issued in an aggregate principal amount
at maturity and with an interest rate sufficient to generate gross proceeds of
approximately $156 million. The aggregate accreted value of the senior discount
notes will increase from approximately $156 million at issuance at a rate of
% compounded semi-annually to a final accreted value equal to their
aggregate principal amount at maturity of $ million at the end of year five.
After year five, we are required to pay cash interest on the senior discount
notes. The senior discount notes will be unsecured and will be guaranteed by our
existing and our future subsidiaries.
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 Nortel
credit facility.
We estimate that we will require approximately $340 million to complete the
current build-out plan and fund working capital losses through the year 2001.
The following table 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 and remaining funds available
for costs and expenses not included in our current plan:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES:
Cash on hand at January 1, 2000............................. $ 6.2
Gross proceeds of our initial public offering of common
stock..................................................... 150.0
Gross proceeds of this offering of senior discount notes.... 156.0
Proceeds from the Nortel financing -- cash proceeds......... 152.5
------
Total sources..................................... $464.7
======
USES:
Capital expenditures and microwave relocation(1)............ $251.4
Working capital needs and cash operating gains
(losses)(2)............................................... 21.9
Debt service(3)............................................. 32.9
Prepayment of Nortel loans.................................. 75.0
Fees and expenses(4)........................................ 16.1
------
Total uses........................................ 397.3
Cash on hand at December 31, 2002................. 67.4
------
Total uses and cash on hand at December 31,
2002........................................ $464.7
======
</TABLE>
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<PAGE> 35
- ---------------
(1) These capital expenditures include expenditures related to an
accelerated and more expansive build-out plan that may be used by
Alamosa if this offering is completed.
(2) We expect to incur losses in earnings before interest, taxes,
depreciation and amortization in excess of $61 million but expect
to offset a portion of these losses in the period presented.
(3) Debt service payments are composed of:
<TABLE>
<S> <C>
Cash interest payment....................................... $19.7
Payment of equipment financing debt principal............... 11.3
Payment of capitalized interest equipment, debt principal
and origination fee....................................... 1.9
-----
$32.9
</TABLE>
(4) Fees and expenses include estimated offering expenses and
underwriting discounts and commissions for this notes offering and
the initial public offering of our common stock.
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 Other 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.
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<PAGE> 36
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.
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 national
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.................................. --
Fixed interest rate.................................. --
Principal payments................................... -- -- -- -- -- --
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 Effective Interest Rate...................... 9.3% 9.3% 9.3% 9.3% 9.3% 9.3% --
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.
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<PAGE> 37
(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.
(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 5.5% for all periods
presented.
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.
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<PAGE> 38
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 our initial public offering of common stock,
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> 39
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> 40
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."
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<PAGE> 41
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.
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> 42
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 19.3 million residents and the
growth rates in these markets was approximately 2.5% 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.
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
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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 our initial public offering of common
stock, 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 current business plan. 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 this offering of senior
discount notes will not be needed to fund required capital expenditures, working
capital requirements, operating losses and other cash needs of our business. 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.
- 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.
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- 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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]MARKETS AND NETWORK BUILD-OUT PLAN
The following table lists the location, actual or projected launch date for
network coverage, frequency, megahertz of spectrum, estimated total residents,
estimated covered residents 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. As of
December 31, 1999, approximately 31,850 Sprint PCS subscribers were based in our
territory.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF TOTAL COVERED GROWTH
DESCRIPTION NO.(1) DATE(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4) RATE(5)
- ----------- ------ ------------ --------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Laredo, TX................ 242 June 1999 A 30 223,000 185,000 4.0%
El Paso, TX............... 128 July 1999 D/E 20 787,000 652,000 2.0%
Las Cruces, NM............ 244 Aug 1999 D 10 251,000 209,000 2.5%
Amarillo, TX.............. 013 Aug 1999 B 30 405,000 255,000 0.7%
Lubbock, TX............... 264 Aug 1999 B 30 400,000 251,000 0.2%
Midland, TX............... 296 Aug 1999 B 30 127,000 80,000 1.4%
Odessa, TX................ 327 Aug 1999 B 30 221,000 135,000 0.3%
Albuquerque, NM........... 008 Oct 1999 D 10 812,000 544,000 1.7%
Santa Fe, NM.............. 407 Oct 1999 D 10 213,000 142,000 2.1%
San Angelo, TX............ 400 Nov 1999 B 30 164,000 110,000 0.5%
Abilene, TX............... 003 Nov 1999 B 30 258,000 172,000 0.2%
--------- ---------
SUBTOTAL........ 3,861,000 2,735,000
Del Rio/Eagle Pass, TX.... 121 2nd Qtr 2000 A 30 121,000 79,000 1.9%
--------- ---------
SUBTOTAL........ 3,982,000 2,814,000
Flagstaff, AZ............. 144 3rd Qtr 2000 B 30 118,000 77,000 2.1%
Prescott, AZ.............. 362 3rd Qtr 2000 B 30 157,000 103,000 4.0%
Grand Junction, CO........ 168 3rd Qtr 2000 A 30 242,000 145,000 2.7%
Pueblo, CO................ 366 3rd Qtr 2000 A 30 304,000 184,000 1.4%
--------- ---------
SUBTOTAL........ 4,803,000 3,323,000
Appleton/Oshkosh, WI...... 018 4th Qtr 2000 A 30 443,000 303,000 1.1%
Fond du Lac, WI........... 148 4th Qtr 2000 A 30 96,000 65,000 0.6%
Green Bay, WI............. 173 4th Qtr 2000 A 30 345,000 235,000 1.1%
Manitowoc, WI............. 276 4th Qtr 2000 A 30 83,000 56,000 0.3%
Sheboygan, WI............. 417 4th Qtr 2000 A 30 111,000 76,000 0.7%
Milwaukee, WI(6).......... 297 4th Qtr 2000 A 30 85,000 59,000 1.5%
Colorado Springs, CO(6)... 089 4th Qtr 2000 A 30 17,000 17,000 0.1%
--------- ---------
SUBTOTAL........ 5,983,000 4,134,000
Eau Claire, WI............ 123 2nd Qtr 2001 A 30 192,000 120,000 0.6%
El Centro/Calexico, CA.... 124 2nd Qtr 2001 A 30 151,000 101,000 3.4%
La Crosse, WI/Winona,
MN...................... 234 2nd Qtr 2001 A 30 312,000 153,000 0.6%
Las Vegas, NV(6).......... 245 2nd Qtr 2001 A 30 139,000 83,000 4.1%
Madison, WI(6)............ 272 2nd Qtr 2001 A 30 147,000 106,000 1.5%
Minneapolis/St. Paul,
MN(6)................... 298 2nd Qtr 2001 A 30 84,000 52,000 1.1%
Phoenix, AZ(6)............ 347 2nd Qtr 2001 B 30 7,000 7,000 0.1%
Sierra Vista/Douglas,
AZ...................... 420 2nd Qtr 2001 B 30 115,000 92,000 1.7%
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED ESTIMATED POPULATION
BTA LAUNCH MHZ OF TOTAL COVERED GROWTH
DESCRIPTION NO.(1) DATE(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4) RATE(5)
- ----------- ------ ------------ --------- -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Wausau/Rhinelander, WI.... 466 2nd Qtr 2001 A 30 244,000 102,000 1.1%
Yuma, AZ.................. 486 2nd Qtr 2001 B 30 137,000 117,000 2.6%
Stevens Point/Marshfield/
Wisconsin Rapids, WI.... 432 2nd Qtr 2001 A 30 214,000 120,000 0.6%
Big Spring, TX............ 040 2nd Qtr 2001 B 30 34,000 28,000 -0.1%
Clovis, NM................ 087 2nd Qtr 2001 B 30 77,000 55,000 0.9%
Hobbs, NM................. 191 2nd Qtr 2001 B 30 56,000 42,000 0.1%
Farmington, NM/ Durango,
CO...................... 139 2nd Qtr 2001 D 10 200,000 82,000 2.2%
Tucson, AZ(6)............. 447 2nd Qtr 2001 B 30 5,000 5,000 0.0%
San Diego, CA(6).......... 402 2nd Qtr 2001 A 30 5,000 5,000 0.0%
--------- ---------
SUBTOTAL........ 8,102,000 5,404,000
Roswell, NM............... 386 3rd Qtr 2001 D 10 81,000 26,000 1.5%
Carlsbad, NM.............. 068 3rd Qtr 2001 D 10 55,000 18,000 1.2%
Gallup, NM................ 162 3rd Qtr 2001 D 10 139,000 46,000 1.3%
--------- --------- -----
TOTAL........... 8,377,000 5,494,000 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) Population growth rate represents the average annual growth rate during the
period from 1990 to 1998, based on U.S. Census Bureau data.
(6) Total residents for these markets reflect only those residents contained in
our territory, not the total residents 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 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
agreement we have committed to purchase a specified amount of equipment and
services from Nortel. Nortel finances these purchases pursuant to the Nortel
credit facility described in "Description of Other 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 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 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
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rights in a site are derived from a lease with a third party, the terms of our
agreement with Specialty, including the lease term, are subordinate to the terms
of that lease.
AGREEMENTS WITH 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.
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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 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
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- service features such as voicemail, caller ID, call waiting, call
forwarding and three-way calling.
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 communications and
time division multiple access systems. Accordingly, a subscriber of a system
that
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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 have code division multiple access handsets that support either the
time division multiple access or global system for mobile communications
technologies.
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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 20MHz licensed to
Sprint PCS in El Paso. Among other things, increased spectrum allows for higher
call volume and fewer dropped calls. Cellular service providers have licenses
covering 25 MHz of spectrum, and three competing 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.
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
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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.
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 181 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
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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 249 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
Center Laredo, Texas 5,000 Five years beginning on
February 1, 1999 and ending
on January 31, 2004 with two
five-year renewal options
Retail Store and Regional
Office Space Lubbock, Texas 8,000 15 years beginning on July 1,
1999
Retail Store, Switching
Center and Office Space El Paso, Texas 11,970 Ten years and two months
beginning on February 1, 1999
and ending on March 31, 2009
Retail Store and Office Space Albuquerque, New Mexico 9,000 Seven years beginning on July
1, 1999 and ending on June
30, 2006
Retail Store, Switching
Center and Corporate
Office Space Lubbock, Texas 11,011 Ten years beginning on June
1, 1999
Retail Store and Office Space Abilene, Texas 3,200 Five years and five months
beginning on October 15, 1999
and ending on March 14, 2005
with one five year renewal
option
Retail Store and Office Space Amarillo, Texas 6,840 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
Retail Store and Office Space Las Cruces, New Mexico 1,020 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
Retail Store and Office Space Midland, Texas 3,628 Five years beginning on May
1, 1999 and ending on April
30, 2004 with one five year
renewal option
Retail Store and Office Space Odessa, Texas 3,000 Five years beginning on June
1, 1999 and ending on May 31,
2004 with one five year
renewal option
</TABLE>
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<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FEET LEASE TERM
- ------- -------- ----------- ----------
<S> <C> <C> <C>
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 El Paso, 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.
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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.
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 90 days to determine whether we will
build-out the proposed area. If we do not exercise this right, Sprint PCS can
build-out the territory or permit a third party to do so.
NETWORK BUILD-OUT
The management agreement specifies the terms of the Sprint PCS affiliation,
including the required network build-out plan. We have agreed to cover a
specified percentage of the population within each of the markets which make up
our territory by specified dates. Our current build-out plan will satisfy the
network build-out requirements set forth in the management agreement. If
technically feasible and commercially reasonable, we have agreed to provide for
a seamless handoff of a call initiated in our territory to a neighboring Sprint
PCS network. The management agreement requires us to reimburse Sprint PCS
one-half of the microwave clearing costs for our territory.
PRODUCTS AND SERVICES
The management agreement identifies the products and services that we can
offer in our territory. These services include, but are not limited to, Sprint
PCS consumer and business products and services available as of the date of the
agreement, or as modified by Sprint PCS. We are allowed to sell wireless
products and services that are not Sprint PCS products and services if those
additional products and services do not cause distribution channel conflicts or,
in Sprint PCS's sole determination, consumer confusion with Sprint PCS's
products and services. We also cannot sell non-Sprint PCS products and services
if it would hamper our build-out of the network. 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.
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NATIONAL SALES PROGRAMS
We must participate in the Sprint PCS sales programs for national sales to
customers, and will pay the expenses and receive the compensation from Sprint
PCS sales to national accounts located in our territory. We must use Sprint's
long distance service, which we can buy at the best prices offered to comparably
situated Sprint customers.
SERVICE PRICING, ROAMING AND FEES
We must offer Sprint PCS subscriber pricing plans designated for regional
or national offerings, including Sprint PCS's "Free and Clear" plans. We are
permitted to establish our own local price plans for Sprint PCS's products and
services offered only in our territory, subject to Sprint PCS's approval. We are
entitled to receive a weekly fee from Sprint PCS equal to 92% of "collected
revenues" for all obligations under the management agreement, adjusted by the
cost of customer services provided by Sprint PCS. "Collected revenues" include
revenue from Sprint PCS subscribers based in our territory and inbound non-
Sprint PCS roaming. Sprint PCS will retain 8% of the collected revenues.
Outbound non-Sprint PCS roaming revenue, inbound and outbound Sprint PCS roaming
fees, proceeds from the sales of handsets and accessories, proceeds from sales
not in the ordinary course of business, 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.
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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.
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.
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TERMINATION OF MANAGEMENT AGREEMENT
The management agreement can be terminated as a result of the following
events:
- termination of Sprint PCS's spectrum licenses;
- an uncured breach under the management agreement;
- bankruptcy of a party to the management agreement;
- the management agreement not complying with any applicable law in any
material respect; or
- the termination of either of the trademark and service mark license
agreements.
The termination or non-renewal of the management agreement triggers some of
our rights and those of Sprint PCS. The right of either party to require the
other to purchase or sell the operating assets is discussed below.
If we have the right to terminate the management agreement because of an
event of termination caused by Sprint PCS, generally we may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our portion of the Sprint PCS network for an amount equal
to at least 80% of our Entire Business Value as defined below;
- in all areas in our territory where Sprint PCS is the licensee for 20 MHz
or more of the spectrum on the date we terminate the management
agreement, require Sprint PCS to assign to us, subject to governmental
approval, up to 10 MHz of licensed spectrum for an amount equal to the
greater of 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.
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NON-RENEWAL
If Sprint PCS gives us timely notice that it does not intend to renew the
management agreement, we may:
- require Sprint PCS to purchase all of our operating assets used in
connection with our portion of the Sprint PCS network for an amount equal
to 80% of our Entire Business Value; or
- in all areas in our territory where Sprint PCS is the licensee for 20 MHz
or more of the spectrum on the date we terminate the management
agreement, require Sprint PCS to assign to us, subject to governmental
approval, up to 10 MHz of licensed spectrum for an amount equal to the
greater of 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.
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.
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INDEMNIFICATION
We have agreed to indemnify Sprint PCS and its directors, employees and
agents and related parties of Sprint PCS and their directors, employees and
agents against any and all claims against any of the foregoing arising from our
violation of any law, a breach by us of any representation, warranty or covenant
contained in the management agreement or any other agreement between us and
Sprint PCS, our ownership of the operating assets or the actions or the failure
to act of anyone employed or hired by us in the performance of any work under
this agreement, except we will not indemnify Sprint PCS for any claims arising
solely from the negligence or willful misconduct of Sprint PCS. Sprint PCS has
agreed to indemnify us and our directors, employees and agents against all
claims against any of the foregoing arising from Sprint PCS's violation of any
law and from Sprint PCS's breach of any representation, warranty or covenant
contained in this agreement or any other agreement between Sprint PCS and us,
except Sprint PCS will not indemnify us for any claims arising solely from our
negligence or willful misconduct.
DISPUTE RESOLUTION
If the parties cannot resolve any dispute between themselves and the
management agreement itself does not provide a remedy, then either party may
require that any dispute be resolved by a binding arbitration.
THE SERVICES AGREEMENT
The services agreement outlines various back office services provided by
Sprint PCS and available to us for an adjustment to our 92% fee. Sprint PCS can
change the amount of adjustment for any or all of the services one time in any
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.
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THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS
We have non-transferable licenses to use, at no additional cost to us, the
Sprint and Sprint PCS brand names and "diamond" symbol, and several other U.S.
trademarks and service marks such as "The Clear Alternative to Cellular" and
"Clear Across the Nation" on Sprint PCS products and services. We believe that
the Sprint and Sprint PCS brand names and symbols enjoy a high degree of
awareness, providing us an immediate benefit in the market place. Our use of the
licensed marks is subject to our adherence to quality standards determined by
Sprint and Sprint PCS and use of the licensed marks in a manner which would not
reflect adversely on the image of quality symbolized by the licensed marks. We
have agreed to promptly notify Sprint and Sprint PCS of any infringement of any
of the licensed marks within our territory of which we become aware and to
provide assistance to Sprint and Sprint PCS in connection with Sprint's and
Sprint PCS's enforcement of their respective rights. We have agreed with Sprint
and Sprint PCS to indemnify each other for losses incurred in connection with a
material breach of the trademark license agreements. In addition, we have agreed
to indemnify Sprint and Sprint PCS from any loss suffered by reason of our use
of the licensed marks or marketing, promotion, advertisement, distribution,
lease or sale of any Sprint or Sprint PCS products and services other than
losses arising solely out of our use of the licensed marks in compliance with
certain guidelines.
Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS's abandonment of the
licensed marks or if Sprint or Sprint PCS files for bankruptcy or the management
agreement is terminated. However, Sprint and Sprint PCS can assign their
interests in the licensed marks to a third party if that third party agrees to
be bound by the terms of the trademark and service mark license agreements.
CONSENT AND AGREEMENT FOR THE BENEFIT OF THE HOLDER OF NORTEL FINANCING
Sprint PCS has entered into a consent and agreement with Nortel, which has
been acknowledged by Alamosa, that modifies Sprint PCS's rights and remedies
under our 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 Other 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;
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- 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.
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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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.......................... 38 Director
Jimmy R. White............................ 60 Director
</TABLE>
David E. Sharbutt. Mr. Sharbutt has been our Chairman and a director since
Alamosa was founded in July 1998. Mr. Sharbutt was named our Chief Executive
Officer 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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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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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.
Following the closing of our initial public offering of common stock,
pursuant to the 1999 Long Term Incentive Plan, each of our directors who is an
independent director because he or she is not an officer or employee of Alamosa
will automatically receive an initial option to purchase 28,000 shares of our
common stock upon the closing of our initial public offering of common stock or
on the date he or she becomes one of our directors. 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 the initial public
offering of our common stock and this notes offering. The initial option becomes
exercisable with respect to 100% of the shares covered thereby six months after
the date of grant and will expire on the tenth anniversary of the date of grant.
In addition to the initial option, each independent director will receive a
grant pursuant to our 1999 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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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 is a member of Alamo IV LLC and he also serves as Vice President of Alamo
IV LLC. Thomas Hyde, who is one of our directors, along with Scotty Hart and
Jimmy White, serve as executive officers of Alamo IV LLC.
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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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 $302,200 for fiscal 1999, representing a
salary of $175,000, a bonus of $120,000 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)
Michael R. Budagher Schuyler B. Marshall
Ray M. Clapp, Jr. Tom M. Phelps
Scotty Hart Reagan W. Silber
Thomas Hyde Jimmy R. White
</TABLE>
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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 $120,000 -- 1,697,500(3) $ 7,200(4)
1998 $ 40,385 $ 13,846 -- --(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 $ 60,000 -- -- $ 4,800(4)
1998 14,723 $ 0 -- 145,500(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 is $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 $9,341,100 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 exchanged for 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 $1.4238 for the third series of these common stock options.
One-third of each option series is fully vested and exercisable and another
one-third of each series will vest on each of October 29, 2000 and October
29, 2001.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers in fiscal year 1999. None of the named executive
officers received stock appreciation rights, or SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION TERM(1)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION -----------------------------------
NAME OPTIONS FISCAL YEAR (PER SHARE) DATE 0%($) 5%($) 10%($)
- ---- ---------- ------------ -------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Sharbutt.... 242,500(2) 5% $1.15 12/9/2009 3,116,125 5,251,222 8,526,881
1,455,000 30% initial public 12/9/2009 -- 12,810,584 32,465,534
offering price
Jerry W. Brantley.... 242,500(3) 5% $1.15 12/9/2009 3,116,125 5,251,222 8,526,881
1,455,000(3) 30% initial public 12/9/2009 -- 12,810,584 32,465,534
offering price
Kendall W. Cowan..... 1,455,000 30% initial public 12/9/2009 -- 12,810,584 32,464,534
offering price
</TABLE>
- ---------------
(1) Based on an assumed initial public offering price of $14.00.
(2) In connection with these options, we will record compensation expense
totaling $3,116,125.
(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 $9,341,100 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.
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 an assumed initial public offering
price of $14.00, 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 $3,116,125/$0
Jerry W. Brantley....... -- -- 242,500/1,455,000 $3,116,125/$0
Kendall W. Cowan........ -- -- --/1,455,000 --/$0
W. Don Stull............ -- -- 48,500/97,000 $617,549/$1,235,098
</TABLE>
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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 our initial
public offering of common stock to purchase 6,028,000 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 485,000 shares of
our common stock with an exercise price of $1.15 per share to two of our
executive officers.
The option plan will be administered by our board of directors or by a
stock option plan committee appointed by our board of directors, which will be
authorized, subject to the provisions of the option plan, to grant awards and
establish rules and regulations as it deems necessary for the proper
administration of the option plan and to make whatever determinations and
interpretations it deems necessary or advisable.
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 or unless 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 a 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 employment agreement with W. Don Stull,
dated October 29, 1998. This agreement has a three-year term. We are currently
negotiating an amended and restated employment agreement with Mr. 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 the
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 November 30, 1999 and assumes (1) that each member of
Alamosa PCS, LLC has contributed its membership interest to Alamosa in exchange
for its proportional number of shares of Alamosa common stock immediately prior
to completion of our initial public offering of common stock and (2) the
proposed dissolution of Alamo IV, LLC has occurred, with respect to:
- each person who, to our knowledge, is the beneficial owner of 5% or more
of the outstanding common stock;
- each of the directors;
- each of the executive officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF
PERCENTAGE OF SHARES PERCENTAGE OF
NUMBER OF SHARES OWNERSHIP PRIOR PURCHASED OWNERSHIP AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) TO OFFERING IN OUR IPO(3) OFFERINGS(4)
- ------------------- --------------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Rosewood Telecommunications, L.L.C. ..... 9,725,000 20.1% 16.4%
100 Crescent Court, Suite 1700
Dallas, TX 75201
Caroline Hunt Trust Estate(5)............ 9,725,000 20.1 16.4
South Plains Advanced Communications &
Electronics, Inc.(5)................... 8,652,085 17.8 14.6
Post Office Box 1379
Lubbock, TX 79408
West Texas PCS, LLC...................... 7,072,915 14.6 11.9
3702 Holland Avenue #2
Dallas, TX 75219
Taylor Telecommunications, Inc.(6)....... 5,100,000 10.5 8.6
9796 N. Interstate 20
Merkel, TX 79536
Tregan International Corp. .............. 3,000,000 6.2 5.1
2711 North Haskell Avenue
5th Floor LB 32
Dallas, TX 75204
Trevor Pearlman(7)....................... 3,000,000 6.2 5.1
Plateau Telecommunications,
Incorporated(5)........................ 3,000,000 6.2 5.1
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.(6)(8).............. 2,500,000 5.2 4.2
1807 Main Street
Tahoka, TX 79373
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF
PERCENTAGE OF SHARES PERCENTAGE OF
NUMBER OF SHARES OWNERSHIP PRIOR PURCHASED OWNERSHIP AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED(2) TO OFFERING IN OUR IPO(3) OFFERINGS(4)
- ------------------- --------------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Wes-Tex Telecommunications, Inc.(6)(9)... 2,500,000 5.2 4.2
1500 West Business 20
Stanton, TX 79782
DIRECTORS AND EXECUTIVE OFFICERS:
David E. Sharbutt(10).................... 1,177,461 2.4 2.0
Jerry W. Brantley(11).................... 242,500 * *
Kendall W. Cowan......................... -- -- --
W. Don Stull(12)......................... 146,147 * *
Michael R. Budagher(13).................. 7,072,915 14.6 11.9
Ray M. Clapp............................. -- -- --
Schuyler B. Marshall(14)................. 9,725,000 20.1 16.4
Scotty Hart(15).......................... 8,652,085 17.8 14.6
Thomas Hyde(16).......................... 5,100,000 10.5 8.6
Tom M. Phelps(17)........................ 3,000,000 6.2 5.1
Reagan W. Silber(18)..................... 3,000,000 6.2 5.1
Jimmy R. White(19)....................... 2,750,000 5.7 4.6
All Directors and Executive Officers as a
Group (12 persons)..................... 30,607,608 63.1 51.3
</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) As part of the initial public offering of our common stock, the
underwriters have agreed to reserve a maximum of 10% of the shares of
common stock to be sold in the initial public offering for sale to our
current stockholders at a price per share equal to the public offering
price less the underwriting discount.
(4) Assumes no exercise of the underwriters' over-allotment option pursuant to
our initial public offering of common stock and no purchase in the offering
of any additional shares by existing stockholders.
(5) 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 Rosewood Financial, Inc. Rosewood Financial, Inc. owns 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.
(6) 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.
(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.
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<PAGE> 83
(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.
(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 of Mr. Wilson
is the same as the address for Wes-Tex Telecommunications, Inc.
(10) Consists of 48,823 shares held in Mr. Sharbutt's 401(k) plan, options to
purchase 242,500 shares 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 options to purchase 242,500 shares exercisable within 60 days.
(12) Consists of 73,235 shares held individually by Mr. Stull, 24,412 shares
held in Mr. Stull's 401(k) plan and options to purchase 48,500 shares
exercisable within 60 days.
(13) Consists of shares beneficially owned by West Texas PCS, LLC. Mr. Budagher
is a Manager of West Texas PCS, LLC and is a beneficial owner of these
shares. Mr. Budagher's address is the same as the address for West Texas
PCS, LLC.
(14) Consists of shares beneficially owned by Rosewood Telecommunications,
L.L.C. Mr. Marshall is sole manager of Rosewood Telecommunications, L.L.C.
and is a beneficial owner of these shares. The address for Mr. Marshall is
the same as the address for Rosewood Telecommunications, L.L.C.
(15) Consists of shares beneficially owned by South Plains Advanced
Communications & Electronics, Inc. (SPACE). Mr. Hart is General Manager of
SPACE and may be considered the beneficial owner of these shares. Mr. Hart
disclaims beneficial ownership of these shares. Mr. Hart's address is the
same as the address for SPACE.
(16) Consists of shares beneficially owned by Taylor Telecommunications, Inc.
Mr. Hyde is a Manager of Taylor Telecommunications, Inc. and may be
considered the beneficial owner of these shares. 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 shares beneficially owned by Plateau Telecommunications,
Incorporated. Mr. Phelps is the Executive Vice President of Plateau
Telecommunications, Incorporated and may be considered the beneficial owner
of these shares. Mr. Phelps disclaims beneficial ownership of these shares.
The address for Mr. Phelps is the same as the address for Plateau
Telecommunications, Incorporated.
(18) Consists of 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 these shares. Mr. Silber's
address is the same as the address for Tregan International Corp.
(19) Consists of shares beneficially owned by XIT Telecommunication &
Technology, Inc. Mr. White is the General Manager of XIT Telecommunication
& Technology, Inc. and may be considered the beneficial owner of these
shares. Mr. White disclaims beneficial ownership of these shares. Mr.
White's address is the same as the address for XIT Telecommunication &
Technology, Inc.
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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. The members of Alamo
IV LLC plan to dissolve Alamo IV LLC and distribute Alamo IV's membership
interest in Alamosa PCS, LLC to Alamo IV's members.
The obligations to commit capital and the other regulations under the
formation documents will be eliminated when we reorganize from a limited
liability company to a holding company structure prior to closing our initial
public offering of common stock.
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 our initial public offering of common stock.
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 $395,000.
- 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. Mr. Howard is also 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 OUR INITIAL PUBLIC OFFERING TO CURRENT STOCKHOLDERS
As part of the sale of our common stock in our initial public offering, the
underwriters agreed to reserve a maximum of 10% of the shares of our common
stock to be sold in that offering for sale to our current stockholders at a
price per share equal to the public offering price less the underwriting
discount. The underwriters will not be entitled to any discount or commission on
these shares and the proceeds to us will be the same as if the shares were sold
to the general public. However, the number of shares of common stock available
for sale to the general public will be reduced to the extent of sales of shares
to our current stockholders.
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% owned subsidiary, Alamosa Wisconsin Limited Partnership, a
Wisconsin limited partnership. We expect that Chibardun Telephone Cooperative,
Inc., a rural telephone company in Wisconsin, or one of its affiliates, will own
the remaining 1% of Alamosa 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
[GRAPHIC SHOWING OUR PROPOSED HOLDING COMPANY AND FINANCING STRUCTURE]
Alamosa PCS Holdings, Inc. is the legal entity that is selling the senior
discount notes in this offering and that is selling its common stock in its
initial public offering. Alamosa PCS, Inc. is the legal entity that is the
borrower under the Nortel financing.
Alamosa PCS, Inc. will be a wholly-owned subsidiary of Alamosa PCS
Holdings, Inc. Alamosa PCS, Inc. will hold a 99% limited partnership interest in
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, LP. We expect that Alamosa PCS, Inc. will hold a 98%
limited partnership interest in Alamosa Wisconsin Limited Partnership, Chibardun
will hold a 1% limited partnership interest and Alamosa Wisconsin GP, LLC will
hold a 1% general partnership interest.
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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 1 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 1 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 OTHER 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 the initial public offering of our common stock. 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. We cannot assure you 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. 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
- if the administrative agent terminates one or all of the commitments due
to the occurrence of an event of default under the credit agreement.
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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 this offering of notes 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.
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WARRANTS
We agreed to issue warrants to Nortel, unless, among other options, we
contribute $75.0 million of equity to Alamosa PCS, Inc. and prepay indebtedness
outstanding under the Nortel facility. We will use a portion of the proceeds
from this offering of senior discount notes to prepay enough of the Nortel
financing to prevent the exercise of the 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.
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 the initial public 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.
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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;
- dividends from Alamosa PCS, Inc. to Alamosa PCS Holdings, Inc. 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;
- 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
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- 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, other than
specified 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, with
limited 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.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "we" refer only to Alamosa PCS Holdings, Inc. and not to any of
its subsidiaries.
The Company will issue the Notes under an indenture to be dated as of
, 2000, (the "Indenture") among the Company, the Subsidiary Guarantors
and Norwest Bank Minnesota, N.A., as trustee (the "Trustee"). The Indenture is
governed by the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act.
We urge you to read the Indenture because it, and not this description,
defines your rights as a holder of these Notes. A copy of the proposed form of
Indenture has been filed as an exhibit to the registration statement of which
this prospectus forms a part.
The Company will issue Notes only in fully registered form without coupons,
in denominations of $1,000 and integral multiples of $1,000.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2010. We can issue a maximum of $
million aggregate principal amount at maturity of Notes. The Notes will be
issued at a discount to their aggregate principal amount to generate gross
proceeds to the Company of approximately $156 million. The Notes will accrete in
value at a rate of approximately % per annum, compounded semi-annually, to an
aggregate principal amount of $ million by , 2005. Cash interest will
not accrue on the Notes prior to , 2005. Starting on that date,
interest on the Notes will accrue at the rate of % per annum and will be
payable in cash semi-annually on and of each year, beginning
on , 2005. The Company will pay interest to those persons who were
holders of record on the or immediately preceding each
interest payment date. Interest on the Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from
, 2005. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
RANKING
The Notes will be:
- senior unsecured obligations of the Company;
- equal in ranking ("pari passu") with all existing and future senior debt
of the Company;
- senior in right of payment to all existing and future subordinated debt
of the Company; and
- guaranteed on a senior subordinated unsecured basis by the Subsidiary
Guarantors.
As of December 31, 1999, after giving effect to the Offering and the
application of the net proceeds therefrom, the total outstanding debt of the
Company and the Subsidiary Guarantors, excluding unused commitments made by
lenders, would have been as follows:
$157.0 approximate total outstanding debt of the Company and the
Subsidiary Guarantors, combined
As of that date, none of the Company's debt, after taking the same factors into
account, would have been subordinated to the Notes or the Subsidiary Guarantees.
The Company only has a stockholder's claim in the assets of its
subsidiaries. This stockholders' claim is junior to the claims that creditors of
the Company's subsidiaries have against those subsidiaries. Holders of the Notes
will only be creditors of the Company and of those subsidiaries that are
Subsidiary Guarantors.
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All the operations of the Company are conducted through its subsidiaries.
Therefore, the Company's ability to service its debt, including the Notes, is
dependent upon the earnings of its subsidiaries, and their ability to distribute
those earnings as dividends, loans or other payments to the Company. Certain
laws restrict the ability of the Company's subsidiaries to pay dividends and
make loans and advances to it. In addition, the Credit Facilities may place
restrictions on the ability of the Restricted Subsidiaries to make distributions
to the Company. See "Risk Factors -- Risks Related to Our Substantial Debt -- We
are a holding company and the senior debt of our subsidiary guarantors may
restrict payment on the notes". If the restrictions described above are applied
to subsidiaries that are not Subsidiary Guarantors, then the Company would not
be able to use the earnings of those subsidiaries to make payments on the Notes.
Furthermore, under certain circumstances, bankruptcy "fraudulent conveyance"
laws or other similar laws could invalidate the Subsidiary Guarantees. If this
were to occur, the Company would also be unable to use the earnings of the
Subsidiary Guarantors to the extent they face restrictions on distributing funds
to the Company. Any of the situations described above could make it more
difficult for the Company to service its debt.
The total balance sheet liabilities of the Subsidiary Guarantors, after
giving effect to the Offering and the application of the net proceeds therefrom,
as of December 31, 1999, excluding unused commitments made by lenders, would
have been as follows:
$12.6 approximate total balance sheet liabilities of the Subsidiary
Guarantors
The Subsidiary Guarantors have other liabilities, including contingent
liabilities, that may be significant. As of the date of the Indenture, the
Company will not have any subsidiaries that are not Subsidiary Guarantors. The
Indenture contains limitations on the amount of additional Debt which the
Company and the Restricted Subsidiaries may Incur. However, the amounts of such
Debt could be substantial and may be Incurred either by Subsidiary Guarantors or
by the Company's other subsidiaries.
The Notes are unsecured obligations of the Company and the Subsidiary
Guarantors. Secured Debt of the Company and the Subsidiary Guarantors will be
effectively senior to the Notes to the extent of the value of the assets
securing such Debt.
As of December 31, 1999, after giving effect to the Offering and the
application of the net proceeds therefrom, the Company and the Subsidiary
Guarantors would have had no outstanding Secured Debt.
See "Risk Factors -- Risks Related to Our Substantial Debt -- We are a
holding company and the senior debt of our subsidiary guarantors may restrict
payment on the notes", "-- We may not be able to service our substantial debt or
obtain additional future debt financing", "-- Risks Relating to the Notes
Offering -- Because federal and state statutes may allow courts to void the
guarantees of the notes by our subsidiaries, you may not have the right to
receive any money pursuant to the guarantees" and "Description of Other
Indebtedness -- The Nortel Credit Facility."
SUBSIDIARY GUARANTEES
The obligations of the Company under the Indenture, including the
repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated,
unsecured basis, by all the existing and any future Domestic Restricted
Subsidiaries of the Company. See "The Reorganization" regarding the ownership
structure of our subsidiaries. However, the administrative agent under the
Nortel Financing must be provided written notice of an Event of Default at least
10 business days prior to the Trustee or any holder of Notes making any demand
for payment under or exercising any right or remedy with respect to a Subsidiary
Guaranty and prior to any Subsidiary Guarantor making payment under its
Subsidiary Guaranty.
If the Company sells or otherwise disposes of either:
(1) its entire ownership interest in a Subsidiary Guarantor, or
(2) all or substantially all the assets of a Subsidiary Guarantor,
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such Subsidiary Guarantor will be released from all its obligations under its
Subsidiary Guaranty. In addition, if the Company redesignates a Subsidiary
Guarantor as an Unrestricted Subsidiary, which the Company can do under certain
circumstances, the redesignated Subsidiary Guarantor will be released from all
its obligations under its Subsidiary Guaranty. See "-- Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries",
"-- Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries"
and "-- Merger, Consolidation and Sale of Property."
If any Subsidiary Guarantor makes payments under its Subsidiary Guaranty,
each of the Company and the other Subsidiary Guarantors must contribute their
share of such payments. The Company's and the other Subsidiary Guarantors'
shares of such payment will be computed based on the proportion that the net
worth of the Company or the relevant Subsidiary Guarantor represents relative to
the aggregate net worth of the Company and all the Subsidiary Guarantors
combined.
SUBORDINATION OF SUBSIDIARY GUARANTEES
The obligations of the Subsidiary Guarantors under their respective
Subsidiary Guarantees will be subordinated to any obligations for Debt Incurred
pursuant to Credit Facilities (and Permitted Refinancing Debt in respect
thereof) (collectively, "Designated Senior Debt") as described below. As a
result of this subordination, holders of Designated Senior Debt will be entitled
to receive full payment in cash on all obligations owed to them before any
Subsidiary Guarantor can make any payment to Holders of the Notes in any of the
following situations or proceedings relating to such Subsidiary Guarantor:
- liquidation, dissolution or winding up;
- bankruptcy, reorganization, insolvency, receivership or similar
proceedings;
- any assignment for the benefit of its creditors; or
- any marshaling of its assets and liabilities.
As a result of the subordination referred to above, no Subsidiary Guarantor
may make any payment pursuant to its Obligations or repurchase, redeem or
otherwise retire or defease any Notes (collectively, "make a Subsidiary
Guarantor payment"), if:
(a) any principal, premium or interest in respect of any Designated
Senior Debt is not paid when due (including at maturity), or
(b) any other default on Designated Senior Debt occurs and the
maturity of such Debt is accelerated in accordance with its terms,
unless, in either case,
(1) the default has been cured or waived and any such acceleration has
been rescinded, or
(2) such Designated Senior Debt has been paid in full in cash;
provided, however, that a Subsidiary Guarantor may make a Subsidiary Guarantor
payment without regard to the foregoing if such Subsidiary Guarantor and the
Trustee receive written notice approving such payment from the holders of such
Designated Senior Debt.
During the continuance of any default (other than a default described in
clause (a) or (b) above) under the Designated Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
any notice required to effect the acceleration) or the expiration of any
applicable grace period, no Subsidiary Guarantor may make a Subsidiary Guarantor
payment for a period (a "Payment Blockage Period") commencing upon the receipt
by such Subsidiary Guarantor and the Trustee of written notice of such default
from a representative under the Credit Facilities specifying an
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election to effect a Payment Blockage Period (a "Payment Blockage Notice") and
ending 179 days thereafter, unless such Payment Blockage Period is earlier
terminated:
(a) by written notice to the Trustee and such Subsidiary Guarantor
from the holders of such Designated Senior Debt,
(b) because such default is no longer continuing, or
(c) because all such Designated Senior Debt has been repaid in full in
cash.
Unless the holders of Designated Senior Debt have accelerated the maturity of
such Designated Senior Debt and not rescinded such acceleration, a Subsidiary
Guarantor may (unless otherwise prohibited as described in the first or second
paragraphs of this section) resume making Subsidiary Guarantor payments after
the end of such Payment Blockage Period.
Not more than one Payment Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults during such period.
Upon any payment or distribution of the assets of a Subsidiary Guarantor
(1) upon a total or partial liquidation, dissolution or winding up of such
Subsidiary Guarantor, (2) in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor, (3)
upon an assignment for the benefit of creditors of such Subsidiary Guarantor or
(4) upon any marshaling of the assets and liabilities of such Subsidiary
Guarantor:
(a) the holders of Designated Senior Debt will be entitled to receive
payment in full in cash before the holders of the Notes are entitled to
receive any payment pursuant to the Subsidiary Guaranty of such Subsidiary
Guarantor, except that holders of Notes may receive and retain shares of
stock and any debt securities of such Subsidiary Guarantor that are
subordinated to the Designated Senior Debt to at least the same extent as
the Subsidiary Guaranty of such Subsidiary Guarantor is subordinated to the
Designated Senior Debt; and
(b) until the Designated Senior Debt is paid in full in cash, any
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture with respect to the Subsidiary
Guarantees will be made to holders of such Designated Senior Debt. If a
payment or distribution is made to holders of Notes that, due to the
subordination provisions with respect to the Subsidiary Guarantees, should
not have been made to them, such holders are required to hold it in trust
for the holders of Designated Senior Debt and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated when any Designated Senior Debt is
outstanding, no Subsidiary Guarantor may make a Subsidiary Guarantor payment
until ten business days after the holders of Designated Senior Debt receive
notice of such acceleration and, thereafter, may make a Subsidiary Guarantor
payment only if the Indenture otherwise permits payment at that time.
Because of the Indenture's subordination provisions with respect to the
Subsidiary Guarantees, holders of Designated Senior Debt may recover
disproportionately more than the holders of the Notes recover in a bankruptcy or
similar proceeding relating to any Subsidiary Guarantor. In such a case, there
may be insufficient assets, or no assets, remaining to pay the principal of or
interest on the Notes.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2005. Starting on
that date, the Company may redeem all or any portion of the Notes, at once or
over time, after giving the required notice under the Indenture. The Notes may
be redeemed at the redemption prices set forth below, plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest
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due on the relevant interest payment date). The following prices are for Notes
redeemed during the 12-month period commencing on of the years set
forth below, and are expressed as percentages of Accreted Value:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2005..................................................... %
2006..................................................... %
2007..................................................... %
2008 and thereafter...................................... 100.000%
</TABLE>
At any time and from time to time, prior to , 2003, the Company
may redeem up to a maximum of 35% of the original aggregate principal amount at
maturity of the Notes with the proceeds of one or more Public Equity Offerings,
at a redemption price equal to % of the Accreted Value thereof, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that after giving
effect to any such redemption, at least 65% of the original aggregate principal
amount at maturity of the Notes remains outstanding. Any such redemption shall
be made within 90 days of such Public Equity Offering upon not less than 30 nor
more than 60 days' prior notice.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall have
the right to require the Company to repurchase all or any part of such holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
Accreted Value thereof, plus accrued and unpaid interest, if any, to the
purchase date (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
Within 30 days following any Change of Control, the Company shall:
(a) cause a notice of the Change of Control Offer to be sent at least
once to the Dow Jones News Service or similar business news service in the
United States, and
(b) send, by first-class mail, with a copy to the Trustee, to each
holder of Notes, at such holder's address appearing in the Security
Register, a notice stating:
(1) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to the covenant entitled "Repurchase at the
Option of Holders Upon a Change of Control" and that all Notes timely
tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase date,
which shall be, subject to any contrary requirements of applicable law,
a business day no earlier than 30 days nor later than 60 days from the
date such notice is mailed;
(3) the circumstances and relevant facts regarding the Change of
Control (including, if and to the extent material, information with
respect to pro forma historical income, cash flow and capitalization
after giving effect to the Change of Control); and
(4) the procedures that holders of Notes must follow in order to
tender their Notes (or portions thereof) for payment, and the procedures
that holders of Notes must follow in order to withdraw an election to
tender Notes (or portions thereof) for payment.
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The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described hereunder, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the covenant described hereunder
by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations
between the Company and the Underwriters. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to certain
covenants described below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of debt outstanding at such time or otherwise affect
the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" the Company's assets. Although there is a developing body of
case law interpreting the phrase "substantially all", there is no precise
established definition of the phrase under applicable law. Accordingly, if the
Company disposes of less than all its assets by any of the means described
above, the ability of a holder of Notes to require the Company to repurchase its
Notes may be uncertain. In such a case, holders of the Notes may not be able to
resolve this uncertainty without resorting to legal action.
The Nortel Financing provides that the occurrence of certain of the events
that would constitute a Change of Control would constitute a default under such
existing debt. Since the Subsidiary Guarantees are subordinate in right of
payment to the Nortel Financing, the Subsidiary Guarantors could be prohibited
from making payment under the Subsidiary Guarantees. Future debt of the Company
may contain prohibitions of certain events which would constitute a Change of
Control or require such debt to be repurchased upon a Change of Control.
Moreover, the exercise by holders of Notes of their right to require the Company
to repurchase such Notes could cause a default under existing or future debt of
the Company, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. Finally, the Company's ability to pay
cash to holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The Company's
failure to purchase Notes in connection with a Change of Control would result in
a default under the Indenture. Such a default would, in turn, constitute a
default under existing debt of the Company and may constitute a default under
future debt as well. Since the Subsidiary Guarantees are subordinate in right of
payment to the Nortel Financing, the Subsidiary Guarantors would first be
obligated to repurchase any Debt Incurred pursuant to the Nortel Financing
before repurchasing any of the Notes. See "Risk Factors -- Risks Relating to the
Notes Offering -- We may be unable to purchase the notes upon a change of
control". The Company's obligation to make an offer to repurchase the Notes as a
result of a Change of Control may be waived or modified at any time prior to the
occurrence of such Change of Control with the written consent of the holders of
a majority in principal amount at maturity of the Notes. See "-- Amendments and
Waivers".
CERTAIN COVENANTS
Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after
giving effect to the application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or be continuing
following such Incurrence and:
(1) such Debt is Debt of the Company or a Subsidiary Guarantor and
after giving effect to the Incurrence of such Debt and the application of
the proceeds thereof, the Leverage Ratio of the Company and the Restricted
Subsidiaries (calculated on a consolidated basis using Annualized Pro
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Forma EBITDA which gives pro forma effect to those Asset Sales, Investments
or acquisitions of Property described in the definition of Pro Forma
EBITDA) would not exceed (a) 7.0 to 1.0, if the Debt is to be Incurred
prior to January 1, 2004, or (b) 6.0 to 1.0, if the Debt is to be Incurred
on or after January 1, 2004; or
(2) such Debt is Debt of the Company or a Subsidiary Guarantor and is
Incurred prior to January 1, 2004, provided that after giving effect to the
Incurrence of such Debt and the application of the proceeds thereof, the
total Debt of the Company and its Restricted Subsidiaries on a consolidated
basis would be equal to or less than 75% of Total Invested Capital or
(3) such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include obligations which meet the
requirements of any of the following clauses (a) through (i):
(a) Debt of the Company evidenced by the Notes and of Subsidiary
Guarantors evidenced by Subsidiary Guarantees relating to the Notes;
(b) Debt of the Company or a Subsidiary Guarantor under any Credit
Facilities, provided that the aggregate principal amount of all such Debt
under Credit Facilities at any one time outstanding shall not exceed the
sum of (i) $250 million plus (ii) 85% of Eligible Receivables, which sum
shall be permanently reduced by the amount of Net Available Cash used to
Repay Debt under the Credit Facilities, and not subsequently reinvested in
Additional Assets or used to purchase Notes or Repay other Debt, pursuant
to the covenant described under "-- Limitation on Asset Sales";
(c) Debt in respect of Capital Lease Obligations and Purchase Money
Debt, provided that:
(1) the aggregate principal amount of such Debt does not exceed the
Fair Market Value (on the date of the Incurrence thereof) of the
Property acquired, constructed or leased, and
(2) the aggregate principal amount of all Debt Incurred and then
outstanding pursuant to this clause (c) (together with all Permitted
Refinancing Debt Incurred and then outstanding in respect of Debt
previously Incurred pursuant to this clause (c)) does not exceed $50
million;
(d) Debt of the Company owing to and held by any Restricted Subsidiary
and Debt of a Restricted Subsidiary owing to and held by the Company or any
Restricted Subsidiary; provided, however, that any subsequent issue or
transfer of Capital Stock or other event that results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Debt (except to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are related to payment obligations on
Debt otherwise permitted by the terms of this covenant;
(f) Debt in connection with one or more standby letters of credit or
performance bonds issued by the Company or a Restricted Subsidiary in the
ordinary course of business or pursuant to self-insurance obligations and
not in connection with the borrowing of money or the obtaining of advances
or credit;
(g) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (f) above;
(h) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (1) or (2) of the first paragraph of this covenant or
clause (a), (c) or (g) above; and
(i) additional Debt of the Company in an aggregate principal amount
outstanding at any one time not to exceed $50 million.
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For purposes of determining compliance with this covenant,
(a) in the event that any Debt is allowed to be Incurred pursuant to
more than one of the categories of Debt described above, including clauses
(1) or (2) of the first paragraph of this covenant or as Permitted Debt,
the Company, in its sole discretion, will classify such Debt, as of the
time of Incurrence thereof, as Debt incurred pursuant to a particular
clause under the first paragraph of this covenant, and if Incurred as
Permitted Debt will specify under which clause of Permitted Debt the Debt
is Incurred; and
(b) Debt may be divided and classified in more than one of the
categories of Debt described above.
Notwithstanding anything to the contrary contained in this covenant,
(a) the Company shall not, and shall not permit any Subsidiary
Guarantor to, Incur any Debt pursuant to this covenant if the proceeds
thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations unless such Debt shall be subordinated to the Notes or the
applicable Subsidiary Guaranty, as the case may be, to at least the same
extent as such Subordinated Obligations, and
(b) the Company shall not permit any Restricted Subsidiary that is not
a Subsidiary Guarantor to Incur any Debt pursuant to this covenant if the
proceeds thereof are used, directly or indirectly, to Refinance any Debt of
the Company or any Subsidiary Guarantor.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving effect to, such proposed
Restricted Payment,
(a) a Default or Event of Default shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (1) or (2) of the first paragraph of the covenant
described under "-- Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(1) the result of:
(A) Cumulative EBITDA, minus
(B) the product of 1.5 and Cumulative Interest Expense, plus
(2) Capital Stock Sale Proceeds, plus
(3) the sum of:
(A) the aggregate net cash proceeds received by the Company or
any Restricted Subsidiary from the issuance or sale after the Issue
Date of convertible or exchangeable Debt that has been converted into
or exchanged for Capital Stock (other than Disqualified Stock) of the
Company, and
(B) the aggregate amount by which Debt (other than Subordinated
Obligations) of the Company or any Restricted Subsidiary is reduced
on the Company's consolidated balance sheet on or after the Issue
Date upon the conversion or exchange of any Debt issued or sold on or
prior to the Issue Date that is convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company,
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excluding, in the case of clause (A) or (B):
(x) any such Debt issued or sold to the Company or a Subsidiary of
the Company or an employee stock ownership plan or trust established by
the Company or any such Subsidiary for the benefit of their employees,
and
(y) the aggregate amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon any such conversion or
exchange,
plus
(4) an amount equal to the sum of:
(A) the net reduction in Investments in any Person other than
the Company or a Restricted Subsidiary resulting from dividends,
repayments of loans or advances or other transfers of Property, in
each case to the Company or any Restricted Subsidiary from such
Person, less the cost of the disposition of such Investment, plus
(B) the portion (proportionate to the Company's equity interest
in such Unrestricted Subsidiary) of the Fair Market Value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary;
provided, however, that the sum in this clause (4) shall not exceed, in the case
of any Person, the amount of Investments previously made (and treated as a
Restricted Payment) by the Company or any Restricted Subsidiary in such Person.
Notwithstanding the foregoing limitation, the Company may take any action
if it is in compliance with any of the following clauses (a) through (f):
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Indenture; provided, however, that at the
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees); provided, however,
that:
(1) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation of the
amount of Restricted Payments, and
(2) the Capital Stock Sale Proceeds from such exchange or sale
shall be excluded from the calculation pursuant to clause (c)(2) above;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Permitted Refinancing
Debt; provided, however, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(d) make a Restricted Payment, if at the time the Company or any
Restricted Subsidiary first Incurred a commitment for such Restricted
Payment, such Restricted Payment could have been made; provided, however,
that all commitments Incurred and outstanding shall be treated as if such
commitments were Restricted Payments expended by the Company or a
Restricted Subsidiary at the time the commitments were Incurred, except
that commitments Incurred and outstanding that are treated as a Restricted
Payment expended by the Company or a Restricted Subsidiary and that are
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terminated shall no longer be treated as a Restricted Payment expended by
the Company or a Restricted Subsidiary upon the termination of such
commitment;
(e) repurchase shares of, or options to purchase shares of, common
stock of the Company or any of its Subsidiaries from current or former
officers, directors or employees of the Company or any of its Subsidiaries
(or permitted transferees of such current or former officers, directors or
employees), pursuant to the terms of agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such individuals purchase or sell, or are granted the
option to purchase or sell, shares of such common stock; provided, however,
that:
(1) the aggregate amount of such repurchases shall not exceed $3
million in any calendar year, although any unused amount in any calendar
year may be carried forward to one or more future calendar years, and
(2) at the time of such repurchase, no other Default or Event of
Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such repurchases shall be included in the
calculation of the amount of Restricted Payments; and
(f) make Investments in any Person, provided that the Fair Market
Value thereof, measured on the date each such Investment was made or
returned, as applicable, when taken together with all other Investments
made pursuant to this clause (f), does not exceed the sum of $50 million,
plus the aggregate amount of the net reduction in Investments in any Person
made pursuant to this clause (f) on and after the Issue Date resulting from
dividends, repayments of loans or other transfers of Property, in each case
to the Company or any Restricted Subsidiary from such Person, except to the
extent that any such net reduction amount is included in the amount
calculated pursuant to clause (c) of the preceding paragraph or any other
clause of this paragraph; provided, however, that at the time of such
Investment, no other Default or Event of Default shall have occurred and be
continuing (or result therefrom); provided further, however, that such
Investment shall be included in the calculation of the amount of Restricted
Payments.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless it
has made or will make effective provision whereby the Notes or the applicable
Subsidiary Guaranty will be secured by such Lien equally and ratably with (or
prior to) all other Debt of the Company or any Restricted Subsidiary secured by
such Lien.
Limitation on Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not:
(a) sell, pledge, hypothecate or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, except pledges of Capital Stock
which constitute Permitted Liens, or
(b) permit any Restricted Subsidiary to, directly or indirectly, issue
or sell or otherwise dispose of any shares of its Capital Stock,
other than, in the case of either (a) or (b):
(1) directors' qualifying shares,
(2) to the Company or a Restricted Subsidiary,
(3) a disposition of Capital Stock of such Restricted Subsidiary where
immediately after giving effect thereto, either such Restricted Subsidiary
remains a Restricted Subsidiary or the Company and the Restricted
Subsidiaries no longer own any Capital Stock of such entity, provided,
however, that, in the case of this clause (3),
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(A) such issuance, sale or disposition is effected in compliance
with the covenant described under "-- Limitation on Asset Sales", and
(B) upon consummation of any such disposition which results in the
Company and the Restricted Subsidiaries no longer owning any Capital
Stock of an entity and execution and delivery of a supplemental
indenture in form satisfactory to the Trustee, such entity shall be
released from any Subsidiary Guaranty previously made by such entity,
(4) the transfer, conveyance, sale or other disposition of shares
required by applicable law or regulation,
(5) Capital Stock issued and outstanding on the Issue Date,
(6) Capital Stock of a Restricted Subsidiary issued and outstanding
prior to the time that such Person becomes a Restricted Subsidiary so long
as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the
Company, or
(7) an issuance of Preferred Stock of a Restricted Subsidiary (other
than Preferred Stock convertible or exchangeable into common stock of any
Restricted Subsidiary) otherwise permitted by the Indenture.
Limitation on Asset Sales. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless:
(a) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Sale at least equal to the Fair Market Value of
the Property subject to such Asset Sale;
(b) at least 75% of the consideration paid to the Company or such
Restricted Subsidiary in connection with such Asset Sale is in the form of
cash or cash equivalents or Telecommunications Assets or the assumption by
the purchaser of liabilities of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Notes
or the applicable Subsidiary Guaranty) as a result of which the Company and
the Restricted Subsidiaries are no longer obligated with respect to such
liabilities; and
(c) the Company delivers an Officers' Certificate to the Trustee
certifying that such Asset Sale complies with the foregoing clauses (a) and
(b).
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Debt):
(a) to Repay Senior Debt of the Company or any Subsidiary Guarantor
(including the Notes), or Debt of any Restricted Subsidiary that is not a
Subsidiary Guarantor (excluding, in any such case, any Debt owed to the
Company or an Affiliate of the Company); or
(b) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within 360 days from the date of the receipt of such Net
Available Cash shall constitute "Excess Proceeds". When the aggregate amount of
Excess Proceeds exceeds $10 million (taking into account income earned on such
Excess Proceeds, if any), the Company will be required to make an offer to
purchase (the "Prepayment Offer") the Notes which offer shall be in the amount
of the Allocable Excess Proceeds, on a pro rata basis according to principal
amount at maturity, at a purchase price equal to 100% of the Accreted Value
thereof, plus accrued and unpaid interest, if any, to the purchase date (subject
to the right of holders of record on the relevant record date to receive
interest due on the relevant interest
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payment date), in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. To the extent that any
portion of the amount of Net Available Cash remains after compliance with the
preceding sentence and provided that all holders of Notes have been given the
opportunity to tender their Notes for purchase in accordance with the Indenture,
the Company or such Restricted Subsidiary may use such remaining amount for any
purpose permitted by the Indenture and the amount of Excess Proceeds will be
reset to zero.
The term "Allocable Excess Proceeds" will mean the product of:
(a) the Excess Proceeds, and
(b) a fraction,
(1) the numerator of which is the aggregate Accreted Value of the
Notes outstanding on the date of the Prepayment Offer, and
(2) the denominator of which is the sum of the aggregate Accreted
Value of the Notes outstanding on the date of the Prepayment Offer and
the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) of other Debt of the Company
outstanding on the date of the Prepayment Offer that is pari passu in
right of payment with the Notes and subject to terms and conditions in
respect of Asset Sales similar to the covenant described hereunder and
requiring the Company to make an offer to purchase such Debt at
substantially the same time as the Prepayment Offer.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall send
a written notice, by first-class mail, to the holders of Notes, accompanied by
such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such holders to make an informed decision with
respect to such Prepayment Offer. Such notice shall state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or
other obligation owed, to the Company or any other Restricted Subsidiary,
(b) make any loans or advances to the Company or any other Restricted
Subsidiary or
(c) transfer any of its Property to the Company or any other
Restricted Subsidiary.
The foregoing limitations will not apply:
(1) with respect to clauses (a), (b) and (c), to restrictions:
(A) contained in an agreement or instrument governing or relating
to Debt contained in the Nortel Financing or any Credit Facility
outstanding pursuant to clause (b) of Permitted Debt in
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the covenant described under "-- Certain Covenants -- Limitation on
Debt"; provided, however, that:
(x) the provisions of the Nortel Financing and any Credit
Facilities with a Stated Maturity prior to the scheduled maturity
date of the Notes must permit distributions to the Company for the
sole purpose of, and in an amount sufficient to fund, the payment of
interest when due as scheduled in respect of the Notes, and
(y) the provisions of any Credit Facilities with a Stated
Maturity on or after the scheduled maturity date of the Notes
(including any amendment or Refinancing of the Nortel Financing) must
permit distributions to the Company for the sole purpose of, and in
an amount sufficient to fund, the payment of principal at scheduled
maturity and interest when due as scheduled in respect of the Notes,
(provided, in the case of both (x) and (y), that such payment is due or
to become due within 30 days from the date of such distribution and the
cash distributed is in fact utilized to meet such payment obligation) at
a time, in the case of both (x) and (y), when there does not exist an
event (or such distribution would not cause an event) which, with the
passage of time or notice or both, would permit the lenders under the
Nortel Financing or any Credit Facility to declare all amounts
thereunder due and payable; provided further, however, that such
agreement or instrument may nevertheless contain customary financial
covenants.
(B) relating to Debt of a Restricted Subsidiary and existing at the
time it became a Restricted Subsidiary if such restriction was not
created in connection with or in anticipation of the transaction or
series of transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company, or
(C) that result from the Refinancing of Debt Incurred pursuant to
an agreement referred to in clause (1)(A) or (B) above or in clause
(2)(A) or (B) below, provided such restriction is not materially less
favorable to the holders of Notes than those under the agreement
evidencing the Debt so Refinanced, and
(2) with respect to clause (c) only, to restrictions:
(A) relating to Debt that is permitted to be Incurred and secured
without also securing the Notes or the applicable Subsidiary Guaranty
pursuant to the covenants described under "-- Limitation on Debt" and
"-- Limitation on Liens" that limit the right of the debtor to dispose
of the Property securing such Debt,
(B) encumbering Property at the time such Property was acquired by
the Company or any Restricted Subsidiary, so long as such restriction
relates solely to the Property so acquired and was not created in
connection with or in anticipation of such acquisition,
(C) resulting from customary provisions restricting subletting or
assignment of leases or licenses or customary provisions in other
agreements that restrict assignment of such agreements or rights
thereunder,
(D) customarily contained in property sale agreements limiting the
transfer of such Property pending the closing of such sale, or
(E) customarily contained in Debt instruments limiting the sale of
all or substantially all the assets of the obligor.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance
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or exchange of any Property or the rendering of any service) with, or for the
benefit of, any Affiliate of the Company (an "Affiliate Transaction"), unless:
(a) the terms of such Affiliate Transaction are:
(1) set forth in writing and
(2) no less favorable to the Company or such Restricted Subsidiary,
as the case may be, than those that could be obtained in a comparable
arm's-length transaction with a Person that is not an Affiliate of the
Company,
(b) if such Affiliate Transaction involves aggregate payments or value
in excess of $2 million, the Board of Directors (including a majority of
the disinterested members of the Board of Directors) approves such
Affiliate Transaction and, in its good faith judgment, believes that such
Affiliate Transaction complies with clause (a)(2) of this paragraph as
evidenced by a Board Resolution promptly delivered to the Trustee, and
(c) if such Affiliate Transaction involves aggregate payments or value
in excess of $15 million, the Company obtains a written opinion from an
Independent Financial Advisor to the effect that the consideration to be
paid or received in connection with such Affiliate Transaction is fair,
from a financial point of view, to the Company and the Restricted
Subsidiaries, taken as a whole.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(a) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries, provided that no more than 10% of the total voting power of
the Voting Stock (on a fully diluted basis) of any such Restricted
Subsidiary is owned by an Affiliate of the Company (other than a Restricted
Subsidiary);
(b) any Restricted Payment permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments" or any
Permitted Investment;
(c) the payment of compensation (including amounts paid pursuant to
employee benefit plans) and the provision of benefits for the personal
services of officers, directors and employees of the Company or any of the
Restricted Subsidiaries, so long as the Board of Directors in good faith
shall have approved the terms thereof;
(d) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be, provided that such loans and
advances do not exceed $3 million in the aggregate at any one time
outstanding; and
(e) any transaction or series of transactions pursuant to any
agreement in existence on the Issue Date, and any renewal, extension or
replacement of such agreement on terms no less favorable to the Company and
the Restricted Subsidiaries than the agreement in existence on the Issue
Date.
Limitation on Sale and Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any Property unless:
(a) the Company or such Restricted Subsidiary would be entitled to:
(1) Incur Debt in an amount equal to the Attributable Debt with
respect to such Sale and Leaseback Transaction pursuant to the covenant
described under "-- Limitation on Debt", and
(2) create a Lien on such Property securing such Attributable Debt
without also securing the Notes or the applicable Subsidiary Guaranty
pursuant to the covenant described under "-- Limitation on Liens", and
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(b) such Sale and Leaseback Transaction is effected in compliance with
the covenant described under "-- Limitation on Asset Sales".
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if:
(a) the Subsidiary to be so designated does not own any Capital Stock
or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary,
(b) either:
(1) the Subsidiary to be so designated has total assets of $1,000
or less, or
(2) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company, and
(c) neither the Company nor any Restricted Subsidiary is directly or
indirectly liable for any Debt that provides that the holder thereof may
(with the passage of time or notice or both) declare a default thereon or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity upon the occurrence of a default with respect to any Debt, Lien or
other obligation of the Subsidiary to be so designated (including any right
to take enforcement action against the Subsidiary to be so designated).
Unless so designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the third
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification or if such Person is a Subsidiary of an
Unrestricted Subsidiary.
In addition, neither the Company nor any Restricted Subsidiary shall become
directly or indirectly liable for any Debt that provides that the holder thereof
may (with the passage of time or notice or both) declare a default thereon or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity upon the occurrence of a default with respect to any Debt, Lien or
other obligation of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary).
Except as provided in the first sentence of the next preceding paragraph,
no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. Upon
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this covenant, such Restricted Subsidiary shall, by execution
and delivery of a supplemental indenture in form satisfactory to the Trustee, be
released from any Subsidiary Guaranty previously made by such Restricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation,
(x) the Company could Incur at least $1.00 of additional Debt pursuant
to either clause (1) or clause (2) of the first paragraph of the covenant
described under "-- Limitation on Debt", and
(y) no Default or Event of Default shall have occurred and be
continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate that:
(a) certifies that such designation or redesignation complies with the
foregoing provisions, and
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(b) gives the effective date of such designation or redesignation,
such filing with the Trustee to occur within 45 days after the end of the
fiscal quarter of the Company in which such designation or redesignation is
made (or, in the case of a designation or redesignation made during the
last fiscal quarter of the Company's fiscal year, within 90 days after the
end of such fiscal year).
Limitation on Company's Business. The Company shall not, and shall not
permit any Restricted Subsidiary to engage in any business other than the
Telecommunications Business.
Future Subsidiary Guarantors. The Company shall cause each Person that
becomes a Domestic Restricted Subsidiary following the Issue Date to execute and
deliver to the Trustee a Subsidiary Guaranty at the time such Person becomes a
Domestic Restricted Subsidiary.
Limitation on Layered Debt. The Company shall not permit any Subsidiary
Guarantor to Incur, directly or indirectly, any Debt that is subordinate or
junior in right of payment to any Senior Debt unless such debt is expressly
subordinated in right of payment to, or ranks pari passu with, the Obligations
under its Subsidiary Guaranty.
MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Restricted Subsidiary into
the Company) or sell, transfer, assign, lease, convey or otherwise dispose of
all or substantially all its Property in any one transaction or series of
transactions unless:
(a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized
and existing under the laws of the United States of America, any State
thereof or the District of Columbia;
(b) the Surviving Person (if other than the Company) expressly
assumes, by supplemental indenture in form satisfactory to the Trustee,
executed and delivered to the Trustee by such Surviving Person, the due and
punctual payment of the principal of, and premium, if any, and interest on,
all the Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants and conditions of the
Indenture to be performed by the Company;
(c) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company,
such Property shall have been transferred as an entirety or virtually as an
entirety to one Person;
(d) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (and treating, for purposes of
this clause (d) and clause (e) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person or any
Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as
the case may be, would be able to Incur at least $1.00 of additional Debt
under clause (1) or (2) of the first paragraph of the covenant described
under "-- Certain Covenants -- Limitation on Debt";
(f) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto
comply with this covenant and that all conditions precedent herein provided
for relating to such transaction have been satisfied; and
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(g) the Surviving Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the holders will not recognize
income, gain or loss for Federal income tax purposes as a result of such
transaction or series of transactions and will be subject to Federal income
tax on the same amounts and at the same times as would be the case if the
transaction or series of transactions had not occurred.
The Company shall not permit any Subsidiary Guarantor to merge, consolidate
or amalgamate with or into any other Person (other than a merger of a Wholly
Owned Restricted Subsidiary into such Subsidiary Guarantor) or sell, transfer,
assign, lease, convey or otherwise dispose of all or substantially all such
Subsidiary Guarantor's Property in any one transaction or series of transactions
unless:
(a) the Surviving Person (if not such Subsidiary Guarantor) formed by
such merger, consolidation or amalgamation or to which such sale, transfer,
assignment, lease, conveyance or disposition is made shall be a corporation
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia;
(b) the Surviving Person (if other than such Subsidiary Guarantor)
expressly assumes, by Subsidiary Guaranty in form satisfactory to the
Trustee, executed and delivered to the Trustee by such Surviving Person,
the due and punctual performance and observance of all the obligations of
such Subsidiary Guarantor under its Subsidiary Guaranty;
(c) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of such
Subsidiary Guarantor, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person;
(d) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (and treating, for purposes of
this clause (d) and clause (e) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person, the Company
or any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person, the Company
or such Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company would be able to Incur at
least $1.00 of additional Debt under clause (1) or (2) of the first
paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Debt"; and
(f) the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and such Subsidiary Guaranty, if any, in respect thereto comply
with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
The foregoing provisions (other than clause (d)) shall not apply to any
transactions which constitute an Asset Sale if the Company has complied with the
covenant described under "-- Certain Covenants -- Limitation on Asset Sales".
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture (or of the
Subsidiary Guarantor under the Subsidiary Guaranty, as the case may be), but the
predecessor Company in the case of:
(a) a sale, transfer, assignment, conveyance or other disposition
(unless such sale, transfer, assignment, conveyance or other disposition is
of all the assets of the Company as an entirety or virtually as an
entirety), or
(b) a lease,
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shall not be released from the obligations to pay the principal of, and premium,
if any, and interest on, the Notes.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the Commission and provide the Trustee and holders of Notes with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and reports to
be so filed and provided at the times specified for the filing of such
information, documents and reports under such Sections; provided, however, that
the Company shall not be so obligated to file such information, documents and
reports with the Commission if the Commission does not permit such filings.
CALCULATION OF ORIGINAL ISSUE DISCOUNT
Within 30 days after the end of each calendar year, the Company shall
deliver to the Trustee a certificate setting forth the following:
(a) the total cumulative amount of "Original Issue Discount", as
defined by the Code, that had accrued on the Notes as of December 31 of
such calendar year;
(b) the portion of such Original Issue Discount that had accrued
during such calendar year;
(c) the extent, if any, to which such Original Issue Discount differed
from the Accreted Value on December 31 of such calendar year; and
(d) such other specific information relating to the accrued Original
Issue Discount of the Notes as may be relevant under the Code to the
holders of the Notes.
EVENTS OF DEFAULT
Events of Default in respect of the Notes include:
(1) failure to make the payment of any interest on the Notes when the
same becomes due and payable, and such failure continues for a period of 30
days;
(2) failure to make the payment of any Accreted Value of, or premium,
if any, on, any of the Notes when the same becomes due and payable at its
Stated Maturity, upon acceleration, redemption, optional redemption,
required repurchase or otherwise;
(3) failure to comply with the covenant described under "-- Merger,
Consolidation and Sale of Property";
(4) failure to comply with any other covenant or agreement in the
Notes or in the Indenture (other than a failure that is the subject of the
foregoing clause (1), (2) or (3)) and such failure continues for 30 days
after written notice is given to the Company as provided below;
(5) a default under any Debt by the Company or any Restricted
Subsidiary that results in acceleration of the maturity of such Debt, or
failure to pay any such Debt at maturity, in an aggregate amount greater
than $15 million (the "cross acceleration provisions");
(6) any judgment or judgments for the payment of money in an aggregate
amount in excess of $15 million that shall be rendered against the Company
or any Restricted Subsidiary and that shall not be waived, satisfied or
discharged for any period of 60 consecutive days during which a stay of
enforcement shall not be in effect (the "judgment default provisions");
(7) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Significant Subsidiary (the "bankruptcy provisions");
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(8) any Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or
any Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty (the "guaranty provisions"); and
(9) any event occurs that causes, after giving effect to the
expiration of any applicable grace period, an Event of Termination with
Sprint (the "event of termination provisions").
A Default under clause (4) is not an Event of Default until the Trustee or
the holders of not less than 25% in aggregate principal amount at maturity of
the Notes then outstanding notify the Company of the Default and the Company
does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event that with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
If an Event of Default with respect to the Notes (other than an Event of
Default resulting from certain events involving bankruptcy, insolvency or
reorganization with respect to the Company) shall have occurred and be
continuing, the Trustee or the registered holders of not less than 25% in
aggregate principal amount at maturity of the Notes then outstanding may declare
to be immediately due and payable the Accreted Value of all the Notes then
outstanding, plus accrued but unpaid interest to the date of acceleration. In
case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization with respect to the Company shall occur, such amount with
respect to all the Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of the Notes.
After any such acceleration, but before a judgment or decree based on
acceleration is obtained by the Trustee, the registered holders of a majority in
aggregate principal amount at maturity of the Notes then outstanding may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the nonpayment of accelerated Accreted Value, premium or
interest, have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the holders of the Notes, unless
such holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the holders of a
majority in aggregate principal amount at maturity of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Notes.
No holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless:
(a) such holder has previously given to the Trustee written notice of
a continuing Event of Default,
(b) the registered holders of at least 25% in aggregate principal
amount at maturity of the Notes then outstanding have made written request
and offered reasonable indemnity to the Trustee to institute such
proceeding as trustee, and
(c) the Trustee shall not have received from the registered holders of
a majority in aggregate principal amount at maturity of the Notes then
outstanding a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days.
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However, such limitations do not apply to a suit instituted by a holder of any
Note for enforcement of payment of the Accreted Value of, and premium, if any,
or interest on, such Note on or after the respective due dates expressed in such
Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with respect to
the Notes with the consent of the registered holders of a majority in aggregate
principal amount at maturity of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for such Notes) and
any past default or compliance with any provisions may also be waived (except a
default in the payment of Accreted Value, premium or interest and certain
covenants and provisions of the Indenture which cannot be amended without the
consent of each holder of an outstanding Note) with the consent of the
registered holders of at least a majority in aggregate principal amount at
maturity of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note, no amendment may, among other things,
(1) reduce the amount of Notes whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest on
any Note,
(3) reduce the principal or Accreted Value of or extend the Stated
Maturity of any Note,
(4) make any Note payable in money other than that stated in the Note,
(5) impair the right of any holder of the Notes to receive payment of
principal or Accreted Value of and interest on such holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Notes or any Subsidiary
Guaranty,
(6) subordinate the Notes or any Subsidiary Guaranty to any other
obligation of the Company or the applicable Subsidiary Guarantor,
(7) release any security interest that may have been granted in favor
of the holders of the Notes other than pursuant to the terms of such
security interest,
(8) reduce the premium payable upon the redemption of any Note nor
change the time at which any Note may be redeemed, as described under
"-- Optional Redemption",
(9) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control has occurred, change the time at which the
Change of Control Offer relating thereto must be made or at which the Notes
must be repurchased pursuant to such Change of Control Offer,
(10) at any time after the Company is obligated to make a Prepayment
Offer with the Excess Proceeds from Asset Sales, change the time at which
such Prepayment Offer must be made or at which the Notes must be
repurchased pursuant thereto,
(11) make any change in any Subsidiary Guaranty or the subordination
provisions with respect thereto that would adversely affect the holders of
the Notes, or
(12) modify any provision of the Indenture relating to the calculation
of Accreted Value.
Without the consent of any holder of the Notes, the Company and the Trustee
may amend the Indenture to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the obligations
of the Company under the Indenture,
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- provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code),
- add additional Guarantees with respect to the Notes or to release
Subsidiary Guarantors from Subsidiary Guaranties as provided by the terms
of the Indenture,
- secure the Notes, to add to the covenants of the Company for the benefit
of the holders of the Notes or to surrender any right or power conferred
upon the Company,
- make any change to the subordination provisions of the Indenture with
respect to the Subsidiary Guaranties that would limit or terminate the
benefits available to holders of Designated Senior Debt under such
provisions, or
- make any change that does not materially adversely affect the rights of
any holder of the Notes or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under
the Trust Indenture Act.
The consent of the holders of the Notes is not necessary to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment becomes
effective, the Company is required to mail to each registered holder of the
Notes at such holder's address appearing in the Security Register a notice
briefly describing such amendment. However, the failure to give such notice to
all holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations, together with
all the obligations of all Restricted Subsidiaries, under the Notes and the
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes. The Company at
any time may terminate:
(1) its obligations under the covenants described under "-- Repurchase
at the Option of Holders Upon a Change of Control" and "-- Certain
Covenants",
(2) the operation of the cross acceleration provisions, the judgment
default provisions, the bankruptcy provisions with respect to Significant
Subsidiaries, the guaranty provisions and the event of termination
provisions described under "-- Events of Default" above, and
(3) the limitations contained in clause (e) under the first paragraph
of, and in the second paragraph of, "-- Merger, Consolidation and Sale of
Property" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the Notes
may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in clause (4) (with
respect to the covenants described under "-- Certain Covenants"), (5), (6), (7)
(with respect only to Significant Subsidiaries), (8) or (9) under "-- Events of
Default" above or because of the failure of the Company to comply with clause
(e) under the first paragraph of, or with the second paragraph of, "-- Merger,
Consolidation and Sale of Property" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor
will be released from all its obligations under its Subsidiary Guaranty.
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The legal defeasance option or the covenant defeasance option may be
exercised only if:
(a) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Notes to maturity or redemption, as the case may be;
(b) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the Notes to maturity or redemption, as the case may be;
(c) 123 days pass after the deposit is made and during the 123-day
period no Default described in clause (7) under "-- Events of Default"
occurs with respect to the Company or any other Person making such deposit
which is continuing at the end of the period;
(d) no Default or Event of Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(e) such deposit does not constitute a default under any other
agreement or instrument binding on the Company;
(f) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(g) in the case of the legal defeasance option, the Company delivers
to the Trustee an Opinion of Counsel stating that:
(1) the Company has received from the Internal Revenue Service a
ruling, or
(2) since the date of the Indenture there has been a change in the
applicable Federal income tax law, to the effect, in either case, that,
and based thereon such Opinion of Counsel shall confirm that, the
holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject
to Federal income tax on the same amounts, in the same manner and at the
same time as would have been the case if such defeasance has not
occurred;
(h) in the case of the covenant defeasance option, the Company
delivers to the Trustee an Opinion of Counsel to the effect that the
holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(i) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes have been complied with as required
by the Indenture.
GOVERNING LAW
The Indenture and the Notes are governed by the internal laws of the State
of New York without reference to principles of conflicts of law.
THE TRUSTEE
Norwest Bank Minnesota, N.A. is the Trustee under the Indenture.
Except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. During
the existence of an Event of Default, the Trustee will
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exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided. Unless the context otherwise requires, an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP.
"Accreted Value" for each $1,000 principal amount at maturity of any
outstanding Notes, as of or to any date of determination (any such date, the
"Determination Date"), means:
(1) if the Determination Date occurs on one or more of the following
dates (each such date a "Semiannual Accrual Date"), the amount set forth
below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
SEMIANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------ --------
<S> <C>
.................................................. $
..................................................
..................................................
..................................................
..................................................
..................................................
..................................................
.................................................. 1,000
</TABLE>
(2) if the Determination Date occurs before the first Semiannual
Accrual Date, the sum of:
(a) $ ; and
(b) an amount equal to the product of:
(x) the Accreted Value for the first Semiannual Accrual Date
minus $ , multiplied by:
(y) a fraction, the numerator of which is the number of days
elapsed from the Issue Date of the Notes to the Determination Date,
and the denominator of which is the number of days from the Issue
Date of the Notes to the first Semiannual Accrual Date, in each case
using a 360-day year comprised of twelve 30-day months;
(3) if the Determination Date occurs between two Semiannual Accrual
Dates, the sum of:
(a) the Accreted Value for the Semiannual Accrual Date immediately
preceding such Determination Date; and
(b) an amount equal to the product of:
(x) the Accreted Value for the immediately following Semiannual
Accrual Date minus the Accreted Value for the immediately preceding
Semiannual Accrual Date, multiplied by:
(y) a fraction, the numerator of which is the number of days
elapsed from the immediately preceding Semiannual Accrual Date to the
Determination Date, using a 360-day year comprised of twelve 30-day
months, and the denominator of which is 180; or
(4) if the Determination Date occurs after the last Semiannual Accrual
Date, $1,000.
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"Additional Assets" means:
(a) any Property (other than cash, cash equivalents and securities) to
be owned by the Company or any Restricted Subsidiary and used in a
Telecommunications Business; or
(b) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary from any Person other than the Company or an
Affiliate of the Company; provided, however, that, in the case of this
clause (b), such Restricted Subsidiary is primarily engaged in a
Telecommunications Business.
"Affiliate" of any specified Person means:
(a) any other Person directly or indirectly controlling or controlled
by or under direct or indirect common control with such specified Person,
or
(b) any other Person who is a director or officer of:
(1) such specified Person,
(2) any Subsidiary of such specified Person, or
(3) any Person described in clause (a) above.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under "-- Certain Covenants -- Limitation on Transactions with Affiliates
and -- Limitation on Asset Sales" and the definition of "Additional Assets"
only, "Affiliate" shall also mean any beneficial owner of shares representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Voting Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Annualized Pro Forma EBITDA" means, as of any date of determination, the
product of Pro Forma EBITDA for the Company's two most recently completed fiscal
quarters for which financial statements are available prior to such
determination date multiplied by two.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of:
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares), or
(b) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary,
other than, in the case of clause (a) or (b) above,
(1) any disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Restricted
Subsidiary,
(2) any disposition that constitutes a Permitted Investment or
Restricted Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments",
(3) any disposition effected in compliance with the first paragraph of
the covenant described under "-- Merger, Consolidation and Sale of
Property", and
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(4) disposition of assets having an aggregate Fair Market Value, and
for which the aggregate consideration received by the Company and its
Restricted Subsidiaries, is equal to, $1 million or less in any 12-month
period.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at any date of determination,
(a) if such Sale and Leaseback Transaction is a Capital Lease
Obligation, the amount of Debt represented thereby according to the
definition of "Capital Lease Obligation", and
(b) in all other instances, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the product of the numbers of years (rounded to the
nearest one-twelfth of one year) from the date of determination to the
dates of each successive scheduled principal payment of such Debt or
redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by
(b) the sum of all such payments.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"-- Certain Covenants -- Limitation on Liens", a Capital Lease Obligation shall
be deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of any class of corporate stock or partnership
interests or any other participations, rights, warrants, options or other
interests in the nature of an equity interest in such Person, including
Preferred Stock, but excluding any debt security convertible or exchangeable
into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (other than to a Subsidiary of the Company
or an employee stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees) by the Company of its
Capital Stock (other than Disqualified Stock) after the Issue Date, net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Change of Control" means the occurrence of any of the following events:
(a) if any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act or any successor provisions to either
of the foregoing), including any group acting for the purpose of acquiring,
holding, voting or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act, other than any one or more of the
Permitted Holders, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, except that a person will be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of a majority of the total voting
power of the Voting Stock of the Company (for purposes of this clause (a),
such person or group shall be deemed to beneficially own any Voting
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<PAGE> 125
Stock of a corporation held by any other corporation (the "parent
corporation") so long as such person or group beneficially owns, directly
or indirectly, in the aggregate a majority of the total voting power of the
Voting Stock of such parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Restricted Subsidiary or one or more Permitted
Holders) shall have occurred, or the Company merges, consolidates or
amalgamates with or into any other Person (other than one or more Permitted
Holders) or any other Person (other than one or more Permitted Holders)
merges, consolidates or amalgamates with or into the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of
the Company is reclassified into or exchanged for cash, securities or other
Property, other than any such transaction where:
(1) the outstanding Voting Stock of the Company is reclassified
into or exchanged for other Voting Stock of the Company or for Voting
Stock of the surviving corporation, and
(2) the holders of the Voting Stock of the Company immediately
prior to such transaction own, directly or indirectly, not less than a
majority of the Voting Stock of the Company or the surviving corporation
immediately after such transaction and in substantially the same
proportion as before the transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of not less than a majority of the directors then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office; or
(d) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means, in respect of a Person, any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries,
(a) interest expense attributable to leases constituting part of a
Sale and Leaseback Transaction and to Capital Lease Obligations,
(b) amortization of debt discount and debt issuance cost, including
commitment fees,
(c) capitalized interest,
(d) non-cash interest expense,
(e) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(f) net costs associated with Hedging Obligations (including
amortization of fees),
(g) Preferred Stock Dividends,
(h) interest Incurred in connection with Investments in discontinued
operations,
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(i) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Restricted Subsidiary or is
secured by any Liens on the Property of the Company or any Restricted
Subsidiary, and
(j) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(a) any net income (loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that:
(1) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (c)
below), and
(2) the Company's equity in a net loss of any such Person, other
than an Unrestricted Subsidiary or a Person as to which the Company is
not, and under no circumstances would be, obligated to make any
additional Investment, for such period shall be included in determining
such Consolidated Net Income,
(b) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" only, any net income (loss)
of any Person acquired by the Company or any of its consolidated
Subsidiaries in a pooling of interests transaction for any period prior to
the date of such acquisition,
(c) any net income (loss) of any Restricted Subsidiary that is not a
Subsidiary Guarantor if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions, directly or indirectly, to the Company, except
that:
(1) subject to the exclusion contained in clause (d) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or
other distribution to another Restricted Subsidiary, to the limitation
contained in this clause), and
(2) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income,
(d) any gain or loss realized upon the sale or other disposition of
any Property of the Company or any of its consolidated Subsidiaries
(including pursuant to any Sale and Leaseback Transaction) that is not sold
or otherwise disposed of in the ordinary course of business,
(e) any extraordinary gain or loss,
(f) the cumulative effect of a change in accounting principles, and
(g) any non-cash compensation expense realized for grants of
performance shares, stock options or other rights to officers, directors
and employees of the Company or any Restricted Subsidiary, provided that
such shares, options or other rights can be redeemed at the option of the
holder only for Capital Stock of the Company (other than Disqualified
Stock).
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Notwithstanding the foregoing, for purposes of the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (c)(4) thereof.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks, life
insurance companies, mutual funds, pension funds or other institutional lenders
(including the Nortel Financing) providing for revolving credit loans, term
loans, receivables or inventory financing (including through the sale of
receivables or inventory to such lenders or to special purpose, bankruptcy
remote entities formed to borrow from such lenders against such receivables or
inventory) or letters of credit, in each case together with any Refinancings
thereof by any lenders or syndicates of lenders (including any Refinancings of
the Nortel Financing) and as any of the same may be amended or modified.
"Cumulative EBITDA" means, as of any date of determination, the cumulative
EBITDA of the Company and its consolidated Restricted Subsidiaries from and
after the last day of the fiscal quarter of the Company immediately preceding
the Issue Date to the end of the fiscal quarter immediately preceding the date
of determination or, if such cumulative EBITDA for such period is negative, the
amount (expressed as a negative number) by which such cumulative EBITDA is less
than zero.
"Cumulative Interest Expense" means, at any date of determination, the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued from the last day of the fiscal quarter of the Company
immediately preceding the Issue Date to the end of the fiscal quarter
immediately preceding the date of determination.
"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication):
(a) the principal of and premium (if any) in respect of:
(1) debt of such Person for money borrowed, and
(2) debt evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(b) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale and Leaseback Transactions entered into by such
Person;
(c) all obligations of such Person issued or assumed as the deferred
purchase price of Property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(e) the amount of all obligations of such Person with respect to the
Repayment of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends);
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(f) all obligations of the type referred to in clauses (a) through (e)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(g) all obligations of the type referred to in clauses (a) through (f)
of other Persons secured by any Lien on any Property of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such Property
or the amount of the obligation so secured; and
(h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Debt of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date. The amount of Debt represented by a
Hedging Obligation shall be equal to:
(1) zero if such Hedging Obligation has been Incurred pursuant to
clause (e) of the second paragraph of the covenant described under
"-- Certain Covenants -- Limitation on Debt", or
(2) the notional amount of such Hedging Obligation if not Incurred
pursuant to such clause.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable, in either case at the option of the holder
thereof) or otherwise:
(a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(b) is or may become redeemable or repurchaseable at the option of the
holder thereof, in whole or in part, or
(c) is convertible or exchangeable at the option of the holder thereof
for Debt or Disqualified Stock,
on or prior to, in the case of clause (a), (b) or (c), the first anniversary of
the Stated Maturity of the Notes; provided, however, that Capital Stock will not
be deemed to be Disqualified Stock if it is redeemable by exchange for or
through the issuance of Capital Stock (other than Disqualified Stock) of that
issuer; and provided further, however, that any Capital Stock that would not
constitute Disqualified Stock but for the provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such Capital
Stock upon the occurrence of an Asset Sale or Change of Control occurring prior
to the Stated Maturity of the Notes shall not constitute Disqualified Stock if
the Asset Sale or Change of Control provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the covenants
described under "-- Certain Covenants -- Limitation on Asset Sales" and
"-- Repurchase at the Option of Holders Upon a Change of Control" and such
Capital Stock specifically provides that:
(1) such Person shall not repurchase or redeem any such Capital Stock
pursuant to such provisions prior to such Person having repurchased all the
Notes that are required to be repurchased pursuant to such covenants and
(2) no default, event of default or similar occurrence under the terms
of such Capital Stock shall result from such Person not so repurchasing or
redeeming any such Capital Stock because of the prohibition described in
the preceding clause (1).
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Restricted Subsidiary.
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"Domestic Restricted Subsidiary" means any Restricted Subsidiary other than
(a) a Foreign Restricted Subsidiary or (b) a Subsidiary of a Foreign Restricted
Subsidiary.
"Domestic Wholly Owned Subsidiary" means, at any time, a Restricted
Subsidiary all the Voting Stock of which (except directors qualifying shares) is
at such time owned, directly or indirectly, by the Company and its other
Domestic Wholly Owned Subsidiaries and that is organized under the laws of the
United States of America or any State thereof or the District of Columbia.
Notwithstanding the preceding, all Restricted Subsidiaries existing on the Issue
Date, including Alamosa PCS, Inc., Texas Telecommunications, LP and Alamosa
Wisconsin Limited Partnership, will be considered Domestic Wholly Owned
Subsidiaries so long as they remain Restricted Subsidiaries.
"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries:
(a) the sum of Consolidated Net Income for such period, plus the
following to the extent reducing Consolidated Net Income for such period:
(1) the provision for taxes based on income or profits or utilized
in computing net loss,
(2) Consolidated Interest Expense,
(3) depreciation,
(4) amortization of intangibles, and
(5) any other non-cash items (other than any such non-cash item to
the extent that it represents an accrual of or reserve for cash
expenditures in any future period), minus
(b) all non-cash items increasing Consolidated Net Income for such
period (other than any such non-cash item to the extent that it will result
in the receipt of cash payments in any future period).
Notwithstanding the foregoing clause (a), the provision for taxes and the
depreciation, amortization and non-cash items of a Restricted Subsidiary that is
not a Subsidiary Guarantor shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its shareholders.
"Eligible Receivables" means, at any time, net Receivables of the Company
and its Restricted Subsidiaries, as evidenced on the most recent quarterly
consolidated balance sheet of the Company as at a date at least 45 days prior to
such time, arising in the ordinary course of business of the Company or any
Restricted Subsidiary.
"Event of Default" has the meaning set forth under "-- Events of Default".
"Event of Termination" means any of the events described in (i) Section
11.3 of the Company's Management Agreement with Sprint or (ii) Section 13.2 of
either of the Company's Trademark and Service Mark License Agreements with
Sprint, as such agreements referred to in clauses (i) and (ii) may be amended,
supplemented or otherwise modified from time to time. See "Our Affiliation
Agreements with Sprint PCS -- The Management Agreement" and "-- The Trademark
and Service Mark Agreements".
"Exchange Act" means the Securities Exchange Act of 1934.
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of
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whom is under undue pressure or compulsion to complete the transaction. Fair
Market Value shall be determined, except as otherwise provided,
(a) if such Property has a Fair Market Value equal to or less than $15
million, by any Officer of the Company, or
(b) if such Property has a Fair Market Value in excess of $15 million,
by a majority of the Board of Directors and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction, delivered to
the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth:
(a) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants,
(b) in the statements and pronouncements of the Financial Accounting
Standards Board,
(c) in such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(d) the rules and regulations of the Commission governing the
inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13
of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting
staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include:
(1) endorsements for collection or deposit in the ordinary course of
business, or
(2) a contractual commitment by one Person to invest in another Person
for so long as such Investment is reasonably expected to constitute a
Permitted Investment under clause (b) of the definition of "Permitted
Investment".
The term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement,
Commodity Price Protection Agreement or any other similar agreement or
arrangement.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
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obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that any Debt or
other obligations of a Person existing at the time such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary;
and provided further, however, that solely for purposes of determining
compliance with "-- Certain Covenants -- Limitation on Debt", neither accrual of
interest on Debt nor amortization of debt discount shall be deemed to be the
Incurrence of Debt, provided that in the case of Debt sold at a discount to the
principal amount at maturity thereof, the amount of such Debt Incurred shall at
all times be the accreted value of such Debt.
"Independent Financial Advisor" means an investment banking firm of
national standing or any third party appraiser of national standing, provided
that such firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes, debentures or
other securities or evidence of Debt issued by, any other Person, except that
the acquisition of the Capital Stock of another Person in exchange for the
Capital Stock of the Company, other than Disqualified Stock, shall not be
considered an Investment by the Company. For purposes of the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments",
"-- Designation of Restricted and Unrestricted Subsidiaries" and the definition
of "Restricted Payment", "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the Fair Market Value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary of an amount (if positive) equal to:
(a) the Company's "Investment" in such Subsidiary at the time of such
redesignation, less
(b) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation.
In determining the amount of any Investment made by transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such Investment.
"Issue Date" means the date on which the Notes are initially issued.
"Leverage Ratio" means the ratio of:
(a) the outstanding Debt of the Company and the Restricted
Subsidiaries on a consolidated basis, to
(b) the Annualized Pro Forma EBITDA.
The Leverage Ratio is calculated after giving pro forma effect to any Asset
Sale, Investment or acquisition of Property required to be given pro forma
effect pursuant to the definition of Pro Forma EBITDA.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other
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security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such Property (including any Capital Lease Obligation,
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing or any Sale and Leaseback
Transaction).
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other
non-cash form), in each case net of:
(a) all legal, title and recording tax expenses, commissions,
brokerage fees and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Sale,
(b) all payments made on any Debt that is secured by any Property
subject to such Asset Sale, in accordance with the terms of any Lien upon
or other security agreement of any kind with respect to such Property, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Sale, or by applicable law, be repaid out of the proceeds from such
Asset Sale,
(c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Sale, and
(d) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the Property disposed in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"Nortel Financing" means the Credit Agreement, dated as of June 10, 1999,
between Alamosa PCS, LLC and Nortel Networks Inc., as amended as of the closing
of the initial public offering of the Company's common stock, such amended
Credit Agreement to be between Alamosa PCS, Inc. and Nortel Networks Inc.,
without giving effect to any other amendment, supplement or other modification
thereto.
"Obligations" means the obligation of each Subsidiary Guarantor pursuant to
its Subsidiary Guaranty of:
(a) the full and punctual payment of principal and interest on the
Notes when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations of the Company under the
Notes and
(b) the full and punctual performance within applicable grace periods
of all other obligations of the Company under the Notes.
"Officer" means the Chief Executive Officer, the Chief Operating Officer,
the Chief Financial Officer or the Chief Technology Officer of the Company.
"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means Rosewood Telecommunications, L.L.C., Caroline
Hunt Trust Estate, South Plains Advanced Communications & Electronics, Inc.,
West Texas PCS, LLC, Taylor Telecommunications, Inc., Tregan International Corp.
and Plateau Telecommunications Incorporated, any individual who controls any of
the above entities as of the Issue Date and their respective estates, spouses,
ancestors and lineal descendants, the legal representatives of any of the
foregoing and the trustees of any
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bona fide trusts of which the foregoing are the sole beneficiaries or the
grantors, or any Person of which the foregoing "beneficially owns" (as defined
in Rule 13d-3 under the Exchange Act), individually or collectively with any of
the foregoing, at least 66 2/3% of the total voting power of the Voting Stock of
such Person, or any group (as such term is used in Sections 13d or 14d of the
Exchange Act or any successor provisions) consisting entirely of the foregoing
Persons.
"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in:
(a) the Company or any Restricted Subsidiary or any Person that will,
upon the making of such Investment, become a Restricted Subsidiary;
(b) any Person if as a result of such Investment such Person is merged
or consolidated with or into, or transfers or conveys all or substantially
all its Property to, the Company or a Restricted Subsidiary, provided that
such Person's primary business is a Telecommunications Business;
(c) Temporary Cash Investments;
(d) receivables owing to the Company or a Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or such Restricted Subsidiary deems reasonable under the
circumstances;
(e) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(f) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary, as the case may be, provided that such loans and advances do
not exceed $3 million at any one time outstanding;
(g) stock, obligations or other securities received in settlement of
debts created in the ordinary course of business and owing to the Company
or a Restricted Subsidiary or in satisfaction of judgments; and
(h) Hedging Obligations Incurred in compliance with the covenant,
"Limitation on Debt".
"Permitted Liens" means:
(a) Liens to secure Debt permitted to be Incurred under clause (b) of
the second paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (c) of
the second paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Debt", provided that any such Lien may not
extend to any Property of the Company or any Restricted Subsidiary, other
than the Property acquired, constructed or leased with the proceeds of such
Debt and any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision that shall be required in conformity with GAAP shall
have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens, on the Property of the Company or
any Restricted Subsidiary arising in the ordinary course of business and
securing payment of obligations that are not more than 60 days past due or
are being contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like
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nature and Incurred in a manner consistent with industry practice, in each
case which are not Incurred in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase
price of Property and which do not in the aggregate impair in any material
respect the use of Property in the operation of the business of the Company
and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
extend to any other Property of the Company or any other Restricted
Subsidiary that is not a direct Subsidiary of such Person; provided
further, however, that any such Lien was not Incurred in anticipation of or
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company or any Restricted Subsidiary, or
deposits for the payment of rent, in each case Incurred in the ordinary
course of business;
(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(j) Liens existing on the Issue Date not otherwise described in
clauses (a) through (i) above;
(k) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (b), (f), (g) or (j) above; provided, however,
that any such Lien shall be limited to all or part of the same Property
that secured the original Lien (together with improvements and accessions
to such Property) and the aggregate principal amount of Debt that is
secured by such Lien shall not be increased to an amount greater than the
sum of:
(1) the outstanding principal amount, or, if greater, the committed
amount, of the Debt secured by Liens described under clause (b), (f),
(g) or (j) above, as the case may be, at the time the original Lien
became a Permitted Lien under the Indenture, and
(2) an amount necessary to pay any fees and expenses, including
premiums and defeasance costs, incurred by the Company or such
Restricted Subsidiary in connection with such Refinancing;
(l) Liens on the Property of the Company or any Restricted Subsidiary
to secure Debt under any Interest Rate Agreement, provided that such Debt
was Incurred pursuant to clause (e) of the second paragraph of the covenant
described under "-- Certain Covenants -- Limitation on Debt";
(m) any interest or title of a lessor in the Property subject to any
lease incurred in the ordinary course of business, other than a Capital
Lease; and
(n) judgment Liens securing judgment in an aggregate amount
outstanding at any one time of not more than $15 million.
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"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as:
(a) such Debt is in an aggregate principal amount (or if Incurred with
original issue discount, an aggregate issue price) not in excess of the sum
of:
(1) the aggregate principal amount (or if Incurred with original
issue discount, the aggregate accreted value) then outstanding of the
Debt being Refinanced, and
(2) an amount necessary to pay any fees and expenses, including
premiums and defeasance costs, related to such Refinancing,
(b) the Average Life of such Debt is equal to or greater than the
Average Life of the Debt being Refinanced,
(c) the Stated Maturity of such Debt is no earlier than the Stated
Maturity of the Debt being Refinanced, and
(d) the new Debt shall not be senior in right of payment to the Debt
that is being Refinanced;
provided, however, that Permitted Refinancing Debt shall not include:
(x) Debt of a Subsidiary Guarantor that Refinances Debt of the
Company,
(y) Debt of a Subsidiary that is not a Subsidiary Guarantor that
Refinances Debt of the Company or a Subsidiary Guarantor (other than Debt
Incurred pursuant to Credit Facilities), or
(z) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be
equal to the quotient of such dividend divided by the difference between one and
the maximum statutory federal income rate (expressed as a decimal number between
1 and 0) then applicable to the issuer of such Preferred Stock.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Pro Forma EBITDA" means, for any period, the EBITDA of the Company and its
consolidated Restricted Subsidiaries, after giving effect to the following:
if:
(a) since the beginning of such period, the Company or any Restricted
Subsidiary shall have made any Asset Sale or an Investment (by merger or
otherwise) in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary) or an acquisition of Property,
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(b) the transaction giving rise to the need to calculate Pro Forma
EBITDA is such an Asset Sale, Investment or acquisition, or
(c) since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made such an Asset Sale, Investment or acquisition,
EBITDA for such period shall be calculated after giving pro forma effect to such
Asset Sale, Investment or acquisition as if such Asset Sale, Investment or
acquisition occurred on the first day of such period.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture, the
value of any Property shall be its Fair Market Value.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act, other than the common stock offering concurrent with this
Offering.
"Purchase Money Debt" means Debt:
(a) consisting of the deferred purchase price of property, conditional
sale obligations, obligations under any title retention agreement, other
purchase money obligations and obligations in respect of industrial revenue
bonds, in each case where the maturity of such Debt does not exceed the
anticipated useful life of the Property being financed, and
(b) Incurred to finance the acquisition, construction or lease by the
Company or a Restricted Subsidiary of such Property, including additions
and improvements thereto;
provided, however, that such Debt is Incurred within 180 days after the
acquisition, construction or lease of such Property by the Company or such
Restricted Subsidiary.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money and proceeds
and products thereof in each case generated in the ordinary course of business.
"Refinance" means, in respect of any Debt, to refinance, amend, extend,
renew, refund, repay, prepay, repurchase, redeem, defease or retire, or to issue
other Debt, in exchange or replacement for, such Debt. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Repay" means, in respect of any Debt, to repay, prepay, repurchase,
redeem, legally defease or otherwise retire such Debt, including through open
market repurchases. "Repayment" and "Repaid" shall have correlative meanings.
For purposes of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales", Debt shall be considered to have been Repaid only to the extent
the related loan commitment, if any, shall have been permanently reduced in
connection therewith.
"Restricted Payment" means:
(a) any dividend or distribution (whether made in cash, securities or
other Property) declared or paid on or with respect to any shares of
Capital Stock of the Company or any Restricted Subsidiary (including any
payment in connection with any merger or consolidation with or into the
Company or any Restricted Subsidiary), except for (i) any dividend or
distribution that is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, to the other shareholders of such Restricted Subsidiary on a
pro rata basis or on a basis that results in the receipt by the Company or
a Restricted Subsidiary of dividends or distributions of greater value than
it would receive on a pro rata basis); or (ii) any dividend or distribution
payable solely in shares (or options, warrants or other rights to purchase
shares) of Capital Stock (other than Disqualified Stock) of the Company;
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(b) the purchase, repurchase, redemption, acquisition or retirement
for value of any Capital Stock of the Company (other than from the Company
or a Restricted Subsidiary) or any securities exchangeable for or
convertible into any such Capital Stock, including the exercise of any
option to exchange any Capital Stock (other than for or into Capital Stock
of the Company that is not Disqualified Stock);
(c) the purchase, repurchase, redemption, acquisition or retirement
for value, prior to the date for any scheduled maturity, sinking fund or
amortization or other installment payment, of any Subordinated Obligation
(other than the purchase, repurchase or other acquisition of any
Subordinated Obligation purchased in anticipation of satisfying a scheduled
maturity, sinking fund or amortization or other installment obligation, in
each case due within one year of the date of acquisition); or
(d) any Investment (other than Permitted Investments) in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
relating to Property now owned or hereafter acquired whereby the Company or a
Restricted Subsidiary transfers such Property to another Person and the Company
or a Restricted Subsidiary leases it from such Person.
"Securities Act" means the Securities Act of 1933.
"Senior Debt" of the Company means all Debt of the Company, except:
(a) Debt of the Company that is by its terms subordinate in right of
payment to the Notes;
(b) any Debt Incurred in violation of the provisions of the Indenture;
(c) accounts payable or any other obligations of the Company to trade
creditors created or assumed by the Company in the ordinary course of
business in connection with the obtaining of materials or services
(including Guarantees thereof or instruments evidencing such liabilities);
(d) any liability for Federal, state, local or other taxes owed or
owing by the Company;
(e) any obligation of the Company to any Subsidiary; or
(f) any obligations with respect to any Capital Stock of the Company.
"Senior Debt" of any Subsidiary Guarantor has a correlative meaning.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is finally due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of a
Change of Control or any other contingency beyond the control of the issuer
unless such contingency has occurred).
"Subordinated Obligation" means any Debt of the Company or any Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Notes or the applicable
Subsidiary Guaranty pursuant to a written agreement to that effect.
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"Subsidiary" means, in respect of any Person, any corporation, company
(including any limited liability company), association, partnership, joint
venture or other business entity of which a majority of the total voting power
of the Voting Stock is at the time owned or controlled, directly or indirectly,
by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person, or
(c) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary and any
other Person that becomes a Subsidiary Guarantor pursuant to the covenant
described under "-- Certain Covenants -- Future Subsidiary Guarantors".
"Subsidiary Guaranty" means a Guarantee on the terms set forth in the
Indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the Notes.
"Telecommunications Assets" means all assets and rights, contractual or
otherwise, used or intended for use in connection with (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities or (ii) the ownership, design,
construction, development, acquisition, installation or management of
communications systems, and the Capital Stock of any Person engaged entirely or
substantially entirely in the above listed activities.
"Telecommunications Business" means (a) the ownership, design,
construction, development, acquisition, installation or management of
communications systems, (b) the delivery or distribution of communications,
voice, data or video services or (c) any business or activity reasonably related
or ancillary to the activities described in clauses (a) or (b) of this
definition, including, without limitation, any business conducted by the Company
or any Restricted Subsidiary on the Issue Date and the acquisition, holding or
exploitation of any license relating to the activities described in clauses (a)
or (b) of this definition.
"Temporary Cash Investments" means any of the following:
(a) Investments in U.S. Government Obligations or in securities
guaranteed by the full faith and credit of the United States of America, in
each case maturing within 365 days of the date of acquisition thereof;
(b) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 90 days of the date of acquisition
thereof issued by a bank or trust company organized under the laws of the
United States of America or any State thereof having capital, surplus and
undivided profits aggregating in excess of $500 million and whose long-term
debt is rated "A-3" or "A-" or higher according to Moody's or S&P (or such
similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the
Securities Act));
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into
with:
(1) a bank meeting the qualifications described in clause (b)
above, or
(2) any primary government securities dealer reporting to the
Market Reports Division of the Federal Reserve Bank of New York;
(d) Investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America with a rating at the time as of which any
Investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act)); and
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(e) direct obligations (or certificates representing an ownership
interest in such obligations) of any State of the United States of America
(including any agency or instrumentality thereof) for the payment of which
the full faith and credit of such State is pledged and which are not
callable or redeemable at the issuer's option, provided that:
(1) the long-term debt of such State is rated "A-3" or "A-" or
higher according to Moody's or S&P (or such similar equivalent rating by
at least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act)), and
(2) such obligations mature within 180 days of the date of
acquisition thereof.
"Total Invested Capital" means at any time of determination, the sum of,
without duplication:
(a) the total amount of equity capital contributed to the Company as
of the Issue Date (being $37 million), plus
(b) the aggregate net cash proceeds received by the Company from the
common stock offering concurrent with this offering, plus
(c) Capital Stock Sale Proceeds, plus
(d) the net reduction in Investments in any Person other than the
Company or a Restricted Subsidiary resulting from dividends, repayments of
loans or advances or other transfers of Property, in each case to the
Company or any Restricted Subsidiary from such Person less the cost of the
disposition of such Investment, provided that such amount shall not exceed,
in the case of any Person, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person, plus
(e) the Fair Market Value of Property received by the Company after
the Issue Date in exchange for Capital Stock (other than Disqualified
Stock) of the Company, other than Capital Stock issued to a Subsidiary of
the Company, to employees or to an employee stock ownership plan or trust
established by the Company or any Subsidiary for the benefit of their
employees, plus
(f) consolidated Debt of the Company and the Restricted Subsidiaries
outstanding at the date of determination, minus
(g) the aggregate amount of all Restricted Payments declared or made
on or after the Issue Date.
"Unrestricted Subsidiary" means:
(a) any Subsidiary of the Company that is designated after the Issue
Date as an Unrestricted Subsidiary as permitted or required pursuant to the
covenant described under "-- Certain Covenants -- Designation of Restricted
and Unrestricted Subsidiaries" and not thereafter redesignated as a
Restricted Subsidiary as permitted pursuant thereto; and
(b) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all the Voting Stock of which (except directors' qualifying shares)
is at such time owned, directly or indirectly, by the
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Company and its other Wholly Owned Subsidiaries. Notwithstanding the preceding,
all Restricted Subsidiaries existing on the Issue Date, including Alamosa PCS,
Inc., Texas Telecommunications, LP and Alamosa Wisconsin Limited Partnership,
will be considered Wholly Owned Restricted Subsidiaries so long as they remain
Restricted Subsidiaries.
BOOK-ENTRY SYSTEM
The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Notes. The Notes will be initially issued in the
form of one or more Global Securities registered in the name of DTC or its
nominee.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the Notes represented by such Global Security purchased by such Persons in the
Offering. Such accounts shall be designated by the Underwriters. Ownership of
beneficial interests in a Global Security will be limited to Persons that have
accounts with DTC ("participants") or Persons that may hold interests through
participants. Any Person acquiring an interest in a Global Security through an
offshore transaction may hold such interest through Cedel or Euroclear.
Ownership of beneficial interests in a Global Security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by DTC (with respect to participants' interests) and such
participants (with respect to the owners of beneficial interests in such Global
Security other than participants). The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of and interest on Notes represented by a Global
Security will be made in immediately available funds to DTC or its nominee, as
the case may be, as the sole registered owner and the sole holder of the Notes
represented thereby for all purposes under the Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Security, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Security held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Notes only if:
(a) DTC notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security or if at any time DTC
ceases to be a clearing agency registered under the Exchange Act,
(b) the Company in its discretion at any time determines not to have
all the Notes represented by such Global Security, or
(c) there shall have occurred and be continuing a Default or an Event
of Default with respect to the Notes represented by such Global Security.
Any Global Security that is exchangeable for certificated Notes pursuant to the
preceding sentence will be exchanged for certificated Notes in authorized
denominations and registered in such names as DTC or any successor depositary
holding such Global Security may direct. Subject to the foregoing, a Global
Security is not exchangeable, except for a Global Security of like denomination
to be registered in the name of DTC or any successor depositary or its nominee.
In the event that a Global Security becomes exchangeable for certificated Notes,
(a) certificated Notes will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof,
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(b) payment of principal of, and premium, if any, and interest on, the
certificated Notes will be payable, and the transfer of the certificated
Notes will be registerable, at the office or agency of the Company
maintained for such purposes, and
(c) no service charge will be made for any registration of transfer or
exchange of the certificated Notes, although the Company may require
payment of a sum sufficient to cover any tax or governmental charge imposed
in connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Security for all purposes under
the Indenture and the Notes. Except as set forth above, owners of beneficial
interests in a Global Security will not be entitled to have the Notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
such Global Security. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its interest, to exercise any rights of a holder
under the Indenture. The Company understands that under existing industry
practices, in the event that the Company requests any action of holders or that
an owner of a beneficial interest in a Global Security desires to give or take
any action which a holder is entitled to give or take under the Indenture, DTC
or any successor depositary would authorize the participants holding the
relevant beneficial interest to give or take such action and such participants
would authorize beneficial owners owning through such participants to give or
take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Underwriters), banks, trust companies, clearing
corporations and certain other organizations some of whom (or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies, that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. DTC may discontinue providing its
services as depository with respect to the Notes at any time by giving
reasonable notice to the Company or ChaseMellon Shareholder Services, the
Company's agent. Under such circumstances, in the event that a successor
depository is not obtained, certificated Notes are required to be printed and
delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC, or a successor depository. In that event, certificated
Notes will be printed and delivered. None of the Company, the Trustee or the
Underwriters will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
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UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the acquisition, ownership and disposition of senior
discount notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who purchase senior discount notes on their
original issue and who hold such senior discount notes as capital assets within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended.
The discussion does not purport to address tax consequences to holders who may
be subject to special tax rules because of their status, such as financial
institutions, insurance companies, tax-exempt organizations and broker-dealers,
persons whose functional currency is not the U.S. dollar or because of how they
hold the senior discount notes, such as if the senior discount notes are held as
part of a straddle, hedge, conversion transaction or other integrated
investment. In addition, this discussion does not address U.S. federal
alternative minimum tax consequences or any aspect of state, local or foreign
taxation. This discussion is based upon the Internal Revenue Code of 1986, U.S.
Treasury Department regulations promulgated thereunder and administrative and
judicial interpretation thereof, all or which are subject to change, possibly on
a retroactive basis.
For purposes of this discussion, a U.S. holder is any United States citizen
or resident, corporation or other entity taxable as a corporation created or
organized on or under the laws of the United States or any state thereof, estate
the income of which is subject to United State federal income taxation
regardless of its source, or trust if a United States court exercises primary
jurisdiction over its administration and one or more United States persons have
the authority to control all of its substantial decisions. A foreign holder is a
holder other than a U.S. holder.
If an entity treated as a partnership for U.S. federal income tax purposes
purchases a note, the tax treatment of a partner will generally depend upon the
status of the partner and upon the activities of the partnership. Partners of
partnerships purchasing notes should consult their tax advisors.
PROSPECTIVE PURCHASERS OF THE SENIOR DISCOUNT NOTES ARE URGED TO CONSULT
THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE SENIOR DISCOUNT NOTES, AS WELL
AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
ISSUE PRICE
The issue price of a senior discount note will be the first price at which
a substantial amount of the senior discount note is sold to purchasers for
money, excluding sales to bond houses, brokers, or similar persons acting in the
capacity of an underwriter, placement agent or wholesaler.
CHARACTERIZATION OF THE SENIOR DISCOUNT NOTES
We will treat the senior discount notes as indebtedness for United States
federal income tax purposes, and the following discussion assumes that such
treatment will be respected by the IRS.
TAX CONSEQUENCES TO U.S. HOLDERS OF SENIOR DISCOUNT NOTES
Taxation of interest. The senior discount notes will be treated as issued
with original issue discount ("OID"). Thus, all U.S. holders, regardless of
their method of accounting for tax purposes, will be required to include
original issue discount in income as it accrues. Original issue discount
generally will be treated as interest income to the U.S. holder and will accrue
on a yield-to-maturity basis over the life of the senior discount notes, as
discussed below. The rate at which original issue discount accrues on the life
of the senior discount notes will not necessarily equal the stated rate of
interest on the senior discount notes payable beginning in 2005. U.S. holders
will not be required to include in income the actual cash receipt of interest
payments beginning in 2005.
The amount of original issue discount with respect to a senior discount
note will be an amount equal to the excess of the stated redemption price at
maturity of such senior discount note over the issue price of such senior
discount note. The stated redemption price at maturity of each senior discount
note will
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include all cash payments, including principal and interest, required to be made
under the senior discount note through maturity. The issue price of a senior
discount note will be $ per $1,000 principal amount at maturity.
Accrued original issue discount is the amount of original issue discount
accruing to a holder with respect to any senior discount note and will be the
sum of the "daily portions" of original issue discount with respect to such
senior discount note for each day during the taxable year in which such holder
owns such senior discount note. The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the original issue
discount allocable to that accrual period. An accrual period may be of any
length and may vary in length over the term of a senior discount note provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs either on the final day or on the first day of
an accrual period. Accrual periods for the senior discount notes will occur
every six months with the final accrual period expected to end on the date of
maturity.
The amount of original issue discount accruing during any six-month accrual
period with respect to a senior discount note will be equal to the following
amount: (1) the "adjusted issue price" of such senior discount note at the
beginning of that accrual period, multiplied by (2) the yield to maturity of
such senior discount note (taking into account the length of the accrual
period). Original issue discount allocable to the final accrual period is the
difference between the amount payable at maturity and the adjusted issue price
at the beginning of the final accrual period. If all accrual periods are of
equal length, except for an initial short accrual period, the amount of original
issue discount allocable to the initial short accrual period may be computed
under any reasonable method. The adjusted issue price of a senior discount note
at the beginning of its first accrual period will be equal to its issue price.
The adjusted issue price at the beginning of any subsequent accrual period
will be equal to:
- the adjusted issue price at the beginning of the preceding accrual
period, increased by,
- the amount of original issue discount accrued during the preceding
accrual period, and included in the gross income of any holder, and
decreased by,
- any payments made on the senior discount note during the preceding
accrual period.
We may redeem the senior discount notes at any time on or after a certain
date, and, in certain circumstances, may redeem or repurchase all or a portion
of the senior discount notes any time prior to the maturity date. For purposes
of calculating original issue discount on the senior discount notes, U.S.
Treasury Department regulations will treat us as having exercised our option to
redeem the senior discount notes if the exercise of that option would lower the
yield on the senior discount notes. Because our exercise of the option to redeem
would increase, rather than decrease, the yield on the senior discount notes, we
will not be treated as having exercised the option under these rules.
Applicable high-yield discount obligations. We expect the senior discount
notes to have "significant original issue discount" and we expect the yield of
the senior discount notes to be at least five percentage points above the
applicable federal rate for the month of issuance. Therefore, we expect that the
senior discount notes will be classified as applicable high yield discount
obligations and we will not be able to deduct for tax purposes any original
issue discount required to be accrued on the senior discount notes until such
interest is actually paid. In addition, if the senior discount notes are
classified as applicable high yield discount obligations and the yield on the
senior discount notes is more than six percentage points above the applicable
federal rate, then:
- a portion of such interest corresponding to the yield in excess of six
percentage points above the applicable federal rate would not be
deductible by us at any time, and
- a U.S. corporate holder may be entitled to treat the interest that would
not be deductible as a dividend to the extent of our earnings and profits
which may then qualify for the dividends received deduction. In such
event, U.S. corporate holders should consult their tax advisers
concerning the availability of the dividends received deduction.
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Sale, exchange or retirement of the senior discount notes. Upon the sale,
exchange or retirement of senior discount notes, a U.S. holder will recognize
gain or loss equal to the difference between the amount realized upon the sale,
exchange or retirement (other than amounts attributable to accrued but unpaid
interest, which will be taxable as ordinary interest income) and the U.S.
holder's adjusted tax basis in the senior discount notes. An original U.S.
holder's adjusted tax basis in the senior discount notes generally will be the
U.S. holder's cost therefor, increased by the amount of original issue discount
previously accrued on the senior discount notes through the sale, exchange or
retirement date and decreased by the amount of all prior cash payments received
with respect to the senior discount notes. Gain or loss recognized by a U.S.
holder on the sale, exchange, or retirement of the senior discount notes will be
capital gain or loss. An individual who disposes of senior discount notes that
he or she holds as a capital asset for more than one year qualifies for the long
term capital gains tax rate. Effective 2001, the 20% rate drops to 18% or the
10% rate drops to 8% for capital assets acquired after the year 2000 and held
for more than five years. To take advantage of the lower rate, individuals may
elect to treat pre-2001 property as sold and repurchased at fair market value on
January 1, 2001.
TAX CONSEQUENCES TO FOREIGN HOLDERS OF SENIOR DISCOUNT NOTES
Assuming that the interest income received by a foreign holder is not
effectively connected with the foreign holder's conduct of a trade or business
in the United States, a foreign holder generally will not be subject to United
States federal income or withholding tax on such interest so long as the foreign
holder (1) is not (a) actually or constructively a "10 percent shareholder" of
us, (b) a "controlled foreign corporation" with respect to which we are a
"related person" within the meaning of the Internal Revenue Code of 1986, or (c)
a bank receiving interest on a loan entered into in the ordinary course of
business, and (2) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the senior discount note is a
foreign person and providing that foreign person's name and address. If the
foregoing conditions are not satisfied, then interest paid on the senior
discount notes will be subject to United States withholding tax at a rate of 30
percent, unless such rate is reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain a foreign holder realizes on the sale, exchange,
retirement or other taxable disposition of a senior discount note will be exempt
from United States federal income and withholding tax, provided that:
(a) the gain is not effectively connected with the foreign holder's
conduct of a trade or business in the United States;
(b) in the case of a foreign holder that is an individual, the foreign
holder is not present in the United States for 183 days or more in
the taxable year; and
(c) the foreign holder is not subject to tax pursuant to the
provisions of U.S. tax law applicable to certain expatriates.
If the interest, gain or other income a foreign holder recognizes on a
senior discount notes is effectively connected with the foreign holder's conduct
of a trade or business in the United States, the foreign holder, although exempt
from the withholding tax previously discussed if an appropriate statement is
furnished, generally will be subject to United States federal income tax on the
interest, gain or other income on a net income basis at federal income tax rates
applicable to U.S. holders. In addition, if the foreign holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30 percent of
its "effectively connected earnings and profits," as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
If interest on the senior discount notes is exempt from withholding of
United States federal income tax under the rules described above, the senior
discount notes will not be included in the estate of a deceased foreign holder
of United States federal estate tax purposes.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
We will be required to report annually to the IRS, and to each holder of
record, the amount of original issue discount accrued on the senior discount
notes and the amount of interest withheld for federal income taxes, if any, for
each calendar year, except as to exempt holders, including corporations, tax-
exempt organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, and nonresident aliens who provide certification as to
their status. Each holder, other than holders who are not subject to the
reporting requirements will be required to provide to us, under penalties of
perjury, a certificate containing the holder's name, address, correct federal
taxpayer identification number and a statement that the holder is not subject to
backup withholding. Should a nonexempt holder fail to provide the required
certificate, we will be required to withhold 31% of the interest otherwise
payable to the holder and to remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
In the case of payments of interest to foreign holders, U.S. Treasury
Department regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which the
requisite certification, as described above for the exemption from the 30%
withholding tax, has been received or an exemption has otherwise been
established; provided that neither we nor our payment agent have actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not in fact satisfied. Under Treasury regulations, these
information reporting and backup withholding requirements will apply, however,
to the gross proceeds paid to a foreign holder on the disposition of the senior
discount notes by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or the holder
otherwise establishes an exemption. Information reporting requirements, but not
backup withholding, will also apply to a payment of the proceeds of a
disposition of the senior discount notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the senior discount notes is not a United States person, and such
broker has no actual knowledge to the contrary, or the holder establishes an
exception. Neither information reporting nor backup withholding generally will
apply to a payment of the proceeds of a disposition of the senior discount notes
by or through a foreign office of a foreign broker.
The U.S. Treasury Department recently promulgated final regulations
regarding the withholding and information reporting rules relating to foreign
holders discussed above. In general, the final regulations do not significantly
alter the substantive withholding and information reporting requirements but
rather 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 certain transition rules. Foreign holders should
consult their own tax advisors with respect to the impact, if any, of the new
final regulations.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated , 2000, each underwriter named below has severally agreed to
purchase, and Alamosa has agreed to sell to such underwriter, the principal
amount at maturity of notes set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
AT
MATURITY
NAME OF NOTES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. .................................. $
Credit Suisse First Boston Corporation......................
Lehman Brothers Inc. .......................................
Total.............................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes 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 notes if they purchase any of
the notes.
The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation and Lehman Brothers Inc. are acting as representatives,
propose to offer some of the notes directly to the public at the public offering
price set forth on the cover page of this prospectus and some of the notes to
certain dealers at the public offering price less a concession not in excess of
% of the public offering price of the notes. The underwriters may allow,
and such dealers may reallow, a concession not in excess of % of the public
offering price of the notes on sales to certain other dealers. After the initial
offering of the notes to the public, the public offering price and such
concessions may be changed by the representatives.
The following table shows the underwriting discounts and commissions we
will pay to the underwriters in connection with this offering (expressed as a
percentage of the public offering price of the notes).
<TABLE>
<CAPTION>
PER
NOTE TOTAL
-------- --------
<S> <C> <C>
Underwriting Discount....................................... % $
</TABLE>
We have agreed that for a period of 90 days from the date of this
prospectus, we will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any of our debt securities.
In connection with the offering, Salomon Smith Barney Inc., Credit Suisse
First Boston Corporation and Lehman Brothers Inc., on behalf of the
underwriters, may purchase and sell notes in the open market. These transactions
may include over-allotment, syndicate covering transactions and stabilizing
transactions. Over-allotment involves syndicate sales of notes in excess of the
amount of notes to be purchased by the underwriters in the offering, which
creates a syndicate short position. Syndicate covering transactions involve
purchases of the notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing transactions
consist of certain bids or purchases of notes made for the purpose of preventing
or retarding a decline in the market price of the notes 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., Credit Suisse First Boston Corporation or Lehman
Brothers Inc., in covering syndicate short positions or making stabilizing
purchases, repurchases notes originally sold by that syndicate member.
Any of these activities may cause the price of the notes 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 in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We estimate that our total expenses of this offering, including
underwriting discounts, will be $ .
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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,
the representatives are also acting as underwriters for the initial public
offering of our common stock.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of those
liabilities.
LEGAL MATTERS
Haynes and Boone, LLP, Dallas, Texas, our counsel, will issue an opinion
regarding the validity of the notes offered by this prospectus. Certain legal
matters will be passed upon for the underwriters by Cravath, Swaine & Moore, New
York, New York.
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.
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 notes
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 our initial public offering of common stock, 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.
143
<PAGE> 148
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> 149
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> 150
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, 48,500,000 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> 151
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE PERIOD FOR THE PERIOD FOR THE 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)......... 48,500,000 48,500,000 48,500,000 48,500,000
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> 152
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT 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> 153
ALAMOSA PCS LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD CUMULATIVE
JULY 16, 1998 JULY 16, 1998 FOR THE 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> 154
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 has signed a letter of intent to amend its affiliation agreements with
Sprint PCS to expand its services network so that it will include 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, shares of Alamosa PCS Holdings Inc., the registrant, will be exchanged
for the Company's membership interests. The Company will be wholly owned by
Alamosa PCS Holdings Inc.
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, 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> 155
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> 156
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 is organized as a
Texas limited liability company. Therefore, the results of operations of the
Company are included in the income tax returns of its members. Accordingly, no
provision for income taxes is recorded in the accompanying financial statements.
Revenue recognition
The Company will recognize revenue as services are performed. Sprint PCS
will handle Alamosa's billings and collections and will retain 8% of collected
service revenues from Sprint PCS subscribers based in Alamosa's territory and
from non-Sprint PCS subscribers who roam onto Alamosa's network. The amount
retained by Sprint 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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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. 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> 164
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> 165
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 October 1999, the Company entered into a letter of intent to amend the
affiliation agreement with Sprint PCS to expand its service networks to include
markets located in Wisconsin. As a result, Alamosa formed its 99% owned
subsidiary, Alamosa Wisconsin LP, to perform Alamosa's obligations under the
affiliation agreements with Sprint PCS.
The Company intends to file 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 48,500,000 shares of common stock of Alamosa PCS Holdings, Inc.
in exchange for their membership interests in the limited liability company. The
ownership percentages among the Company's shareholders following the
reorganization will remain consistent with the ownership percentages described
in Note 1. The Company plans to utilize the proceeds from the aforementioned
offerings to fund the build-out of its expanded network.
F-18
<PAGE> 166
ALAMOSA PCS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the initial public offering described above, the Company
expects to offer senior discount notes through a public offering. The senior
discount notes will be unsecured obligations and will rank equally with all
future senior debt and senior to all 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. 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> 167
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
$3,358,625 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 upon 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, 2000. These amendments will result
in a new measurement date, and compensation expense of $973,682 will be
recognized upon completion of the initial public offering. The remaining
unearned compensation totaling $1,947,363 will be recognized over the amended
vesting period.
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 upon 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 recognition of compensation expense of $197,741 at the
completion of the initial public offering. The remaining unearned compensation
totaling $395,482 will be recognized over the amended vesting period.
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> 168
A Sprint PCS Network Partner
[ALAMOSA LOGO]
<PAGE> 169
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
ALAMOSA PCS HOLDINGS, INC.
% SENIOR DISCOUNT NOTES DUE 2010
[ALAMOSA LOGO]
------------
PROSPECTUS
, 2000
------------
SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000, all dealers that buy, sell or trade the notes,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 170
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities to be registered. All of
the amounts shown are estimated except for the Securities and Exchange
Commission registration fee, the NASD filing fee and the New York Stock Exchange
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 41,184
NASD filing fee............................................. 16,100
New York Stock Exchange listing fees........................ 7,800
Printing and engraving expenses............................. 125,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 59,000
Trustee fees................................................ 6,000
Miscellaneous expenses...................................... 4,916
--------
Total.................................................. $360,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of Alamosa PCS Holdings, Inc. ("Alamosa")
provides that the liability of the directors of Alamosa to Alamosa or any of its
stockholders for monetary damages arising from acts or omissions occurring in
their capacity as directors shall be limited to the fullest extent permitted by
the laws of Delaware or any other applicable law. This limitation does not apply
with respect to any action in which a director would be liable under Section 174
of the General Corporation Law of the State of Delaware nor does it apply with
respect to any liability in which a director:
- breached his duty of loyalty to Alamosa or its stockholders;
- did not act in good faith or, in failing to act, did not act in good
faith;
- acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law; or
- derived an improper personal benefit.
Alamosa's Certificate of Incorporation provides that Alamosa shall
indemnify its directors, officers and employees and former directors, officers
and employees to the fullest extent permitted by the laws of Delaware or any
other applicable law. Pursuant to the provisions of Section 145 of the General
Corporation Law of the State of Delaware, Alamosa has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of Alamosa) by reason of the fact that he is or was a
director, officer, employee, or agent of Alamosa, against any and all expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit, or proceeding. The power to indemnify
applies only if such person acted in good faith and in a manner he reasonably
believed to be in the best interest, or not opposed to the best interest, of
Alamosa and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of
Alamosa as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself and with
the further limitation that in such actions no indemnification shall be made in
the
II-1
<PAGE> 171
event of any adjudication of negligence or misconduct unless the court, in its
discretion, believes that in light of all the circumstances indemnification
should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Reference is made to the Form of Underwriting Agreement (to be filed as
Exhibit 1.1 to this registration statement) which provides for indemnification
by the Underwriters under certain circumstances of the directors and officers of
Alamosa signing the registration statement and certain controlling persons of
Alamosa against certain liabilities, including those arising under the
Securities Act.
Alamosa has directors' and officers' liability insurance covering its
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Alamosa pursuant
to the foregoing provisions, Alamosa has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Alamosa PCS Holdings, Inc., a Delaware corporation ("Alamosa") was formed
on October 19, 1999. It has no assets and has issued no capital stock.
Immediately prior to the closing of our initial public offering of common stock,
we will reorganize as described in the prospectus. In connection with the
reorganization, Alamosa will merge with Alamosa PCS Holdings, Inc., a Texas
corporation ("Texas Holdings"). To effectuate the merger, Alamosa will issue 100
shares of common stock to Texas Holdings. Alamosa will then merge into Texas
Holdings, with Alamosa as the surviving corporation. In the merger, Alamosa will
issue unregistered shares of Alamosa common stock to the stockholders of Texas
Holdings.
Alamosa will also grant stock options to directors, officers, employees and
consultants before the closing of our initial public offering of common stock.
These are the only unregistered issuances of securities that Alamosa currently
contemplates.
Texas Holdings will be the successor to the current operating company,
Alamosa PCS, LLC, by virtue of a conversion of the LLC to a corporation.
The persons to receive Alamosa common stock in connection with the
reorganization, their owners, the consideration to be received by Alamosa for
such common stock and the number of shares of common stock to be received are
set forth in the tables below.
1. COMMENCEMENT OF THE REORGANIZATION
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF MEMBERSHIP INTEREST
SHARES OF OUR RECEIVED IN
NATURE OF COMMON STOCK EXCHANGE FOR OUR
ENTITY RECEIVING SECURITIES OWNER, IF AN ENTITY CONSIDERATION TO BE ISSUED COMMON STOCK(1)
- --------------------------- ------------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Alamosa PCS Holdings, Inc.
(Texas)............................. Persons listed in $100 100 100%
Item 2
</TABLE>
II-2
<PAGE> 172
2. COMMON STOCK TO BE ISSUED PURSUANT TO REINCORPORATION MERGER
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF MEMBERSHIP INTEREST
SHARES OF OUR RECEIVED IN
NATURE OF COMMON STOCK EXCHANGE FOR OUR
ENTITY RECEIVING SECURITIES OWNER, IF AN ENTITY CONSIDERATION TO BE ISSUED COMMON STOCK(1)
- --------------------------- ------------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Rosewood Telecommunications,
L.L.C. ............................... Caroline Hunt Trust Membership 9,725,000 20.05%
Estate Interest
South Plains Advanced Communications &
Electronics, Inc. .................... Rural telephone Membership 8,652,085 17.84
cooperative; Interest
members are
subscribers for
phone service
West Texas PCS, LLC................... Michael R. Budagher Membership 7,072,915 14.58
Interest
Taylor Telecommunications, Inc. ...... Rural telephone Membership 5,100,000 10.52
cooperative; Interest
members are
subscribers for
phone service
Plateau Telecommunications,
Incorporated.......................... Rural telephone Membership 3,000,000 6.19
cooperative; Interest
members are
subscribers for
phone service
Tregan International Corp. ........... Regan Silber and Membership 3,000,000 6.19
Trevar Pearlman Interest
XIT Telecommunication & Technology,
Inc. ................................. Rural telephone Membership 2,750,000 5.67
cooperative; Interest
members are
subscribers for
phone service
LEC Development, Inc. ................ Rural telephone Membership 2,500,000 5.15
cooperative; Interest
members are
subscribers for
phone service
Wes-Tex Telecommunications, Inc. ..... Rural telephone Membership 2,500,000 5.15
cooperative; Interest
members are
subscribers for
phone service
Longmont PCS, LLC..................... Jeffrey P. Howard Membership 1,000,000 2.06
Interest
J&M Family Partnership Ltd............ James R. and Mary Membership 666,435 1.37
Underwood and their Interest
three children
Five S, Ltd. ......................... David and Patsy Membership 593,200 1.22
Sharbutt and their Interest
three children
Yellow Rock PCS, L.P. ................ Adam Lampert Membership 400,000 0.82
Interest
John St. Clair........................ -- Membership 292,938 0.60
Interest
Harness, Ltd.......................... -- Membership 292,938 0.60
Interest
Tony Bliss............................ -- Membership 288,056 0.59
Interest
Rick Overman.......................... -- Membership 178,205 0.37
Interest
</TABLE>
II-3
<PAGE> 173
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF MEMBERSHIP INTEREST
SHARES OF OUR RECEIVED IN
NATURE OF COMMON STOCK EXCHANGE FOR OUR
ENTITY RECEIVING SECURITIES OWNER, IF AN ENTITY CONSIDERATION TO BE ISSUED COMMON STOCK(1)
- --------------------------- ------------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
W. Don Stull.......................... -- Membership 97,647 0.20
Interest
Frank Eldridge........................ -- Membership 73,235 0.15
Interest
David E. Sharbutt..................... -- Membership 48,823 0.10
Interest
Barry Moore........................... -- Membership 48,823 0.10
Interest
Randy Yeisley......................... -- Membership 48,824 0.10
Interest
Addie Lee Hicks....................... -- Membership 24,412 0.05
Interest
Steven Steele......................... -- Membership 24,412 0.05
Interest
Paula Sexton.......................... -- Membership 24,412 0.05
Interest
Will Payne............................ -- Membership 24,412 0.05
Interest
Gail McVicker......................... -- Membership 24,412 0.05
Interest
Gaylord Ellerman...................... -- Membership 24,412 0.05
Interest
Jim McDuff............................ -- Membership 24,412 0.05
Interest
W. Don Stull.......................... -- Options(3) 145,500(2) (3)
</TABLE>
The persons to receive options to purchase Alamosa common stock, the nature
of consideration for these options and number of shares that may be purchased
pursuant to these options are set forth in the table below.
3. OPTIONS TO BE GRANTED
<TABLE>
<CAPTION>
NATURE OF NUMBER OF
OWNER CONSIDERATION OPTIONS
- ----- ------------- ------------
<S> <C> <C>
David E. Sharbutt........................................... Employment 1,697,500(2)
Jerry W. Brantley........................................... Employment 1,697,500(2)
Kendall Cowan............................................... Employment 1,455,000(2)
Michael R. Budagher......................................... Director 28,000(2)
Services
Ray M. Clapp, Jr. .......................................... Director 43,000(2)
Services
Scotty Hart................................................. Director 28,000(2)
Services
</TABLE>
II-4
<PAGE> 174
<TABLE>
<CAPTION>
NATURE OF NUMBER OF
OWNER CONSIDERATION OPTIONS
- ----- ------------- ------------
<S> <C> <C>
Thomas Hyde................................................. Director 28,000(2)
Services
Schuyler B. Marshall........................................ Director 28,000(2)
Services
Tom M. Phelps............................................... Director 28,000(2)
Services
Reagan W. Silber............................................ Director 28,000(2)
Services
Jimmy R. White.............................................. Director 28,000(2)
Services
Adam Lampert................................................ Consulting 15,000(2)
Services
Jeff Howard................................................. Consulting 12,500(2)
Services
Wilton J. Payne............................................. Consulting 10,000(2)
Services
J.R. Wilson................................................. Consulting 10,000(2)
Services
Other Employees............................................. Employment 891,500(2)
</TABLE>
- ---------------
(1) All percentages of membership interests, except options, are calculated on a
non-fully diluted basis. Percentages for options to purchase membership
interests are calculated on a fully diluted basis.
(2) Represents options to acquire securities, not issued securities.
(3) The consideration for these stock options is an option to purchase a 0.3%
membership interest in Alamosa PCS, LLC as well as his employment with us.
None of the foregoing transactions will involve any public offering, and
issuances of securities in connection with such transactions will be made
pursuant to valid exemptions under the Securities Act of 1933 (the "Act"). The
following are the exemptions relied on for each issuance of securities pursuant
to our reorganization.
First, our issuance of 100 shares to Holdings Texas is exempt under Section
4(2) of the Act. This issuance of 100 shares is a transaction involving one
offeree, involving no general solicitation.
Second, our issuance of 48,500,000 shares to the twenty-nine stockholders
of Texas Holdings, pursuant to the merger of Texas Holdings with and into
Alamosa, is exempt under Section 4(2). The merger will take place through direct
communication with the offerees, with no general solicitation or advertising.
Since Alamosa will be a subsidiary of Texas Holdings, these offerees will have a
pre-existing and substantial relationship with us.
II-5
<PAGE> 175
The options to purchase a total of 6,173,500 shares will be granted
pursuant to a written compensatory benefit plan or written compensation contract
to the directors, employees and consultants, and will be exempt pursuant to Rule
701. 48,500,000 shares will be outstanding prior to the grant of these options.
The 6,173,500 shares is under the maximum of 15% of 48,500,000, or 7,275,000
provided in Rule 701(d)(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
The exhibits are as set forth in the Exhibit Index.
(b) Financial Statement Schedules:
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by Alamosa pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Alamosa
pursuant to the foregoing provisions, or otherwise, Alamosa has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Alamosa of expenses incurred
or paid by a director, officer or controlling person of Alamosa in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Alamosa will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Alamosa has
duly caused this first amendment to registration statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Dallas,
State of Texas, on the 19th day of January, 2000.
ALAMOSA PCS HOLDINGS, INC.
By: /s/ DAVID E. SHARBUTT
----------------------------------
David E. Sharbutt
Chairman of the Board of Directors
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this first
amendment to registration statement has been signed by the following persons in
the capacities indicated on the 19th day of January, 2000.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ DAVID E. SHARBUTT Chairman of the Board of January 19, 2000
- ----------------------------------------------------- Directors and Chief Executive
David E. Sharbutt Officer
/s/ KENDALL W. COWAN Chief Financial Officer January 19, 2000
- -----------------------------------------------------
Kendall W. Cowan
MICHAEL R. BUDAGHER* Director January 19, 2000
- -----------------------------------------------------
Michael R. Budagher
RAY M. CLAPP, JR.* Director January 19, 2000
- -----------------------------------------------------
Ray M. Clapp, Jr.
SCOTTY HART* Director January 19, 2000
- -----------------------------------------------------
Scotty Hart
THOMAS HYDE* Director January 19, 2000
- -----------------------------------------------------
Thomas Hyde
/s/ SCHUYLER B. MARSHALL Director January 19, 2000
- -----------------------------------------------------
Schuyler B. Marshall
TOM M. PHELPS* Director January 19, 2000
- -----------------------------------------------------
Tom M. Phelps
REAGAN W. SILBER* Director January 19, 2000
- -----------------------------------------------------
Reagan W. Silber
JIMMY R. WHITE* Director January 19, 2000
- -----------------------------------------------------
Jimmy R. White
</TABLE>
David E. Sharbutt, by signing his name hereto, does sign and execute this
first amendment to the registration statement on behalf of each of the
above-named officers and directors of the registrant on this 19th day of
January, 2000, pursuant to powers of attorney executed on behalf of each of such
officers and directors and previously filed with the Securities and Exchange
Commission.
*By: /s/ DAVID E. SHARBUTT
-------------------------------
David E. Sharbutt
Attorney-in-Fact
II-7
<PAGE> 177
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
2.1*** -- Form of Agreement and Plan of Merger of Alamosa PCS
Holdings, Inc., a Texas corporation, with and into
Alamosa PCS Holdings, Inc., a Delaware corporation.
2.2*** -- Form of Agreement and Plan of Conversion of Alamosa PCS
LLC, a Texas limited liability company into Alamosa PCS
Holdings, Inc., a Texas corporation.
3.1*** -- Form of Amended and Restated Certificate of Incorporation
of Alamosa.
3.2*** -- Form of Amended and Restated Bylaws of Alamosa.
4.1**** -- Form of Indenture, by and among Alamosa PCS Holdings,
Inc. and Norwest Bank Minnesota, N.A., as Trustee,
relating to % Senior Discount Notes due 2010, including
form of global note.
4.2** -- Form of Rights Agreement between Alamosa PCS Holdings,
Inc. and ChaseMellon Shareholder Services, L.L.C., as
rights agent.
5.1 -- Form of opinion of Haynes and Boone, LLP, regarding
legality of the notes being issued.
10.1+** -- CDMA 1900 SprintCom Additional Affiliate Agreement dated
as of December 21, 1998 by and between Alamosa PCS, LLC
and Northern Telecom, Inc.
10.2+** -- Amendment No. 1 to DMS-MTX Cellular Supply Agreement
dated as of January 12, 1999 by and between Alamosa PCS,
LLC and Nortel Networks Inc. as an amendment to Exhibit
10.1 described above.
10.3+** -- Amendment No. 2 to DMS-MTX Cellular Supply Agreement
dated as of March 1, 1999 by and between Alamosa PCS, LLC
and Nortel Networks Inc. as an amendment to Exhibits 10.1
and 10.2 described above.
10.4** -- Amendment No. 3 to DMS-MTX Cellular Supply Agreement
dated as of August 11, 1999 by and between Alamosa PCS,
LLC and Nortel Networks Inc. as an amendment to Exhibits
10.1, 10.2 and 10.3 described above.
10.5** -- Sprint PCS Management Agreement, as amended, dated as of
July 17, 1998 by and between Sprint Spectrum, LP,
SprintCom, Inc., WirelessCo, LP and Alamosa PCS, LLC,
superceded by Exhibit 10.22.
10.6** -- Sprint PCS Services Agreement dated as of July 17, 1998
by and between Sprint Spectrum, LP and Alamosa PCS, LLC,
superceded by Exhibit 10.23.
10.7** -- Sprint Trademark and Service Mark License Agreement dated
as of July 17, 1998 by and between Sprint Communications
Company, LP and Alamosa PCS, LLP, superceded by Exhibit
10.24.
10.8** -- Sprint Spectrum Trademark and Service Mark License
Agreement dated as of July 17, 1998 by and between Sprint
Spectrum, LP and Alamosa PCS, LLP, superceded by Exhibit
10.25.
10.9** -- Consent and Agreement dated as of June 10, 1999 by and
between Nortel Networks, Inc., Sprint Spectrum, LP,
Sprint Communications Company, LP, WirelessCo, LP, and
SprintCom, Inc.
10.10+** -- Sprint PCS Management Agreement (Wisconsin), as amended,
dated as of December 6, 1999 by and between Sprint
Spectrum, LP, SprintCom, Inc., WirelessCo, LP and Alamosa
Wisconsin Limited Partnership.
10.11** -- Sprint PCS Services Agreement (Wisconsin) dated as of
December 6, 1999 by and between Sprint Spectrum, LP and
Alamosa Wisconsin Limited Partnership.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.12** -- Sprint Trademark and Service Mark License Agreement
(Wisconsin) dated December 6, 1999 by and between Sprint
Communications Company, LP and Alamosa Wisconsin Limited
Partnership.
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.13** -- Sprint Spectrum Trademark and Service Mark License
Agreement (Wisconsin) dated as of December 6, 1999 by and
between Sprint Spectrum, LP and Alamosa Wisconsin Limited
Partnership.
10.14** -- Engineering Service Contract, System Design and
Construction Inspection, dated as of July 27, 1998, as
amended, by and between Alamosa PCS, LLC and Hicks &
Ragland Engineering Co., Inc.
10.15** -- Master Site Development and Lease Agreement, as amended,
dated as of August 1998 by and between Alamosa PCS, LLC
and Specialty Capital Services, Inc.
10.16+*** -- Form of Credit Agreement by and between Alamosa PCS,
Inc., as borrower, Alamosa PCS Holdings, Inc., Texas
Telecommunications, LP and Alamosa Wisconsin Limited
Partnership, as guarantors, and Nortel Networks, Inc., as
administrative agent, for a $250,000,000 credit facility,
to be executed prior to the closing of this offering.
10.17*** -- Form of Alamosa PCS Holdings, Inc. 1999 Long Term
Incentive Plan.
10.18** -- Employment Agreement effective as of October 1, 1998 by
and between Alamosa PCS, LLC and Jerry Brantley,
superceded by Exhibit 10.29.
10.19** -- Employment Agreement effective as of October 29, 1998 by
and between Alamosa PCS, LLC and Don Stull.
10.20*** -- Employment Agreement effective as of October 1, 1999 by
and between Alamosa PCS, LLC and David Sharbutt.
10.21*** -- Employment Agreement effective as of December 1, 1999 by
and between Alamosa PCS, LLC and Kendall W. Cowan.
10.22+*** -- Sprint PCS Management Agreement, as amended, dated as of
December 23, 1999 by and between Sprint Spectrum, LP,
WirelessCo, LP and Alamosa PCS, LLC.
10.23*** -- Sprint PCS Services Agreement dated as of December 23,
1999 by and between Sprint Spectrum, LP and Alamosa PCS,
LLC.
10.24*** -- Sprint Trademark and Service Mark License Agreement dated
as of December 23, 1999 by and between Sprint
Communications Company, LP and Alamosa PCS, LLC.
10.25*** -- Sprint Spectrum Trademark and Service Mark License
Agreement dated as of December 23, 1999 by and between
Sprint Spectrum, LP and Alamosa PCS, LLC.
10.26+*** -- Form of Amendment No. 4 to DMS-MTX Cellular Supply
Agreement by and between Alamosa PCS, LLC and Nortel
Networks Inc. as an amendment to Exhibits 10.1, 10.2,
10.3 and 10.4 described above, to be executed prior to
the closing of this offering.
10.27*** -- Form of Registration Rights Agreement by and between
Nortel Networks Inc. and Alamosa PCS Holdings, Inc., to
be executed prior to the closing of this offering.
10.28*** -- Form of Warrant Agreement by and between Nortel Networks,
Inc. and Alamosa PCS Holdings, Inc., to be executed prior
to the closing of this offering.
10.29*** -- Amended and Restated Employment Agreement effective as of
October 1, 1999 by and between Alamosa PCS, LLC and Jerry
Brantley.
12.1* -- Statements regarding Computation of Ratios.
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
21.1* -- Subsidiaries of Alamosa.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of Haynes and Boone, LLP (contained in legal
opinion filed as Exhibit 5.1).
24.1* -- Powers of Attorney.
25.1* -- Statement of Eligibility of Trustee on Form T-1, relating
to the % Senior Discount Notes due 2010.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** Incorporated herein by reference to the exhibit filed with Amendment No. 1
to the Registration Statement on Form S-1 of Alamosa PCS Holdings, Inc.
(Commission File No. 333-89995) filed on December 23, 1999.
*** Incorporated herein by reference to the exhibit filed with Amendment No. 2
to the Registration Statement on Form S-1 of Alamosa PCS Holdings, Inc.
(Commission File No. 333-89995) filed on January 19, 1999.
**** To be filed by amendment.
+ Confidential treatment requested.
<PAGE> 1
EXHIBIT 1.1
Alamosa PCS Holdings, Inc.
$
Principal Amount at Maturity of
% Senior Discount Notes due 2010
Form of Underwriting Agreement
New York, New York
, 2000
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
As Representatives of the several Underwriters,
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Alamosa PCS Holdings, Inc., a corporation organized under the
laws of Delaware (the "Company"), proposes to sell to the several underwriters
named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, $ principal amount at
maturity of its % Senior Discount Notes due 2010 (the "Securities"), to be
issued under an indenture (the "Indenture") to be dated as of , 2000,
between the Company and Norwest Bank Minnesota, N.A., as trustee (the
"Trustee"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires. Certain terms used herein
are defined in Section 17 hereof.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-93499-05) on Form S-1,
including a related preliminary prospectus, for registration under the
Act of the offering and sale of the Securities. The Company may have
filed one or more amendments thereto, including a related preliminary
prospectus, each of which has previously been furnished to you. The
Company will next file with the Commission either (1) prior to the
Effective Date of
<PAGE> 2
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such registration statement, a further amendment to such registration
statement (including the form of final prospectus) or (2) after the
Effective Date of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b). In the case of clause (2), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in such
registration statement and the Prospectus. As filed, such amendment and
form of final prospectus, or such final prospectus, shall contain all
Rule 430A Information, together with all other such required
information, and, except to the extent the Representatives shall agree
in writing to a modification, shall be in all substantive respects in
the form furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined
herein), the Prospectus (and any supplements thereto) will, comply in
all material respects with the applicable requirements of the Act and
the Trust Indenture Act and the respective rules thereunder; on the
Effective Date and at the Execution Time, the Registration Statement
did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; on
the Effective Date and on the Closing Date, the Indenture did or will
comply in all material respects with the applicable requirements of the
Trust Indenture Act and the rules thereunder; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), will not,
and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no
representations or warranties as to (i) that part of the Registration
Statement which shall constitute the Statement of Eligibility and
Qualification (Form T-1) under the Trust Indenture Act of the Trustee
or (ii) the information contained in or omitted from the Registration
Statement, or the Prospectus (or any supplement thereto) in reliance
upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or the
Prospectus (or any supplement thereto).
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own or lease, as
the case may be, and to operate its properties and conduct its business
as
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described in the Prospectus, and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
(d) All the outstanding shares of capital stock of each
subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest or any
other security interests, claims, liens or encumbrances.
(e) The Company's authorized equity capitalization is as set
forth in the Prospectus; the Securities conform in all material
respects to the description thereof contained in the Prospectus; and,
the Securities are duly listed, and admitted and authorized for
trading, subject to official notice of issuance, on the New York Stock
Exchange.
(f) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required; and the statements in the Prospectus
under the heading "United States Federal Tax Consequences" and
"Regulation of the Wireless Telecommunications Industry" fairly
summarize the matters therein described.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940, as amended.
(i) No consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated herein and in the Prospectus.
(j) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or
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encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, (i) the charter or by-laws of the Company or
any of its subsidiaries, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its
or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any
of its subsidiaries of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its
or their properties.
(k) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
(l) The consolidated historical financial statements and
schedules of the Company and its consolidated subsidiaries included in
the Prospectus and the Registration Statement present fairly in all
material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods
indicated, comply as to form with the applicable accounting
requirements of the Act and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected
Financial Data" in the Prospectus and Registration Statement fairly
present, on the basis stated in the Prospectus and the Registration
Statement, the information included therein.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending
or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a material adverse effect on the
performance of this Agreement or the consummation of any of the
transactions contemplated hereby or (ii) could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(n) Each of the Company and each of its subsidiaries owns or
leases all such properties as are necessary to the conduct of its
operations as presently conducted.
(o) Neither the Company nor any subsidiary is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement,
<PAGE> 5
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obligation, condition, covenant or instrument to which it is a party or
bound or to which its property is subject, or (iii) any statute, law,
rule, regulation, judgment, order or decree of any court, regulatory
body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or such subsidiary or
any of its properties, as applicable.
(p) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and its consolidated subsidiaries
and delivered their report with respect to the audited consolidated
financial statements and schedules included in the Prospectus, are
independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(q) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto)) and has paid all taxes required to be paid by it and any
other assessment, fine or penalty levied against it, to the extent that
any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good
faith or as would not have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(r) No labor problem or dispute with the employees of the
Company or any of its subsidiaries exists or is threatened or imminent,
and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or its subsidiaries'
principal suppliers, contractors or customers, that could have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(s) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; all policies of insurance
insuring the Company or any of its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force
and effect; the Company and its subsidiaries are in compliance with the
terms of such policies and
<PAGE> 6
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instruments in all material respects; and there are no claims by the
Company or any of its subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(t) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(u) The Company and its subsidiaries possess all licenses (or
in the case of the PCS spectrum licenses issued by the Federal
Communications Commission ("FCC"), have the right to use the spectrum
licensed to Sprint Corporation or the PCS Group of Sprint Corporation),
certificates, permits and other authorizations issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor any
such subsidiary has received (or in the case of the PCS spectrum
licenses, to the Company's knowledge, neither Sprint nor the PCS Group
of Sprint has received) any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(v) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded
<PAGE> 7
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accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(w) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(x) The Company and its subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received and are in
compliance with all permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective
businesses and (iii) have not received notice of any actual or
potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes,
pollutants or contaminants, except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals, or liability would not, individually or in the
aggregate, have a material adverse change in the condition (financial
or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any supplement
thereto) . Except as set forth in the Prospectus, neither the Company
nor any of the subsidiaries has been named as a "potentially
responsible party" under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
(y) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws, or any permit, license or approval, any
related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review, the Company
has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a material adverse effect
on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(z) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302
of the United States
<PAGE> 8
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Employee Retirement Income Security Act of 1974 ("ERISA") and the
regulations and published interpretations thereunder with respect to
each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company and
its subsidiaries are eligible to participate and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations.
The Company and its subsidiaries have not incurred any unpaid liability
to the Pension Benefit Guaranty Corporation (other than for the payment
of premiums in the ordinary course) or to any such plan under Title IV
of ERISA.
(aa) The subsidiaries listed on Annex A attached hereto are
the only significant subsidiaries of the Company as defined by Rule
1-02 of Regulation S-X (the "Subsidiaries").
(ab) The Company and its subsidiaries own, possess, license or
have other rights to use, on reasonable terms, all patents, patent
applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, licenses, inventions, trade
secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") necessary for the conduct
of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectus under
the caption "Business--Intellectual Property," (a) to the Company's
knowledge, there are no rights of third parties to any such
Intellectual Property; (b) to the Company's best knowledge, there is no
material infringement by third parties of any such Intellectual
Property; (c) there is no pending or, to the Company's best knowledge,
threatened action, suit, proceeding or claim by others challenging the
Company's rights in or to any such Intellectual Property, and the
Company is unaware of any facts which would form a reasonable basis for
any such claim; (d) to the Company's best knowledge, there is no
pending or threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property,
and the Company is unaware of any facts which would form a reasonable
basis for any such claim; (e) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others that
the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the
Company is unaware of any other fact which would form a reasonable
basis for any such claim; (f) to the Company's knowledge, there is no
U.S. patent or published U.S. patent application which contains claims
that dominate or may dominate any Intellectual Property described in
the Prospectus as being owned by or licensed to the Company or that
interferes with the issued or pending claims of any such Intellectual
Property; and (g) there is no prior art of which the Company is aware
that may render any U.S. patent held by the Company invalid or any U.S.
patent application held by the Company unpatentable which has not been
disclosed to the U.S. Patent and Trademark Office.
<PAGE> 9
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(ac) The statements contained in the Prospectus under the
caption "Business --Intellectual Property," insofar as such statements
summarize legal matters, agreements, documents, or proceedings
discussed therein, are accurate and fair summaries of such legal
matters, agreements, documents or proceedings.
(ad) Except as disclosed in the Registration Statement and the
Prospectus, the Company (i) does not have any material lending or other
relationship with any bank or lending affiliate of Salomon Smith Barney
Holdings Inc. and (ii) does not intend to use any of the proceeds from
the sale of the Securities hereunder to repay any outstanding debt owed
to any affiliate of Salomon Smith Barney Holding Inc.
(ae) The Company and its subsidiaries have implemented a
comprehensive, detailed program to analyze and address the risk that
their computer hardware and software may be unable to recognize and
properly execute date-sensitive functions involving certain dates prior
to and any dates after December 31, 1999 (the "Year 2000 Problem") and
has determined that their computer hardware and software are and will
be able to process all date information prior to and after December 31,
1999 without any errors, aborts, delays or other interruptions in
operations associated with the Year 2000 Problem; and the Company
believes, after due inquiry, that each supplier, vendor, customer or
financial service organization used or serviced by the Company and its
subsidiaries has remedied or will remedy on a timely basis the Year
2000 Problem, except to the extent that a failure to remedy by any such
supplier, vendor, customer or financial service organization would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole. The Company is in compliance with the Commission's
Release No. 33-7558 related to Year 2000 compliance.
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. Subject to the terms and conditions and
in reliance upon the representations and warranties herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a purchase price of
% of the public offering price thereof, plus amortization of original issue
discount, if any, on the Securities from , 2000, to the Closing Date, the
principal amount at maturity of the Securities set forth opposite such
Underwriter's name in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the
Securities shall be made at 10:00 AM, New York City time, on , 2000, or at
such time on such later date not more than three Business Days after the
foregoing date as the Representatives shall
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designate, which date and time may be postponed by agreement between the
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the Securities being herein called the
"Closing Date"). Delivery of the Securities shall be made to the Representatives
for the respective accounts of the several Underwriters against payment by the
several Underwriters through the Representatives of the purchase price thereof
to or upon the order of the Company by wire transfer payable in same-day funds
to an account specified by the Company. Delivery of the Securities shall be made
through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective. Prior to the termination of the
offering of the Securities, the Company will not file any amendment of
the Registration Statement or supplement to the Prospectus or any Rule
462(b) Registration Statement unless the Company has furnished you a
copy for your review prior to filing and will not file any such
proposed amendment or supplement to which you reasonably object.
Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
cause the Prospectus, properly completed, and any supplement thereto to
be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. The Company
will promptly advise the Representatives (1) when the Registration
Statement, if not effective at the Execution Time, shall have become
effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been
filed with the Commission, (3) when, prior to termination of the
offering of the Securities, any amendment to the Registration Statement
shall have been filed or become effective, (4) of any request by the
Commission or its staff for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or for any
supplement to the Prospectus or for any additional information, (5) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (6) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
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stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then supplemented would include
any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (1) notify the Representatives of any such event, (2)
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance and (3)
supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(e) The Company will arrange, if necessary, for the
qualification of the Securities for sale under the laws of such
jurisdictions as the Representatives may designate, will maintain such
qualifications in effect so long as required for the distribution of
the Securities and will pay any fee of the National Association of
Securities Dealers, Inc., in connection with its review of the
offering; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so
qualified or to take any action that would subject it to service of
process in suits, other than those arising out of the offering or sale
of the Securities, in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or
otherwise dispose of, (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the
<PAGE> 12
12
disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or any
affiliate of the Company or any person in privity with the Company or
any affiliate of the Company) directly or indirectly, including the
filing (or participation in the filing) of a registration statement
with the 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 Exchange Act, any debt
securities issued or guaranteed by the Company (other than the
Securities) or publicly announce an intention to effect any such
transaction, for a period of 90 days after the date of the Underwriting
Agreement.
(g) The Company will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Securities shall be subject to
the accuracy of the representations and warranties on the part of the Company
contained herein as of the Execution Time and the Closing Date, to the accuracy
of the statements of the Company made in any certificates pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the Representatives agree in
writing to a later time, the Registration Statement will become
effective not later than (i) 6:00 PM New York City time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 PM New York City time on such date or (ii)
9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after
3:00 PM New York City time on such date; if filing of the Prospectus,
or any supplement thereto, is required pursuant to Rule 424(b), the
Prospectus, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Company shall have requested and caused Haynes and
Boone, LLP, counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to
the Representatives, to the effect that:
(i) each of the Company and Alamosa PCS, Inc., Texas
Telecommunications, LP, Alamosa Wisconsin Limited Partnership,
Alamosa Delaware GP, LLC and Alamosa Wisconsin GP, LLC
(individually a "Subsidiary" and collectively the
"Subsidiaries") has been duly incorporated
<PAGE> 13
13
and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own or
lease, as the case may be, and to operate its properties and
conduct its business as described in the Prospectus, and is
duly qualified to do business as a foreign corporation and is
in good standing under the laws of each jurisdiction which
requires such qualification;
(ii) all the outstanding shares of capital stock of
each Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as
otherwise set forth in the Prospectus, all outstanding shares
of capital stock of the Subsidiaries are owned by the Company
either directly or through wholly owned subsidiaries free and
clear of any perfected security interest and, to the knowledge
of such counsel, after due inquiry, any other security
interest, claim, lien or encumbrance;
(iii) the Company's authorized equity capitalization
is as set forth in the Prospectus; the Securities conform in
all material respects to the description thereof contained in
the Prospectus; and the Securities being sold hereunder by the
Company are duly listed, and admitted and authorized for
trading, subject to official notice of issuance on the New
York Stock Exchange;
(iv) the Indenture has been duly authorized, executed
and delivered, has been duly qualified under the Trust
Indenture Act, and constitutes a legal, valid and binding
instrument enforceable against the Company in accordance with
its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium
or other laws affecting creditors' rights generally from time
to time in effect and to general principles of equity,
including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, regardless of
whether considered in a proceeding in equity or at law); and
the Securities have been duly authorized and, when executed
and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Underwriters
pursuant to this Agreement, will constitute legal, valid and
binding obligations of the Company entitled to the benefits of
the Indenture;
(v) to the knowledge of such counsel, there is no
pending or threatened action, suit or proceeding by or before
any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or
its or their property of a character required to be disclosed
in the Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise,
contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or
filed as required;
<PAGE> 14
14
and the statements included in the Prospectus under the
headings "Regulation of the Wireless Telecommunications
Industry" and "United States Federal Tax Consequences" fairly
summarize the matters therein described;
(vi) the Registration Statement has become effective
under the Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b);
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued,
no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus
(other than the financial statements and other financial
information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the Trust
Indenture Act and the respective rules thereunder; and such
counsel has no reason to believe that on the Effective Date or
the date the Registration Statement was last deemed amended
the Registration Statement contained any untrue statement of a
material fact or omitted state any material fact required to
be stated therein or necessary to make the statements therein
not misleading or that the Prospectus as of its date and on
the Closing Date included or includes any untrue statement of
a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in
each case, other than the financial statements and other
financial information contained therein, as to which such
counsel need express no opinion);
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the Company is not and, after giving effect to
the offering and sale of the Securities and the application of
the proceeds thereof as described in the Prospectus, will not
be, an "investment company" as defined in the Investment
Company Act of 1940, as amended;
(ix) no consent, approval, authorization, filing with
or order of any court or governmental agency or body is
required in connection with the trans actions contemplated
herein, except such as have been obtained under the Act and
such as may be required under the blue sky laws of any
jurisdiction in connection with the purchase and distribution
of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such
other approvals (specified in such opinion) as have been
obtained;
<PAGE> 15
15
(x) neither the execution and delivery of the
Indenture, the issue and sale of the Securities, nor the
consummation of any other of the transactions herein
contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation of or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries pursuant
to (i) the charter or by-laws of the Company or its
subsidiaries, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement
or other agreement, obligation, condition, covenant or
instrument to which the Company or its subsidiaries is a party
or bound or to which its or their property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or
decree applicable to the Company or its subsidiaries of any
court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over
the Company or its subsidiaries or any of its or their
properties; and
(xi) no holders of securities of the Company have
rights to the registration of such securities under the
Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of Texas, the Federal laws of the United States (except with
respect to telecommunications regulatory matters) or the Delaware
General Corporation Law, to the extent they deem proper and specified
in such opinion, upon the opinion of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent they
deem proper, on certificates of responsible officers of the Company and
public officials. References to the Prospectus in this paragraph (b)
include any supplements thereto at the Closing Date.
(c) The Company shall have requested and caused_________,
special telecommunications regulatory counsel to the Company, to have
furnished to the Representatives their opinion dated the Closing Date
and addressed to the Representatives, to the effect that:
(i) statements regarding telecommunications
regulatory matters included in the Prospectus under the
headings "Regulation of the Wireless Telecommunications
Industry," "Risk Factors--Risks Related to our Relationship
with Sprint PCS--If Sprint PCS does not maintain control over
its licensed spectrum, our affiliation agreements with Sprint
PCS may be terminated" and "--The Federal Communications
Commission may not renew the Sprint PCS licenses, which would
prevent us from providing wireless services" are accurate in
all material respects and fairly summarize the matters therein
described;
<PAGE> 16
16
(ii) no filing with, or authorization, approval,
consent, license, permit, order, registration, qualification
or decree of, the FCC or of any other federal or state
regulatory agency, is necessary or required for the due
authorization, execution or delivery by the Company of this
Agreement or for the performance by the Company of the
transactions contemplated under the Prospectus or this
Agreement; specifically, that the Company and its Subsidiaries
have the right to operate a wireless PCS network utilizing the
spectrum licenses issued by the FCC and held by Sprint
Corporation or the PCS Group of Sprint without the need to
acquire any further order, license, permit or other
authorization from the FCC or any other federal or state
regulatory agency;
(iii) to the best of such counsel's knowledge,
neither the Company nor any of its Subsidiaries is in
violation of, or in default under, any federal or state
telecommunications laws or regulations, the effect of which,
singly or in the aggregate, would have a material adverse
effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company; specifically,
that the arrangement contained in the Management Agreement (as
defined in the Prospectus) between the Company and the PCS
Group of Sprint Corporation permitting the Company to
construct and operate a wireless PCS network utilizing the
spectrum licenses issued by the FCC and held by Sprint
Corporation or the PCS Group of Sprint, is in compliance with
all applicable federal and state telecommunications rules and
regulations, including federal rules and regulations regarding
licensee control of the licensed spectrum; and
(iv) to the best of such counsel's knowledge, (A) no
unsatisfied decree or order of the FCC or of any state
regulatory agency is outstanding against the Company or its
Subsidiaries and (B) with regard to the Company's and its
Subsidiaries' construction and operation of a wireless PCS
network, no litigation, proceeding, inquiry or investigation
has been commenced or threatened, no complaints filed, no
notice of violation or order to show cause has been issued,
against the Company or its Subsidiaries or against Sprint
Corporation or the PCS Group of Sprint Corporation before or
by the FCC or any other federal or state regulatory agency
which would have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or
properties of the Company.
(d) The Representatives shall have received from Cravath,
Swaine & Moore, counsel for the Underwriters, such opinion or opinions,
dated the Closing Date and addressed to the Representatives, with
respect to the issuance and sale of the Securities, the Indenture, the
Registration Statement, the Prospectus (together with any supplement
thereto) and other related matters as the Representatives may
<PAGE> 17
17
reasonably require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them
to pass upon such matters.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplements to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing
Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to the Company's
knowledge, threatened; and
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse effect
on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(f) The Company shall have requested and caused
PricewaterhouseCoopers LLP to have furnished to the Representatives, at
the Execution Time and at the Closing Date, letters, dated respectively
as of the Execution Time and as of the Closing Date, in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Act and the
applicable rules and regulations adopted by the Commission thereunder
and that they have performed an examination of the financial
information of the Company for the nine-month period ended September
30, 1999, and as at September 30, 1999, and further stating in effect
that:
(i) in their opinion the audited financial statements
and financial statement schedules included in the Registration
Statement and the Prospectus and reported on by them comply as
to form in all material respects with the applicable
accounting requirements of the Act and the related rules and
regulations adopted by the Commission;
<PAGE> 18
18
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company
and its subsidiaries; carrying out certain specified
procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the
comments set forth in such letter; a reading of the minutes of
the meetings of the members and managers of Alamosa PCS, LLC
and of the stockholders, directors and executive, audit and
compensation committees of the Company and the Subsidiaries;
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events
subsequent to September 30, 1999, nothing came to their
attention which caused them to believe that:
(1) any unaudited financial statements
included in the Registration Statement and the
Prospectus do not comply as to form in all material
respects with applicable accounting requirements of
the Act and with the related rules and regulations
adopted by the Commission with respect to
registration statements on Form S-1; and said
unaudited financial statements are not in conformity
with generally accepted accounting principles applied
on a basis substantially consistent with that of the
audited financial statements included in the
Registration Statement and the Prospectus;
(2) with respect to the period subsequent to
September 30, 1999, there were any changes, at a
specified date not more than five days prior to the
date of the letter, in the long-term debt of the
Company and its subsidiaries or capital stock of the
Company or decreases in the stockholders' equity of
the Company as compared with the amounts shown on the
September 30, 1999, consolidated balance sheet
included in the Registration Statement and the
Prospectus, or for the period from October 1, 1999,
to such specified date there were any decreases, as
compared with the corresponding period in the
preceding quarter in total revenue or any increases
in loss from operations, net loss or per share
amounts of net loss of the Company and its
subsidiaries, except in all instances for changes or
decreases set forth in such letter, in which case the
letter shall be accompanied by an explanation by the
Company as to the significance thereof unless said
explanation is not deemed necessary by the
Representatives;
(3) the information included in the
Registration Statement and Prospectus in response to
Regulation S-K, Item 301 (Selected Financial Data),
Item 302 (Supplementary Financial Information), Item
402 (Executive Compensation) and Item 503(d) (Ratio of
<PAGE> 19
19
Earnings to Fixed Charges) is not in conformity with
the applicable disclosure requirements of Regulation
S-K; and
(4) the unaudited amounts of [DESCRIBE THE
CAPSULE INFORMATION AND ITS LOCATION] do not agree
with the amounts set forth in the unaudited financial
statements for the same periods or were not
determined on a basis substantially consistent with
that of the corresponding amounts in the audited
financial statements included in the Registration
Statement and the Prospectus;
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature
(which is limited to accounting, financial or statistical
information derived from the general accounting records of the
Company and its subsidiaries) set forth in the Registration
Statement and the Prospectus; and
(iv) on the basis of a reading of the unaudited pro
forma financial statements included in the Registration
Statement and the Prospectus (the "pro forma financial
statements"); carrying out certain specified procedures;
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters; and
proving the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the pro forma
financial statements, nothing came to their attention which
caused them to believe that the pro forma financial statements
do not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation
S-X or that the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of such
statements.
References to the Prospectus in this paragraph (f) include any
supplement thereto at the date of the letter.
(g) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph
(f) of this Section 6 or (ii) any change, or any development involving
a prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement thereto)
the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of
<PAGE> 20
20
the Representatives, so material and adverse as to make it impractical
or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Registration Statement (exclusive of
any amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(h) Subsequent to the Execution Time, there shall not have
been any decrease in the rating of any of the Company's debt securities
by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act) or any notice given
of any intended or potential decrease in any such rating or of a
possible change in any such rating that does not indicate the direction
of the possible change.
(i) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
(j) The Securities shall have been listed and admitted and
authorized for trading on the New York Stock Exchange, and satisfactory
evidence of such actions shall have been provided to the
Representatives.
[INSERT ADDITIONAL CLOSING CONDITIONS, IF ANY, SUCH AS ANY CONCURRENT OFFERING
CLOSING, REPAYMENT OF DEBT, RECAPITALIZATION, REORGANIZATION, CREDIT FACILITY
CLOSING, ADDITIONAL BORROWING, ACQUISITION CLOSING AND STOCK SPLIT.]
(k) Prior to the Execution Time, the Company shall have
completed its initial public offering of common stock in accordance
with the registration statement (file number 333-89995) and related
prospectus, including all amendments thereto, and in accordance with
the underwriting agreement between the Company and Salomon Smith Barney
Inc., Credit Suisse First Boston Corporation and Deutsche Bank
Securities Inc., as representatives of the underwriters, dated as of.
(l) Prior to the Execution Time, Sprint Corporation or the PCS
Group of Sprint Corporation and the Company shall have entered into an
amended Management Agreement that contains the terms described in the
Prospectus in "Our Affiliation Agreements with Sprint PCS--The
Management Agreement," and which provides for the expansion of the
territory in which the Company is responsible for constructing and
operating a wireless PCS network, to include all of the markets listed
in the Prospectus in "Business--Markets and Network Build-Out Plan."
(m) As of the Execution Time, the closing of the amended
credit agreement between the Company and Nortel Networks, Inc. shall
occur, and such amended credit agreement shall provide for total
available credit of $250,000,000 and other
<PAGE> 21
21
terms as described in the Prospectus in "Description of Other
Indebtedness--The Nortel Credit Facility."
(n) As of the Execution Time, the Company shall have committed
equity financing of at least $148,000,000 and shall have received funds
in that amount, including previously contributed equity capital of
$37,000,000 from the shareholders of the Company who were members of
Alamosa PCS, LLC, as described in the Prospectus in "Description of
Other Indebtedness--The Nortel Credit Facility--Minimum Equity
Requirements."
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancelation shall be given to the Company in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at 825 Eighth Avenue, New York, New York 10019, on the Closing
Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment
<PAGE> 22
22
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with reference to written information relating to such Underwriter furnished to
the Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the statements
set forth in the last paragraph of the cover page regarding delivery of the
Securities, and, under the heading "Underwriting", (i) the list of Underwriters
and their respective participation in the sale of the Securities, (ii) the
sentences related to concessions and reallowances and (iii) the paragraph
related to stabilization, syndicate covering transactions and penalty bids in
any Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the
<PAGE> 23
23
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified party
to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Underwriter
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses) received by
it, and benefits received by the Underwriters shall be deemed to be equal to the
total underwriting discounts and commissions, in each case as set forth on the
cover page of the Prospectus. Relative fault shall be determined by reference
to, among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company on the one hand or the
Underwriters on the
<PAGE> 24
24
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls an Underwriter within the meaning of either the Act or
the Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such Underwriter, and
each person who controls the Company within the meaning of either the Act or the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Securities agreed to be purchased
by such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the principal amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate principal amount of Securities set forth opposite the names of all the
remaining Underwriters) the Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however, that in the event
that the aggregate principal amount of Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate principal amount of Securities set forth in Schedule I hereto, the
remaining Underwriters shall have the right to purchase all, but shall not be
under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter or the
Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Securities, if at any
time prior to such time (i) trading in the Company's Common Stock shall have
been suspended by the Commission or the Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or the
<PAGE> 25
25
Nasdaq National Market shall have been suspended or limited or minimum prices
shall have been established on such Exchange or the Nasdaq National Market, (ii)
a banking moratorium shall have been declared either by Federal or New York
State authorities or (iii) there shall have occurred any outbreak or escalation
of hostilities, declaration by the United States of a national emergency or war,
or other calamity or crisis the effect of which on financial markets is such as
to make it, in the sole judgment of the Representatives, impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel
(fax no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith
Barney Inc., at 388 Greenwich Street, New York, New York, 10013, Attention:
General Counsel; or, if sent to the Company, will be mailed, delivered or
telefaxed to (806) 722-1157 and confirmed to it at 4403 Lubbock, Texas 79407,
attention of the Legal Department.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.
<PAGE> 26
26
17. Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Commission" shall mean the Securities and Exchange
Commission.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date, shall also mean such registration statement as so amended or such
Rule 462(b) Registration Statement, as the case may be. Such term shall
include any Rule 430A Information deemed to be included therein at the
Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
<PAGE> 27
27
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the registration statement referred
to in Section 1(a) hereof.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Commission
promulgated thereunder.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several Underwriters.
Very truly yours,
Alamosa PCS Holdings, Inc.
By:
---------------------------------
Name:
Title:
<PAGE> 28
28
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
Credit Suisse First Boston Corporation
Lehman Brothers Inc.
By: Salomon Smith Barney Inc.
By:
------------------------------------
Name:
Title:
By: Credit Suisse First Boston Corporation
By:
------------------------------------
Name:
Title:
By: Lehman Brothers Inc.
By:
------------------------------------
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE> 29
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AT MATURITY
OF SECURITIES TO
UNDERWRITERS BE PURCHASED
- -------------------------------------------------- ----------------
<S> <C>
Salomon Smith Barney Inc. ........................ $
Credit Suisse First Boston Corporation ........... $
Lehman Brothers Inc. ............................. $
----------------
Total .......................... $
================
</TABLE>
<PAGE> 1
EXHIBIT 5.1
January __, 2000
Alamosa PCS Holdings, Inc.
Alamosa PCS, Inc.
Alamosa Wisconsin GP, LLC
Alamosa Wisconsin Limited Partnership
Alamosa Delaware GP, LLC
Texas Telecommunications, LLP
4403 Brownfield Highway
Lubbock, Texas 79407
Re: Registration Statement on Form S-1; File No. 333-93499; $_____________
aggregate principal amount of ___________% Senior Discount Notes due
2010 and the guarantees thereof
Ladies and Gentlemen:
We have acted as special counsel for Alamosa PCS Holdings, Inc., a Delaware
corporation (the "Company"), and Alamosa PCS, Inc., a Delaware corporation,
Alamosa Wisconsin GP, LLC, a Wisconsin limited liability company, Alamosa
Wisconsin Limited Partnership, a Wisconsin limited partnership, Alamosa Delaware
GP, LLC, a Delaware limited liability company, and Texas Telecommunications, LP,
a Texas limited partnership (collectively, the "Guarantors"), in connection with
the proposed issuance by the Company of $___________ aggregate principal amount
of ___________% Senior Discount Notes due 2010 (the "Notes") and the guarantees
thereof by the Guarantors (the "Guarantees"). The terms of the offering are
described in the Registration Statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange Commission for the
registration of the Notes and the Guarantees under the Securities Act of 1933,
as amended (the "Act"). The Notes will be issued pursuant to an indenture (the
"Indenture") dated as of January __, 2000, among the Company, the Guarantors and
Norwest Bank Minnesota, N.A., as trustee (the "Trustee").
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company and the Guarantors in connection with the authorization and
issuance of the Notes and the Guarantees and, for the purposes of this opinion,
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have made such legal and factual examinations and
inquiries, including an examination of
<PAGE> 2
Alamosa PCS Holdings, Inc.
January __, 2000
Page 2
originals or copies certified or otherwise identified to our satisfaction
of such documents, corporate records and instruments, as we have deemed
necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as copies.
The opinions expressed herein are specifically limited to the laws of
the State of Texas, the General Corporation Law of the State of Delaware,
and the federal securities laws of the United States of America.
Furthermore, to the extent that the opinions expressed above necessarily
involve consideration of the laws of the State of New York, we have
assumed, with your consent, that the laws of the State of New York are
identical in all respects to the laws of the State of Texas, other than as
to usury (as to which we express no opinion). We express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of
any other jurisdiction or as to any matters of municipal law or the laws of
any other local agencies within any state. In rendering our opinion in
paragraph 1 above, we have assumed that the choice of New York law in the
Agreements is valid and would be upheld by any court of competent
jurisdiction.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. When executed and delivered by or on behalf of the Company and the
Guarantors and authenticated by the Trustee in accordance with the terms of
the Indenture, the Notes and the Guarantees will constitute valid and
binding obligations of the Company and the Guarantors, enforceable against
the Company and the Guarantors in accordance with their terms.
Specific Limitations and Qualifications on
Opinions Regarding Enforceability of the Notes and Guarantees
The enforceability of the Notes and the Guarantees are subject to (1)
the effects of (a) applicable bankruptcy, insolvency, reorganization,
moratorium, rearrangement, liquidation, conservatorship or similar laws of
general application now or hereafter in effect relating to or affecting the
rights or remedies of creditors generally, (b) general equity principles
(regardless of whether enforcement is sought in a proceeding in equity or
law), and (c) statutory provisions of the federal Bankruptcy Code and the
Uniform Fraudulent Conveyance Act as adopted by the State of Texas (and
related court decisions) pertaining to the voidability of preferential or
fraudulent transfers, conveyances and obligations, (2) the rights of the
United States under the Federal Tax Lien Act of 1966, as amended, and (3)
the application of a standard of "good faith" such as that defined in
Section 1.203 of the Uniform Commercial Code as adopted in the State of
Texas (the "Code"); provided, however, that
<PAGE> 3
Alamosa PCS Holdings, Inc.
January __, 2000
Page 3
we note that any limitations referred to in clauses (1)(b), and (3) imposed
by such laws on the enforceability of the Notes and the Guarantees will not
prevent the holders thereof from the ultimate realization of the practical
benefits of such instruments, except for the economic consequences of any
judicial, administrative or other procedural delay that may result from
such laws.
We express no opinion as to the enforceability of any provisions of
the Notes or the Guarantees to the extent that such provisions: (1) state
that any party's failure or delay in exercising rights, powers, privileges
or remedies under the Notes or the Guarantees, as the case may be, shall
not operate as a waiver thereof; (2) purport to preclude the amendment,
waiver, release or discharge of obligations except by an instrument in
writing; (3) purport to indemnify any person for (a) such person's
violations of federal or state securities laws or environmental laws, or
(b) any obligation to the extent such obligation arises from or is a result
of such person's own negligence; (4) purport to establish or satisfy
certain factual standards or conditions; (5) purport to sever unenforceable
provisions from the Notes or the Guarantees, to the extent that the
enforcement of remaining provisions would frustrate the fundamental intent
of the parties to such instruments; (6) restrict access to legal or
equitable remedies; or (7) purport to waive any claim arising out of, or in
any way related to, the Notes or the Guarantees. We advise you that the
inclusion of such provisions in the Notes or the Guarantees does not render
void or invalidate the obligations and liabilities of the Company under
other provisions of such instruments.
We express no opinion as to: (1) whether a court would grant specific
performance or any other equitable remedy with respect to enforcement of
any provision contained in the Notes or the Guarantees; or (2) the
enforceability of any provision contained in the Indenture relating to the
appointment of a receiver, to the extent that appointment of a receiver is
governed by applicable statutory requirements, and to the extent that such
provision may not be in compliance with such requirements.
We express no opinion as to the enforceability of those provisions of
the Guarantees that state or mean that the Guarantees shall not be
impaired, adversely affected or released by any of the following: (1) any
action taken by any holder of the Notes in bad faith, for the purpose of or
with the effect of, impairing any of the Guarantors' rights of subrogation,
reimbursement, contribution, indemnity or exoneration against the Company,
any other guarantor or collateral for the obligations guaranteed; or (2) a
legal determination that the obligations guaranteed are void as a result of
illegality.
To the extent that the obligations of the Company or the Guarantors
under the Indenture may be dependent upon such matters, we assume for
purposes of this opinion that the Trustee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Trustee is duly qualified to engage in the
activities contemplated by the Indenture; that the Indenture has been duly
authorized, executed and delivered by the Trustee and constitutes the
legally valid and binding obligation of the Trustee, enforceable against
the Trustee in accordance with its
<PAGE> 4
Alamosa PCS Holdings, Inc.
January __, 2000
Page 4
terms; that the Trustee is in compliance, generally and with respect to
acting as a trustee under the Indenture, with all applicable laws and
regulations; and that the Trustee has all requisite organizational and
legal power and authority to perform its obligations under the Indenture.
The opinion and beliefs expressed herein are for the sole benefit of,
and may only be relied upon by, you in connection with this transaction. In
no manner is our opinion to be relied upon by any other person or persons
other than whom it is expressly intended. This opinion letter is rendered
as of the date hereof and we assume no obligation to inform you (or any
third party) of any changes of law or fact that occur after the date
hereof, even though such change may affect this opinion letter.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this first amendment to the Registration
Statement on Form S-1 (File No. 333-93499) of our report dated December 5, 1999,
except as to Note 11 which is as of December 31, 1999, relating to the financial
statements of Alamosa PCS LLC (a development stage enterprise), which appear in
such Registration Statement. We also consent to the references to us under the
headings "Experts," "Summary Financial and Operating Data" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Dallas, Texas
January 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD FROM JULY 16, 1998 (INCEPTION)
TO DECEMBER 31, 1998 AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001097722
<NAME> ALAMOSA PCS HOLDINGS INC
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> JUL-16-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 13,529,077 7,454,309
<SECURITIES> 0 0
<RECEIVABLES> 0 957,182
<ALLOWANCES> 0 24,355
<INVENTORY> 0 4,989,500
<CURRENT-ASSETS> 13,581,123 13,981,993
<PP&E> 116,055 37,825,883
<DEPRECIATION> 2,063 896,075
<TOTAL-ASSETS> 15,673,885 88,411,727
<CURRENT-LIABILITIES> 889,633 14,481,661
<BONDS> 23,637 60,031,276
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 14,076,178 13,209,796
<TOTAL-LIABILITY-AND-EQUITY> 15,673,885 88,411,727
<SALES> 0 813,052
<TOTAL-REVENUES> 0 2,000,060
<CGS> 0 794,963
<TOTAL-COSTS> 0 1,613,641
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (17) (885,868)
<INCOME-PRETAX> (958,394) (17,247,297)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (923,822) (17,688,419)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (923,822) (17,688,419)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
