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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER: 005-58523
ALAMOSA PCS HOLDINGS, INC.
ALAMOSA PCS, INC.
ALAMOSA DELAWARE GP, LLC
ALAMOSA WISCONSIN GP, LLC
ALAMOSA WISCONSIN LIMITED PARTNERSHIP
TEXAS TELECOMMUNICATIONS, LP
(Exact name of registrant as specified in its charter)
DELAWARE 75-2853707
DELAWARE 74-2938804
DELAWARE 74-2938804
WISCONSIN 74-2938804
WISCONSIN 74-2938839
TEXAS 75-2851320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4403 BROWNFIELD HIGHWAY
LUBBOCK, TEXAS 79407
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (806) 722-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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ALAMOSA PCS HOLDINGS, INC. COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ NATIONAL MARKET SYSTEM
ALAMOSA PCS HOLDINGS, INC. PREFERRED STOCK PURCHASE RIGHTS NASDAQ NATIONAL MARKET SYSTEM
ALAMOSA PCS HOLDINGS, INC. 12 7/8% SENIOR DISCOUNT NOTES DUE 2010 AMERICAN STOCK EXCHANGE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES NO X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X].
The aggregate market value of the voting stock of the registrant held
by non-affiliates, computed by reference to the closing sales price of such
stock, as of March 23, 2000 was $1,105,107,252. (For purposes of determination
of the foregoing amount, only directors, executive officers and 10% or greater
stockholders have been deemed affiliates.)
The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of March 23, 2000, was 61,354,606 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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TABLE OF CONTENTS
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PAGE
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PART I............................................................................................................2
ITEM 1. BUSINESS............................................................................................3
ITEM 2. PROPERTIES.........................................................................................28
ITEM 3. LEGAL PROCEEDINGS..................................................................................28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................28
PART II..........................................................................................................29
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............................29
ITEM 6. SELECTED FINANCIAL DATA............................................................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION...............35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............53
PART III.........................................................................................................54
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................54
ITEM 11. EXECUTIVE COMPENSATION............................................................................59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................................65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................67
PART IV..........................................................................................................70
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..................................70
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PART I
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which can be identified by the use of
forward-looking terminology such as, "may," "might," "could," "would,"
"believe," "expect," "intend," "plan," "seek," "anticipate," "estimate,"
"project" or "continue" or the negative thereof or other variations thereon or
comparable terminology. All statements other than statements of historical fact
included in this annual report on Form 10-K, including without limitation, the
statements under "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation" and located elsewhere
herein regarding our financial position and liquidity are forward-looking
statements. These forward-looking statements also include:
o forecasts of growth in the number of consumers using wireless personal
communications services and in estimated populations;
o statements regarding our plans for, schedule for and costs of the
build-out of our portion of the Sprint PCS network;
o 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; and
o statements regarding expectations or projections about markets in our
territory.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors with respect to any such
forward-looking statements, including certain risks and uncertainties that could
cause actual results to differ materially from our expectations ("Cautionary
Statements") are disclosed in this annual report on Form 10-K, including,
without limitation, in conjunction with the forward-looking statements included
in this annual report on Form 10-K. Important factors that could cause actual
results to differ materially from those in the forward-looking statements
included herein include, but are not limited to:
o our dependence on our affiliation with Sprint PCS;
o the ability of Sprint PCS to alter fees paid or charged to us under
our affiliation agreements;
o the need to successfully complete the build-out of our portion of the
Sprint PCS network on our anticipated schedule;
o our limited operating history and anticipation of future losses;
o our dependence on Sprint PCS's back office services;
o potential fluctuations in our operating results;
o our potential need for additional capital or the need for refinancing
existing indebtedness;
o our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
o changes or advances in technology;
o our competition; and
o our ability to attract and retain skilled personnel.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements.
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Alamosa is a holding company for our operating subsidiaries. Alamosa PCS,
Inc., Alamosa Wisconsin GP, LLC, Alamosa Wisconsin Limited Partnership, Alamosa
Delaware GP, LLC, and Texas Telecommunications, LP are all subsidiaries of
Alamosa. These subsidiaries have fully and unconditionally guaranteed, jointly
and severally, on a senior subordinated, unsecured basis, the obligations of
Alamosa in connection with our sale of Alamosa's senior 12 7/8% discount notes
due 2010.
ITEM 1. BUSINESS.
References in this annual report on Form 10-K 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 annual report on Form 10-K 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.
OVERVIEW
Alamosa is a provider of wireless personal communication 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 wireless personal
communications services under the Sprint and Sprint PCS brand names in a
territory primarily located in Texas, New Mexico, Arizona, Colorado and
Wisconsin with approximately 8.4 million residents. We are a development stage
company with very limited operations, very limited revenues, significant losses,
substantial future capital requirements and an expectation of continued 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. 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, 31,876 Sprint PCS subscribers were based
in our territory.
OUR BACKGROUND
We were formed in July 1998 as a Texas limited liability company. Prior to
the closing of our initial public offering in February 2000, we were comprised
of Alamosa PCS LLC, a Texas limited liability company, Alamosa Wisconsin Limited
Partnership, a Wisconsin limited partnership, and a 99.75% owned subsidiary of
Alamosa PCS LLC, and Texas Telecommunications, LP, a Texas limited partnership,
and wholly-owned subsidiary of Alamosa PCS LLC. Immediately prior to the closing
of our initial public offering, we reorganized the business into a holding
company structure. The members of Alamosa PCS LLC received shares of common
stock of Alamosa PCS Holdings, Inc. in the same proportion to their membership
interests in Alamosa PCS, LLC.
Alamosa PCS Holdings, Inc., a Delaware corporation, was formed in October
1999 to operate as a holding company. Texas Telecommunications, LP was formed in
December 1999. In connection with our reorganization, Texas Telecommunications,
LP received the assets of Alamosa PCS LLC related to operations in the southwest
United States and operated the business of Alamosa PCS LLC. Alamosa PCS, Inc.
held a 99% limited partnership interest in Texas Telecommunications, LP. Alamosa
Delaware GP, LLC, a wholly-owned subsidiary of Alamosa PCS, Inc., held a 1%
general partnership interest in Texas Telecommunications, LP.
Alamosa Wisconsin Limited Partnership was formed in December 1999. In
connection with our reorganization, Alamosa Wisconsin Limited Partnership
received the assets of Alamosa PCS, LLC related to operations in Wisconsin.
After the reorganization, Alamosa Wisconsin Limited Partnership commenced our
business operations in Wisconsin. Alamosa PCS, Inc. holds a 98.75% voting
limited partnership interest and Chibardun Telephone Cooperative, Inc., a rural
telephone company in Wisconsin, owns a 0.25% non-voting limited partnership
interest in Alamosa Wisconsin Limited Partnership. Alamosa Wisconsin GP, LLC, a
wholly-owned subsidiary of Alamosa PCS, Inc., holds a 1% general partnership
interest in Alamosa Wisconsin Limited Partnership.
OUR RELATIONSHIP WITH SPRINT PCS
Sprint is a diversified telecommunications service provider whose principal
activities include:
o long distance service;
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o local service;
o wireless telephone products and services;
o product distribution and directory publishing activities; and
o other telecommunications activities, investments and alliances.
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.
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. Due to our
relationship with Sprint PCS, we benefit from:
Brand Recognition. We market products and services directly under the Sprint
and Sprint PCS brand names. We 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.
Existing Distribution Channels. We benefit from relationships with major
national retailers who distribute Sprint PCS products and services under
existing Sprint PCS contracts. These national retailers have approximately 470
retail outlets in our territory. Furthermore, we will benefit from sales made by
Sprint PCS to customers in our territory through its national telemarketing
sales force, national account sales team and Internet sales capability. These
existing distribution channels provide immediate access to customers as our
services become available in their area. For more information on our
distribution plan, see "-- Sales and Distribution."
Sprint PCS's National Network. We offer access to Sprint PCS's wireless
network. Sprint PCS's network offers service in 280 major metropolitan areas
across the country. We 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.
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."
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Statements in this annual report on Form 10-K 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.
MARKETS
The following table lists the location, basic trading area number, whether
the network coverage has been launched, frequency, megahertz of spectrum,
estimated total residents and estimated covered residents 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, we had 31,876 Sprint PCS subscribers.
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ESTIMATED ESTIMATED
BTA LAUNCHED? MHZ OF TOTAL COVERED
LOCATION NO.(1) YES/NO(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4)
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ARIZONA
Flagstaff, AZ....................... 144 No B 30 118,000 77,000
Las Vegas, NV(Arizona Side)(5)...... 245 No A 30 139,000 83,000
Phoenix, AZ(5)...................... 347 No B 30 7,000 7,000
Prescott, AZ........................ 362 No B 30 157,000 103,000
Sierra Vista/Douglas, AZ............ 420 No B 30 115,000 92,000
Tucson, AZ(5)....................... 447 No B 30 5,000 5,000
Yuma, AZ............................ 486 No B 30 137,000 117,000
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SUBTOTAL....................... 678,000 484,000
CALIFORNIA
El Centro/Calexico, CA.............. 124 No A 30 151,000 101,000
San Diego, CA(5).................... 402 No A 30 5,000 5,000
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SUBTOTAL....................... 156,000 106,000
COLORADO
Colorado Springs, CO(5)............. 089 No A 30 17,000 17,000
Grand Junction, CO.................. 168 No A 30 242,000 145,000
Pueblo, CO.......................... 366 No A 30 304,000 184,000
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SUBTOTAL....................... 563,000 346,000
MINNESOTA
Minneapolis/St. Paul, MN(5)......... 298 No A 30 84,000 52,000
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SUBTOTAL....................... 84,000 52,000
NEW MEXICO
Albuquerque, NM..................... 008 Yes D 10 812,000 544,000
Carlsbad, NM........................ 068 No D 10 55,000 18,000
Clovis, NM.......................... 087 No B 30 77,000 55,000
Farmington, NM/Durango, CO.......... 139 No D 10 200,000 82,000
Gallup, NM.......................... 162 No D 10 139,000 46,000
Hobbs, NM........................... 191 No B 30 56,000 42,000
Las Cruces, NM...................... 244 Yes D 10 251,000 209,000
Roswell, NM......................... 386 No D 10 81,000 26,000
Santa Fe, NM........................ 407 Yes D 10 213,000 142,000
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SUBTOTAL....................... 1,884,000 1,164,000
TEXAS
Abilene, TX......................... 003 Yes B 30 258,000 172,000
Amarillo, TX........................ 013 Yes B 30 405,000 255,000
Big Spring, TX...................... 040 No B 30 34,000 28,000
Del Rio/Eagle Pass, TX.............. 121 No A 30 121,000 79,000
El Paso, TX......................... 128 Yes D/E 20 787,000 652,000
Laredo, TX.......................... 242 Yes A 30 223,000 185,000
Lubbock, TX......................... 264 Yes B 30 400,000 251,000
Midland, TX......................... 296 Yes B 30 127,000 80,000
Odessa, TX.......................... 327 Yes B 30 221,000 135,000
San Angelo, TX...................... 400 Yes B 30 164,000 110,000
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SUBTOTAL....................... 2,740,000 1,947,000
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ESTIMATED ESTIMATED
BTA LAUNCHED? MHZ OF TOTAL COVERED
LOCATION NO.(1) YES/NO(2) FREQUENCY SPECTRUM RESIDENTS(3) RESIDENTS(4)
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WISCONSIN
Appleton/Oshkosh, WI................ 018 No A 30 443,000 303,000
Eau Claire, WI...................... 123 No A 30 192,000 120,000
Fond du Lac, WI..................... 148 No A 30 96,000 65,000
Green Bay, WI....................... 173 No A 30 345,000 235,000
La Crosse, WI/Winona, MN............ 234 No A 30 312,000 153,000
Madison, WI(5)...................... 272 No A 30 147,000 106,000
Manitowoc, WI....................... 276 No A 30 83,000 56,000
Milwaukee, WI(5).................... 297 No A 30 85,000 59,000
Sheboygan, WI....................... 417 No A 30 111,000 76,000
Stevens Point/Marshfield/
Wisconsin Rapids, WI........... 432 No A 30 214,000 120,000
Wausau/Rhinelander, WI.............. 466 No A 30 244,000 102,000
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SUBTOTAL....................... 2,272,000 1,395,000
TOTAL.......................... 8,377,000 5,494,000
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(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) Launch dates may be affected by 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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- 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) Total residents, covered residents and actual customers for these markets
reflect only those residents or customers contained in our territory, not
the total residents, covered residents and actual customers in the entire
basic trading area.
Pursuant to our affiliation agreements with Sprint PCS, we have agreed to
cover a minimum percentage of the resident population in our territory within
specified time periods. We plan to build-out our territory more rapidly than
those network build-out requirements. For more information on the network
build-out requirements, see "-- Our Affiliation Agreements with Sprint PCS:
The Management Agreement -- Network Build-Out." We believe that our build-out
plan is achievable based on our progress to date, the proven digital wireless
personal communications services technology we will use to build our portion of
the Sprint PCS network and the established standards of Sprint PCS. However, our
build-out plan may change for a number of reasons, including those described in
footnote (2) to the table above. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation" and "Financial
Statements" commencing on page F-1 hereof.
NETWORK OPERATIONS
GENERAL
The effective operation of our portion of the Sprint PCS network requires:
o public switched and long distance interconnection;
o the implementation of roaming arrangements; and
o the development of network monitoring systems.
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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
Networks, Inc., which was amended February 8, 2000, for our network equipment
and infrastructure, including switches, base stations and controllers. Pursuant
to the amended agreement, Nortel also provides installation and optimization
services, such as network engineering and radio frequency engineering, for the
equipment and granted to us a nonexclusive license to use all the software
associated with the Nortel equipment. During the term of the amended agreement
we have committed to purchase $167.0 million of equipment and services from
Nortel. Nortel finances these purchases pursuant to the Nortel credit facility
described in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Description of Our Indebtedness: The
Nortel Credit Facility." As of December 31, 1999, we have remaining commitments
of $117.6 million to purchase equipment and infrastructure under the amended
agreement. We submit purchase orders to Nortel for the equipment and services as
needed. Under the amended agreement, we receive a discount on the network
equipment and services because of our affiliation with Sprint PCS, but we must
pay a premium on any equipment and services financed by Nortel. At December 31,
1999, we were not obligated to pay this premium once we purchased an additional
$32.6 million in equipment and infrastructure under this amended agreement. If
our affiliation with Sprint PCS ends, Nortel has the right to either terminate
the agreement or, with our consent, modify the agreement to establish new
prices, terms and conditions.
TOWER AGREEMENT WITH SPECIALTY
In August 1998, we entered into a nonexclusive master site development and
lease agreement for tower sites with Specialty Capital Services, Inc., 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, Specialty provides
site acquisition, leasing and construction services and secures zoning,
permitting and surveying approvals and licenses for each base station location.
The initial term of the master agreement expires in August 2003, with automatic
renewal for three additional terms of five years each. We lease all individual
tower sites that Specialty provides for an initial term of five years, with
automatic renewals at our option for three additional terms of five years each.
We pay rental payments to Specialty monthly, in the amounts indicated on each
individual leased site schedule, subject to an annual adjustment based on the
Consumer Price Index. In any situation where Specialty's rights in a site are
derived from a lease with a third party, the terms of our agreement with
Specialty, including the lease term, are subordinate to the terms of that lease.
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
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agreement. A guaranteed maximum fee amount has been set for each period of the
contract, and those fees aggregate to approximately $7.0 million, excluding
taxes. If the total billing for the project is less than the guaranteed maximum
fee amount for the agreement, then we will pay an incentive bonus to CHR
Solutions equal to 50% of the difference.
Data Communications Services Contract. We entered into a data communications
services contract with CHR Solutions as of April 9, 1999, for the design and
implementation of network interconnection systems for our local area networks
and wide area network. Similar to the engineering service contract, we pay CHR
Solutions hourly rates and test equipment and computer usage costs, subject to a
guaranteed maximum fee amount for the project of $262,040, excluding taxes. The
hourly rates and the test equipment and computer usage costs are reviewed and
modified by mutual agreement annually until completion of the services or
termination of the agreement. If the total billing for the project is less than
the guaranteed maximum fee amount, then we will pay an incentive bonus to CHR
Solutions equal to 50% of the difference. We may also require additional
services during the course of the contract and have been guaranteed a fee not to
exceed $50,000 for any of those services. The agreement lasts until the project
is completed, unless either CHR Solutions or we terminate it earlier for cause.
Marketing and Operations Consulting Services Contract. Pursuant to a special
service contract, from September 20, 1998 through January 15, 1999, CHR
Solutions provided marketing and operations consulting services relating to the
setup and operation of our wireless personal communications services system.
Wisconsin Marketing and Operations Consulting Services Contract. As of
October 8, 1999, we entered into a similar marketing and operations consulting
services contract with CHR Solutions relating to the setup and operation of the
wireless personal communications services system in selected areas in Wisconsin.
We pay CHR Solutions hourly rates for the employees who work on the project as
well as the employees' associated expenses. We also pay CHR Solutions for the
costs of computer usage. The hourly rates and computer usage costs are reviewed
and modified by mutual agreement annually until completion of the services or
termination of the agreement. The maximum fee for the services is not to exceed
$100,000, excluding taxes. The agreement lasts until the project is completed,
unless either party terminates it earlier.
Business Planning and Consulting Services Contracts. Pursuant to a special
service contract dated as of October 8, 1999, CHR Solutions provides us with
business planning and consulting services and a feasibility study for selected
areas of Wisconsin for a fixed fee of $81,000. The agreement lasts until the
project is completed, unless either party terminates it earlier.
We have entered into an additional special service contract with CHR
Solutions dated as of October 8, 1999. Pursuant to this contract, CHR Solutions
provides us with business planning and consulting services and a feasibility
study for additional selected areas in our territory. We pay CHR Solutions
hourly rates for the employees who work on the project as well as the employees'
associated 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 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:
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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:
o monthly recurring charges;
o large local calling areas;
o bundles of minutes; and
o 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:
o include minutes on any portion of the Sprint PCS network with no
roaming charges for the customer;
o offer advanced features and generally require no long-term contracts;
o offer a selection of handsets to meet the needs of individual
consumers and businesses;
o provide a limited-time money back guarantee on Sprint PCS handsets;
and
o 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:
o caller ID;
o call waiting;
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o phone books;
o speed dial; and
o 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 fraud 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.
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.
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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.
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. 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:
o the Albuquerque Balloon Fest;
o the Western Professional Hockey League;
o minor league baseball teams;
o local school programs;
o March of Dimes; and
o other charity events.
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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 customer care at these stores. We plan to add
ten new stores and three kiosks by year-end 2000 and another six new stores and
three kiosks 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 using CDMA technology in the 1900 MHz spectrum 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:
o Best Buy; o K-Mart;
o Circuit City; o Dillard's;
o Office Depot; o Montgomery Ward;
o Office Max; o Foley's;
o Staples; o Ritz Camera; and
o Heilig Meyer; o selected May Company
department stores.
o Target;
As of December 31, 1999, these retailers had approximately 240 stores in our
territory.
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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.
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:
o the increasing use of retail distribution, which is dependent upon the
year-end holiday shopping season;
o the timing of new product and service announcements and introductions;
o competitive pricing pressures; and
o aggressive marketing and promotions.
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
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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:
o controls the transfer of calls from cell to cell as a subscriber's
handset travels;
o coordinates calls to and from handsets;
o allocates calls among the cells within the system; and
o 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 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
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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.
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:
o Nextel Communications, Inc.;
o AT&T Wireless Services, Inc.;
o the company that will result from the pending merger between Bell
Atlantic Corp. and GTE Corp.; and
o 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:
o SBC Communications Inc. and Ameritech Corporation, its wholly-owned
subsidiary;
o VoiceStream Wireless Corporation; and
o United States Cellular Corporation.
Furthermore, a number of wireless service providers compete with us on a
local basis, such as:
o Airadigm Communications;
o Poka Lambro PCS, Inc.; and
o Amarillo CellTelCo.
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We also face competition from resellers, which provide wireless services to
customers but do not hold Federal Communications Commission licenses or own
facilities. Instead, the resellers buy blocks of wireless telephone numbers and
capacity from a licensed carrier and resell services through their own
distribution network to the public. The Federal Communications Commission
currently requires all cellular and wireless personal communications services
licensees to permit resale of carrier services to a reseller.
In addition, we compete with existing communications technologies such as
paging, enhanced specialized mobile radio service dispatch and conventional
landline telephone companies in our markets. Potential users of wireless
personal communications services systems may find their communications needs
satisfied by other current and developing technologies. One or two-way paging or
beeper services that feature voice messaging and data display as well as
tone-only service may be adequate for potential customers who do not need to
speak to the caller.
In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Many of our competitors have access to more licensed spectrum than the 10
MHz licensed to Sprint PCS in New Mexico and Durango and the 20 MHz licensed to
Sprint PCS in El Paso. Among other things, increased spectrum allows for higher
call volume and fewer dropped calls. Cellular service providers have licenses
covering 25 MHz of spectrum, and three competing wireless personal
communications services providers have licenses to use 30 MHz in New Mexico.
Except for New Mexico (10 MHz), Durango (10 MHz) and El Paso (20 MHz), Sprint
PCS has licenses to use 30 MHz of spectrum throughout our territory.
Many of our competitors have significantly greater financial and technical
resources and subscriber bases than we do. AT&T Wireless has over 11 million
subscribers and the recent partnership of Bell Atlantic-GTE and Vodafone
AirTouch has over 19 million combined subscribers. Some of our competitors also
have established infrastructures, marketing programs and brand names. In
addition, some of our competitors may be able to offer regional coverage in
areas not served by the Sprint PCS network, or, because of their calling volumes
or relationships with other wireless providers, may be able to offer regional
roaming rates that are lower than those we offer. Wireless personal
communications services operators will likely compete with us in providing some
or all of the services available through the Sprint PCS network and may provide
services that we do not. Additionally, we expect that existing cellular
providers will continue to upgrade their systems to provide digital wireless
communication services competitive with Sprint PCS. Recently, there has been a
trend in the wireless communications industry towards consolidation of wireless
service providers through joint ventures, mergers and acquisitions. We expect
this consolidation to lead to larger competitors over time. These larger
competitors may have substantial resources or may be able to offer a variety of
services to a large customer base.
Over the past several years the Federal Communications Commission has
auctioned and will continue to auction large amounts of wireless spectrum that
could be used to compete with Sprint PCS services. Based upon increased
competition, we anticipate that market prices for two-way wireless services
generally will decline in the future. We will compete to attract and retain
customers principally on the basis of:
o the strength of the Sprint and Sprint PCS brand names, services and
features;
o the size of our territory;
o the location of our markets;
o our network coverage and reliability;
o customer care; and
o pricing.
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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:
o new services and technologies that may be introduced;
o changes in consumer preferences;
o demographic trends;
o economic conditions; and
o 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 "Item 1. Business
- -- Our Affiliation Agreements with Sprint PCS: The Trademark and Service Mark
License Agreements" for more information on this topic.
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.
EMPLOYEES
As of December 31, 1999, we employed 182 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
OUR AFFILIATION AGREEMENTS WITH SPRINT PCS
Our four major agreements with Sprint and Sprint PCS, are:
o the management agreement;
o the services agreement; and
o 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.
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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. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Consent and Agreement for the Benefit of the Holders of the Nortel
Financing." 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.
OUR AFFILIATION AGREEMENTS WITH SPRINT PCS: THE MANAGEMENT AGREEMENT
Under our management agreement with Sprint PCS, we have agreed to:
o 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;
o distribute Sprint PCS products and services;
o use Sprint PCS's and our own distribution channels in our territory;
o conduct advertising and promotion activities in our territory; and
o manage that portion of Sprint PCS's customer base assigned to our
territory.
Sprint PCS will supervise our wireless personal communications services
network operations and has the right to unconditional access to our portion of
the Sprint PCS network, including the right to test and monitor any of our
facilities and equipment.
EXCLUSIVITY
We are designated as the only person or entity that can manage or operate a
wireless personal communications services network for Sprint PCS in our
territory. Sprint PCS is prohibited from owning, operating, building or managing
another wireless communications network in our territory while our management
agreement is in place and no event has occurred that would permit the agreement
to terminate. Sprint PCS is permitted to make national sales to companies in our
territory and, as required by the Federal Communications Commission, to permit
resale of the Sprint PCS products and services in our territory. The management
agreement prohibits us from interfering with others who resell Sprint PCS
products and services in our territory. If Sprint PCS decides to expand the
geographic size of our build-out, Sprint PCS must provide us with written notice
of the proposed expansion. We have a 90 day right of first refusal to build-out
the proposed area. If we choose not to build-out of the proposed area, then
Sprint PCS may build-out the area itself or allow another Sprint PCS network
partner to do so.
NETWORK BUILD-OUT
The management agreement specifies the terms of the Sprint PCS affiliation,
including the required network build-out plan. We have agreed to cover a
specified percentage of the population within each of the markets which make up
our territory by specified dates. Our current build-out plan will satisfy the
network build-out requirements set forth in the management agreement. If
technically feasible and commercially reasonable, we have agreed to provide for
a seamless handoff of a call initiated in our territory to a neighboring Sprint
PCS network. The
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management agreement requires us to reimburse Sprint PCS one-half of the
microwave clearing costs for our territory.
PRODUCTS AND SERVICES
The management agreement identifies the products and services that we can
offer in our territory. These services include, but are not limited to, Sprint
PCS consumer and business products and services available as of the date of the
agreement, or as modified by Sprint PCS. We are allowed to sell wireless
products and services that are not Sprint PCS products and services if those
additional products and services do not cause distribution channel conflicts or,
in Sprint PCS's sole determination, consumer confusion with Sprint PCS's
products and services. We also cannot sell non-Sprint PCS products and services
if it would hamper our build-out of the network. Under the Wisconsin management
agreement, if Sprint PCS begins to offer nationally a product or service that we
already offer, then that product or service will be considered to be a Sprint
PCS product or service.
We may also sell services such as specified types of long distance service,
Internet access, handsets, and prepaid phone cards with Sprint, Sprint PCS and
other Sprint PCS affiliates. If we decide to use third parties to provide these
services, we must give Sprint PCS an opportunity to provide the services on the
same terms and conditions. We cannot offer wireless local loop services
specifically designed for the competitive local exchange market in areas where
Sprint owns the local exchange carrier unless we name the Sprint-owned local
exchange carrier as the exclusive distributor or Sprint PCS approves the terms
and conditions. Sprint does not own the local exchange carrier in a majority of
the markets in our territory.
NATIONAL SALES PROGRAMS
We must participate in the Sprint PCS sales programs for national sales to
customers, and will pay the expenses and receive the compensation from Sprint
PCS sales to national accounts located in our territory. We must use Sprint's
long distance service, which we can buy at the best prices offered to comparably
situated Sprint customers.
SERVICE PRICING, ROAMING AND FEES
We must offer Sprint PCS subscriber pricing plans designated for regional or
national offerings, including Sprint PCS's "Free and Clear" plans. We are
permitted to establish our own local price plans for Sprint PCS's products and
services offered only in our territory, subject to Sprint PCS's approval. We are
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
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PCS's national advertising campaigns, we advertise and promote Sprint PCS
products and services on a local level in our markets at our cost. We have the
right to use any promotion or advertising materials developed by Sprint PCS and
only have to pay the incremental cost of using those materials, such as the cost
of local radio and television advertisement placements and incremental printing
costs. Sprint PCS also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
minutes of use for limited time periods. We offer these promotional campaigns to
potential customers in our territory.
PROGRAM REQUIREMENTS
We must comply with Sprint PCS's program requirements for technical
standards, customer service standards, roaming coverage and national and
regional distribution and national accounts programs. Sprint PCS will use
commercial reasonableness to adjust the program requirements for cities located
within our territory that have a population of less than 100,000. Sprint PCS can
adjust the program requirements at any time. We have the right to appeal to
management of Sprint PCS if adjustments to program requirements will:
o cause us to incur a cost exceeding 5% of the sum of our stockholders'
equity plus our outstanding long term debt; or
o 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.
TERMINATION OF MANAGEMENT AGREEMENT
The management agreement can be terminated as a result of the following
events:
o termination of Sprint PCS's spectrum licenses;
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o an uncured breach under the management agreement;
o bankruptcy of a party to the management agreement;
o the management agreement not complying with any applicable law in any
material respect; or
o 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:
o 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;
o 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
o choose not to terminate the management agreement and sue Sprint PCS
for damages or submit the matter to arbitration.
See "Item 1. Business -- Markets" 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:
o 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;
o 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;
o 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
o not terminate the management agreement and sue us for damages or
submit the matter to arbitration.
NON-RENEWAL
If Sprint PCS gives us timely notice that it does not intend to renew the
management agreement, we may:
o 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
o 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.
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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:
o purchase all of our operating assets, without further stockholder
approval, for an amount equal to 80% of our Entire Business Value; or
o 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 "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation -- 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:
o the Entire Business Value is based on the price a willing buyer would
pay a willing seller for the entire on-going business;
o then-current customary means of valuing a wireless telecommunications
business will be used;
o the business is conducted under the Sprint and Sprint PCS brands and
our affiliation agreements with Sprint PCS;
o that we own the spectrum and frequencies presently owned by Sprint PCS
and subject to our affiliation agreements with Sprint PCS; and
o the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and those businesses
will not be included in the sale.
The rights and remedies of Sprint PCS outlined in the management agreement
resulting from an event of termination of the management agreement have been
materially amended by the consent and agreement as discussed below.
INSURANCE
We are required to obtain and maintain with financially reputable insurers
who are licensed to do business in all jurisdictions where any work is performed
under the management agreement and who are reasonably acceptable to Sprint PCS,
workers' compensation insurance, commercial general liability insurance,
business automobile insurance, umbrella excess liability insurance and "all
risk" property insurance.
INDEMNIFICATION
We have agreed to indemnify Sprint PCS and its directors, employees and
agents and related parties of Sprint PCS and their directors, employees and
agents against any and all claims against any of the foregoing arising from our
violation of any law, a breach by us of any representation, warranty or covenant
contained in the management agreement or any other agreement between us and
Sprint PCS, our ownership of the operating assets or the actions or the failure
to act of anyone employed or hired by us in the performance of any work under
this agreement, except we will not indemnify Sprint PCS for any claims arising
solely from the negligence or willful misconduct of Sprint PCS. Sprint PCS has
agreed to indemnify us and our directors, employees and agents against all
claims against any of the foregoing arising from Sprint PCS's violation of any
law and from Sprint PCS's breach of any representation, warranty or covenant
contained in this agreement or any other agreement between Sprint PCS and us,
except Sprint PCS will not indemnify us for any claims arising solely from our
negligence or willful misconduct.
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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.
OUR AFFILIATION AGREEMENTS WITH SPRINT PCS: 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.
OUR AFFILIATION AGREEMENTS WITH SPRINT PCS: 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.
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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:
o grant or deny licenses for wireless personal communications services
frequencies;
o grant or deny wireless personal communications services license
renewals;
o rule on assignments and/or transfers of control of
wireless personal communications services licenses;
o govern the interconnection of wireless personal communications
services networks with other wireless and wireline service providers;
o establish access and universal service funding provisions;
o impose fines and forfeitures for violations of any of the Federal
Communications Commission's rules; and
o 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. The 45 MHz cap is raised to 55 MHz for
cellular spectrum in rural areas. The 20% cap is raised to 40% where the
relevant single entity is a small business or a rural telephone company. The
geographic area at issue is the PCS licensed service area, where there can be
significant overlap involving 10% or more of the population in the 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 our affiliation agreements with Sprint PCS need to be modified to increase
the level of licensee control, we have agreed
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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. The Federal Communications Commission could also impose monetary
penalties on Sprint PCS, and possibly revoke one or more of the Sprint PCS
licenses.
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:
o provided "substantial service" during its license term; and
o 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 service providers for the termination of
traffic. Using these new rules, we will assist Sprint PCS in the negotiation of
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 Sprint PCS and its managers and affiliates in
various markets. However, to date, wireless 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 service providers to implement
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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 Sprint PCS and its
managers and affiliates and other wireless providers, and may do so increasingly
in future years. In June 1996, the Federal Communications Commission adopted
rules requiring broadband wireless personal communications services and other
commercial mobile radio services providers to implement enhanced emergency 911
capabilities within 18 months after the effective date of the Federal
Communications Commission's rules. In December 1997, the Federal Communications
Commission revised these rules to extend the compliance deadline for phase I
until October 1, 1998 and for phase II until October 1, 2001 for digital
commercial mobile radio services providers to ensure access for customers using
devices for the hearing-impaired. The Federal Communications Commission recently
extended the phase I compliance deadline to January 1, 1999. Further waivers of
the enhanced emergency 911 capability requirements may be obtained by individual
service providers by filing a waiver request. The Federal Communications
Commission's waivers and extensions are enabling us, Sprint PCS and other
commercial mobile radio services industry members to delay emergency 911
implementation until the required equipment becomes more functional and less
expensive. However, at a more reasonable future cost, emergency 911 services may
afford wireless carriers substantial and attractive new service and marketing
opportunities.
On June 10, 1999, the Federal Communications Commission initiated a
regulatory proceeding seeking comment from the public on a number of issues
related to competitive access to multiple-tenant buildings, including the
following:
o 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
o 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.
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.
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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 Sprint PCS and its managers and affiliates 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
Sprint PCS and its managers and affiliates 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 this
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 "universal service" programs 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 manage
substantial rural areas for Sprint PCS, we are likely to receive revenues in the
future from federal and state universal service support funds that are much
greater than the reductions in our revenues due to universal service
contributions paid by Sprint PCS.
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 Sprint PCS and its
managers and affiliates 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.
27
<PAGE> 29
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:
o market conditions fail to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably
discriminatory; or
o 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 Sprint PCS and its managers and affiliates 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.
ITEM 2. 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 had 15 retail stores and four
switching centers. As of December 31, 1999, we leased space on 248 towers and
owned one tower. We collocate with other wireless service providers on
approximately 37% of our towers. We believe that our facilities are adequate for
our current operations and that additional leased space can be obtained if
needed on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
We and our subsidiaries are not parties to any pending legal proceedings
that we believe would, if adversely determined, individually or in the
aggregate, have a material adverse effect on our, or our subsidiaries',
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In connection with our initial public offering, on December 9, 1999, we
received appropriate approval of the members of Alamosa PCS, LLC, our former
operating entity, at a special meeting of the members, of the following actions:
o to restructure Alamosa PCS, LLC as described in "Item 1. Business--Our
Background";
o to have a high-yield debt offering; and
o to enter into employment agreements with David E. Sharbutt, Kendall W.
Cowan and Jerry W. Brantley.
28
<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock has traded on the Nasdaq National Market under the symbol
"APCS" since February 3, 2000. Prior to that date, there was no public market
for our common stock. No quoted market prices for our common stock are available
for the years ended December 31, 1999 and 1998.
The following table sets forth, for the periods indicated, the range of high
and low closing sales price of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
Fiscal 2000 High Low
----------- ---- ---
<S> <C> <C>
First quarter (from February 3, 2000 through March 23, 2000) $ 40.00 $ 23.375
------- --------
</TABLE>
On March 23, 2000, the last reported sales price of our common stock as
reported on the Nasdaq National Market was $36.50 per share. On March
23, 2000, there were 74 holders of record of our common stock.
We have never declared or paid any cash dividends on our common stock or
other securities. We do not expect to pay cash dividends on our capital stock in
the foreseeable future. We currently intend to retain our future earnings, if
any, to fund the development and growth of our business. Future dividends, if
any, will be determined by our board of directors and will depend upon our
results of operations, financial condition and capital expenditure plans, as
well as other factors that our board of directors considers relevant. The Nortel
financing does not restrict our ability to pay dividends. However, the Nortel
financing prohibits our subsidiaries from paying dividends or making
distributions, except for stock dividends and for distributions to fund the
payment of the interest on our senior discount notes, without Nortel's consent.
Accordingly, the Nortel financing makes it very difficult for us to pay any cash
dividends to our stockholders.
RECENT SALES OF UNREGISTERED SECURITIES
We were formed on October 19, 1999. At that time we had no assets and had
issued no capital stock. Immediately prior to the closing of our initial public
offering, we were reorganized as described in "Item 1. Business -- Our
Background." In connection with our reorganization, we merged with Alamosa PCS
Holdings, Inc., a Texas corporation ("Texas Holdings"). To effectuate the
merger, we issued 100 shares of our common stock to Texas Holdings. We then
merged with Texas Holdings, and we were the surviving corporation. In the
merger, we issued unregistered shares of our common stock to the stockholders of
Texas Holdings.
We also granted stock options to directors, officers, employees and
consultants before the closing of our initial public offering, pursuant to the
terms of our 1999 Long-Term Incentive Plan. These are our only unregistered
issuances of securities before or after our initial public offering.
Texas Holdings is the successor to our former operating entity, Alamosa PCS,
LLC, by virtue of a conversion of the LLC to a corporation.
The persons who received our common stock in connection with our
reorganization, their owners, the consideration we received for such common
stock and the number of shares of common stock to be received are set forth in
the tables below.
29
<PAGE> 31
1. REORGANIZATION
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF MEMBERSHIP INTEREST
SHARES OF OUR WE RECEIVED IN
NATURE OF COMMON STOCK EXCHANGE FOR OUR
ENTITY THAT RECEIVED SECURITIES OWNER, IF AN ENTITY CONSIDERATION ISSUED COMMON STOCK(1)
------------------------------- ------------------- ------------- -------------- -------------------
<S> <C> <C> <C> <C>
Alamosa PCS Holdings, Inc.
(Texas)................... The owners are $ 100 100 100%
those persons
listed below in
Item 2 "Common
Stock Issued
Pursuant to the
Reincorporation
Merger."
</TABLE>
2. COMMON STOCK ISSUED PURSUANT TO THE REINCORPORATION MERGER
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF MEMBERSHIP INTEREST
SHARES OF OUR WE RECEIVED IN
NATURE OF COMMON STOCK EXCHANGE FOR OUR
ENTITY THAT RECEIVED SECURITIES OWNER, IF AN ENTITY CONSIDERATION 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 electric 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 666,434 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.......................... Present and former Membership 292,938 0.60
CHR Solutions, Inc. Interest
employees
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
Anthony E. Bliss...................... -- Membership 288,056(2) 0.59
Interest
Romoso, Ltd........................... William R. and Membership 153,792 0.32
Sondra Overman and
their two children
Interest
W. Don Stull.......................... -- Membership 97,647(2) 0.20
Interest
J. Frank Eldridge..................... -- Membership 73,235 0.15
Interest
David E. Sharbutt..................... -- Membership 48,824 0.10
Interest
Barry J. Moore........................ -- Membership 48,824 0.10
Interest
Randall D. Yeisley.................... -- Membership 48,824 0.10
Interest
William R. Overman.................... -- Membership 24,412(2) 0.05
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
James E. McDuff....................... -- Membership 24,412 0.05
Interest
</TABLE>
The persons who received options to purchase our common stock, the nature of
consideration for these options and number of our shares that may be purchased
pursuant to these options are set forth in the table below.
3. OPTIONS GRANTED
<TABLE>
<CAPTION>
NATURE OF NUMBER OF
OWNER CONSIDERATION OPTIONS
------------------- ------------- ----------
<S> <C> <C>
David E. Sharbutt.......... Employment 1,697,500(3)
Jerry W. Brantley.......... Employment(4) 1,697,500(3)
Kendall W. Cowan........... Employment 1,455,000(3)
W. Don Stull............... Employment(4) 145,500(3)
Michael R. Budagher........ Director 28,000(3)
Services
Ray M. Clapp, Jr........... Director 43,000(3)
Services
Scotty Hart................ Director 28,000(3)
Services
Thomas Hyde................ Director 28,000(3)
Services
Schuyler B. Marshall....... Director 28,000(3)
Services
Tom M. Phelps............. Director 28,000(3)
Services
Reagan W. Silber.......... Director 28,000(3)
Services
Jimmy R. White............ Director 28,000(3)
Services
Adam Lampert.............. Consulting 15,000(3)
Services
Jeff Howard............... Consulting 12,500(3)
Services
</TABLE>
31
<PAGE> 33
<TABLE>
<S> <C> <C>
Wilton J. Payne........... Consulting 10,000(3)
Services
J.R. Wilson............... Consulting 10,000(3)
Services
Other Employees........... Employment 902,500(3)
</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) Includes or consists of shares held in a 401(k) plan.
(3) Represents options to acquire securities, not issued securities.
(4) The consideration for these stock options is an option to purchase a
membership interest in Alamosa PCS, LLC as well as his employment with us.
None of the foregoing transactions involved any public offering, and
issuances of securities in connection with such transactions were made pursuant
to valid exemptions under the Securities Act. The following were the exemptions
relied on for each issuance of securities pursuant to our reorganization.
First, our issuance of 100 shares to Texas Holdings was exempt under Section
4(2) of the Securities Act. This issuance of 100 shares was a transaction
involving one offeree, involving no general solicitation.
Second, our issuance of 48,500,008 shares to the twenty-nine stockholders of
Texas Holdings, pursuant to the merger of Texas Holdings with and into us, was
exempt under Section 4(2). The merger took place through direct communication
with the offerees, with no general solicitation or advertising. Since we are a
subsidiary of Texas Holdings, these offerees had a pre-existing and substantial
relationship with us.
The options to purchase a total of 6,184,500 shares were granted pursuant to
a written compensatory benefit plan or written compensation contract to the
directors, employees and consultants, and were exempt pursuant to Rule 701.
48,500,008 shares were outstanding prior to the grant of these options. The
6,184,500 shares is under the maximum of 15% of 48,500,008, or 7,275,001
provided in Rule 701(d)(2).
USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
We commenced our initial public offering on February 3, 2000 pursuant to a
Registration Statement on Form S-1, file no. 333-89995, that was declared
effective on February 2, 2000. On February 8, 2000, we consummated the offering.
The managing underwriters of the public offering were Salomon Smith Barney Inc.,
Lehman Brothers Inc., Credit Suisse First Boston Corporation and Deutsche Bank
Securities Inc. In the offering, we registered and sold an aggregate of
12,321,100 shares of our common stock, including 1,607,100 shares of common
stock pursuant to the exercise of the underwriters' over-allotment option. The
aggregate price of the shares offered and sold was approximately $208.6 million.
Our net proceeds, after accounting for approximately $13.3 million in
underwriting discounts and commissions and approximately $1.0 million in other
expenses, were approximately $194.3 million.
We commenced our sale of the senior discount notes on February 3, 2000
pursuant to a Registration Statement on Form S-1, file no. 333-93499, that was
declared effective on February 2, 2000. On February 8, 2000, we consummated the
offering. The managing underwriters of the sale of the senior discount notes
were Salomon Smith Barney Inc., Credit Suisse First Boston Corporation and
Lehman Brothers Inc. In the offering, we registered and sold $350 million
aggregate principal amount at maturity of the senior discount notes at an
aggregate price to the public of $187.1 million. Our net proceeds from the sale
of the senior discount notes, after accounting for approximately $6.1 million in
underwriting discounts and commissions and other offering expenses, were
approximately $181 million.
As of March 23, 2000, approximately $90 million of the net proceeds from the
sales of the registered securities had been used, including $75 million of
indebtedness outstanding under the Nortel credit facility, $4 million of
origination fees in connection with the Nortel credit facility and $7 million
for capital expenditures and working capital purposes. The balance of the net
proceeds were invested in short-term interest-bearing investment grade
securities.
32
<PAGE> 34
We are using the net proceeds from our initial public offering to fund the
following cash expenditures through 2002:
o capital expenditures of approximately $216 million, representing the
build-out of markets in Wisconsin, Arizona and Colorado, as well as
the further expansion of coverage in existing markets in Texas and New
Mexico;
o net operating losses and working capital requirements of approximately
$11 million;
o interest expense, principal payments and loan origination fees of
approximately $45 million; and
o general corporate purposes.
We used a portion of the net proceeds from the sale of the senior discount
notes to prepay $75 million of indebtedness outstanding under the Nortel credit
facility. We are using the remaining proceeds of the debt offering to:
o accelerate coverage within our existing territory;
o build-out additional areas within our existing territory;
o expand our existing territory;
o pursue additional telecommunications business opportunities or acquire
other telecommunications businesses or assets; and
o cover general corporate purposes.
However, if we do not use the remaining proceeds from the sale of the senior
discount notes for the above purposes, we may decide to:
o prepay additional debt outstanding under the Nortel credit facility;
or
o avoid drawing additional amounts under the Nortel credit facility.
We retain broad discretion in the allocation of the net proceeds of both of
our offerings. This discussion represents our best estimate of the allocation of
the net proceeds based upon our current plans. Actual expenditures may vary
substantially from these plans and we may find it necessary or advisable to
reallocate the net proceeds within the above-described categories or to use
portions for other purposes. The timing and the coverage of our build-out plan
may change due to various reasons, including shifts in populations or network
focus, changes or advances in technology, acquisition of other markets,
businesses, products or technologies and factors causing a delay in the
build-out of some markets. Any changes in the timing or build-out plan may cause
changes in our use of proceeds. Additionally, we may use a portion of the net
proceeds to acquire or invest in businesses, products or technologies that are
complementary to our business. We currently do not have any commitments or
agreements for any acquisitions or investments of this kind.
Pending these uses, we expect to invest the net proceeds from our two
offerings in short-term investment grade securities, which will earn interest.
None of the net offering proceeds were, directly or indirectly, paid by us
to our directors or officers or their associates, persons owning 10% or more of
any class of our securities, or our affiliates. Portions of the proceeds of the
offering will be paid to CHR Solutions in connection with the build out of our
network. See "Item 13. Certain Relationships and Related Transactions -
Agreements with CHR Solutions."
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below under the captions "Statement of
Operations Data," "Per Share Data," and actual "Balance Sheet Data" have been
derived from the consolidated balance sheets at December 31, 1999 and 1998 and
the related statements of operations for the year ended December 31, 1999, the
period from inception to December 31, 1998, and the period from inception to
December 31, 1999 and the notes thereto appearing elsewhere herein.
33
<PAGE> 35
It is important that you also read "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation" and the financial
statements for the periods ended December 31, 1998 and 1999, the related notes
and the independent auditors' report.
<TABLE>
<CAPTION>
CUMULATIVE FOR
FOR THE PERIOD THE PERIOD
JULY 16, 1998 JULY 16, 1998
FOR THE YEAR ENDED (INCEPTION) THROUGH (INCEPTION) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
(Dollars in thousands except for per share data and other data)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues .......................... $ 6,534 $ -- $ 6,534
Product sales ............................. 2,450 -- 2,450
------------- ------------- -------------
8,984 -- 8,984
------------- ------------- -------------
Cost and expenses:
Cost of service and operations ............ 7,441 -- 7,441
Cost of product sales ..................... 2,403 -- 2,403
Selling and marketing ..................... 14,347 -- 14,347
General and administration ................ 12,408 956 13,364
Depreciation and amortization ............. 3,057 2 3,059
------------- ------------- -------------
39,656 958 40,614
------------- ------------- -------------
Operating loss .............................. (30,672) (958) (31,630)
Net loss .................................... (32,836) (924) (33,760)
PER SHARE DATA:
Basic and diluted net loss per
share of common stock(1)(2) .............. $ (.68) $ (.02) $ (.70)
Pro forma net loss per share of
common stock(1)(2) ....................... (.68) (.02) (.70)
OTHER DATA:
Number of subscribers at end of
period ................................... 31,876 -- 31,876
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------- AS OF
ACTUAL AS ADJUSTED(3) DECEMBER 31, 1998
------ -------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 5,656 $ 309,083 $ 13,529
Property and equipment, net........... 84,714 84,714 2,093
Total assets.......................... 104,492 414,032 15,674
Short-term debt(4).................... 385 385 44
Long-term debt........................ 72,753(6) 187,973 708(5)
Total liabilities..................... 93,052 208,272 1,598
Equity................................ 11,440 205,760 14,076
</TABLE>
- ----------
(1) 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 two fiscal years. The presentation of the pro forma
net loss per share of common stock gives effect to adjustments for federal
and state income taxes as if Alamosa had been taxed as a C Corporation for
the periods presented.
(2) Reflects the reorganization as if it had occurred upon inception of
Alamosa PCS, LLC.
(3) As adjusted Balance Sheet Data reflects (a) the sale of common stock in our
initial public offering of 12,321,100 shares of common stock and the
application of $194.3 million in net proceeds therefrom, (b) the issuance of
an aggregate principal amount at maturity of $350 million in senior discount
notes with gross proceeds of $187.1 million, less underwriting discounts and
commissions and offering expenses of approximately $6.1 million and (c) the
prepayment of the outstanding indebtedness under the Nortel facility of
$71.9 million ($75 million was actually prepaid in February 2000).
(4) Reflects notes payable of $363,665 and capital lease obligations of $21,818
as of December 31, 1999 and notes payable of $23,637 and capital lease
obligations of $20,145 as of December 31, 1998.
(5) Reflects capital lease obligations of $708,074.
(6) Reflects indebtedness incurred under the Nortel facility of $71,876,379
capital lease obligations of $827,024 and other long term notes payable of
$50,035.
34
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
You should read the following discussion and analysis when you read the
consolidated financial statements and the related notes included in this annual
report on Form 10-K. 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 "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -- Risk
Factors" and "This Annual Report Contains Forward-Looking Statements."
OVERVIEW
We are a development stage company with very limited operations, very
limited revenues, significant losses, substantial future capital requirements
and an expectation of continued losses.
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 December 31, 1999, our accumulated deficit was $33.8 million.
Through December 31, 1999, we incurred $87.8 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, 31,876 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.
35
<PAGE> 37
REGULATORY DEVELOPMENTS
See "Item 1. Business -- 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:
o the increasing use of retail distribution, which is dependent upon the
year-end holiday shopping season;
o the timing of new product and service announcements and introductions;
o competitive pricing pressures; and
o 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 general and administrative expenses.
General and Administrative Expenses. General and administrative expenses for
the period in the amount of $956,331 were comprised primarily of legal and other
professional services of $704,381 related to the start up of our business and
the development of our systems. In addition, we incurred $166,850 of human
resource costs related to preparation for the 1999 launch of our network.
Virtually all 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."
YEAR ENDED DECEMBER 31, 1999
Net Loss. Our net loss for the year ended December 31, 1999 was $32,835,859
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 10 other market launches during the period.
Service Revenues. Service revenues during the period in the amount of
$6,533,623 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.
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
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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 approximately $96.00 for the period from June 26, 1999 to December
31, 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 $2,450,090. 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 Service and Operations. Expenses totaling $7,440,476 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 Product Sales. The cost of equipment sold totaling $2,403,306 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 year ended December 31, 1999, the handset subsidy
totaled $5,023,430 and there was no expense related to handset subsidy in 1998.
Selling and Marketing. Selling and marketing expenses totaled $14,346,478
during the period. 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.
General and Administrative Expenses. General and administrative expenses
include corporate costs and expenses other than those related to Cost of
Operations and Selling and Marketing. We have incurred significant 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."
Non-cash Compensation Expense. Non-cash compensation expense totaled
$8,199,511 for the period. This expense was determined using the provisions of
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" and was based on the estimated intrinsic value of the options at
December 31, 1999. The estimated intrinsic value represents the excess of the
estimated fair value over the exercise price of the option.
Related Party Expenses. Related party expenses totaled $1,726,198 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 $3,056,923. 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 $477,390
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 $2,641,293 during this period and
primarily related to the Nortel financing. Interest on the Nortel financing may
be paid with loans obtained under the Tranche C Commitment of the Nortel
financing until, in most circumstances, February 2002. See "-- Description of
Our Indebtedness: The Nortel Credit Facility." Gains or losses on hedging
transactions related to interest rates will be included in interest expense.
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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 December 31, 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 December 31, 1999, we had a $123.0 million senior credit facility with
Nortel, of which $71.9 million had been drawn. On February 8, 2000, we entered
into an Amended and Restated Credit Agreement (the Agreement) to increase the
facility to $250.0 million. The terms of the facility do not require cash
interest payments until the earlier of:
o February 2001, only if we have not borrowed at least $100.0 million
under the Nortel financing by that time;
o February 2002; and
o the date the Tranche C Commitment is fully funded.
Principal payments are scheduled to begin on the earlier of:
o June 30, 2001, only if we have not borrowed at least $100.0 million
under the Nortel financing by February 2001; and
o December 31, 2002.
Our financing with Nortel will be used to purchase equipment, pay interest
and cover approved working capital costs. With the increase of the credit
facility to $250 million, we are required to purchase a total of $167.0 million
of equipment and services from Nortel, and as of December 31, 1999, we had
remaining commitments of $117.6 million. In connection with the facility, we
were to issue springing warrants representing 2% of our outstanding common stock
to Nortel that came into existence and became exercisable on the second
anniversary of the closing of the facility unless we meet specified conditions
prior to that date. Upon completion of our offering of senior discount notes, we
prepaid $75.0 million of indebtedness under the Nortel financing, which
eliminated the issuance of the warrants to Nortel. For more information on the
financing facility, see "-- Description of Our Indebtedness: The Nortel Credit
Facility."
Net cash used in operating activities was $127,954 for the inception period
ending December 31, 1998, and $17,089,704 for the year ended December 31, 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 $1,366,606 for the inception
period ending December 31, 1998, and $77,219,021 for the year ended December 31,
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 $15,023,637 consisting
primarily of capital contributions for the inception period ending December 31,
1998 and $86,435,359 for the year ended December 31, 1999 consisting primarily
of capital contributions of $22,000,000 and Nortel draws of $65,967,777.
As of December 31, 1999, the primary sources of liquidity for Alamosa were
$5.7 million in cash and $51.1 million of unused capacity under the $123.0
million Nortel credit facility.
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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 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 this
estimate, 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."
See also "This Annual Report Contains Forward-Looking Statements."
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 December 31,
1999 the capital leases totaled $848,842 and included long-term capital lease
obligations of $827,024. See "-- Description of Our Indebtedness: The Nortel
Credit Facility." Amortization in the amount of $30,894 was recorded under these
leases through December 31, 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 did not
experience any significant disruptions at the beginning of 2000.
We began acquiring items that comprise our internal information technology
systems in late 1998 when we commenced operations. As we purchased those
components, we determined their year 2000 readiness. As a result, our direct
costs with respect to year 2000 compliance have not been significant and we do
not expect any significant costs in the future. Our non-information technology
systems, particularly our network equipment, have been acquired from Nortel and
are susceptible to year 2000 issues. Nortel has represented to us that such
systems are year 2000 ready.
To determine the state of readiness of our internal systems, we performed
steps that included the following:
o the compilation of an inventory of core critical systems and
applications, facilities and processes;
o the review of core critical systems and applications;
o the testing and validation of core critical systems and applications;
and
o 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 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.
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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.
DESCRIPTION OF OUR INDEBTEDNESS: THE NORTEL CREDIT FACILITY
We entered into the original credit facility effective June 10, 1999 with
Nortel for $123.0 million. On February 8, 2000, we entered into an Amended and
Restated Credit Agreement (the "Amended Agreement") with Nortel to increase the
credit facility to $250.0 million. 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 is 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.
The Amended Agreement provides for three different tranches of borrowings
evidenced by three promissory notes totaling $250.0 million. The Tranche A
Commitment and Tranche A Note provide for borrowings up to $167.0 million, the
Tranche B Commitment and Tranche B Note provide for borrowings up to $58.0
million and the Tranche C Commitment and Tranche C Note provide 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. Pursuant to our equipment agreement with Nortel, we are
required to purchase a total of $167.0 million of equipment and services from
Nortel, $117.6 million of which we were still required to purchase as of
December 31, 1999. See "Item 1. Business -- Network Operations -- Nortel
Equipment Agreement."
We have multiple interest rate options available under the credit agreement.
At the termination of the Tranche A and Tranche B Commitments, we must begin to
repay, in quarterly installments, the principal of all borrowings made under
that commitment. A fixed percentage is due each quarter. Any principal that has
not been paid by the maturity date is due at that time. 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. We also must make mandatory
prepayments under certain circumstances.
We are required to pay an origination fee of $3.8 million and a fee on the
unfunded portion of each commitment. We must also pay a separate, annual agent's
fee of $35,000 to the administrative agent.
The Nortel financing is secured by:
o 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;
o a collateral assignment of our affiliation agreements with Sprint PCS;
o 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
o guarantees from Alamosa PCS Holdings, Inc., the operating subsidiaries
and all future direct or indirect subsidiaries of Alamosa PCS, Inc.
We are obligated to grant to the administrative agent a first lien mortgage
on any real property we acquire, together with a mortgagee policy of title
insurance, a survey, an appraisal and an environmental survey.
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As a closing condition of the credit facility, we were required to
contribute $215 million in equity capital to Alamosa PCS, Inc. This was met with
our initial public offering and issuance of senior discount notes in February
2000. We then contributed $215 million of the proceeds to Alamosa PCS, Inc.
Alamosa PCS, Inc. must meet certain conditions before it may obtain any
future borrowings under the credit agreement, including, but not limited to,
that there has been no event of default, a reaffirmation of representations, and
that Alamosa PCS, Inc. has a debt to contributed capital ratio of less than or
equal to 1.5 to 1.
Alamosa PCS, Inc. is subject to financing and operating covenants including,
but not limited to, 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 and
minimum number of subscribers.
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, but are not limited to, 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 and a judgment
against Alamosa PCS, Inc. or its subsidiaries of greater than $500,000.
CONSENT AND AGREEMENT FOR THE BENEFIT OF THE HOLDERS OF THE NORTEL FINANCING
Sprint PCS has entered into a consent and agreement with Nortel, which has
been acknowledged by Alamosa, that modifies Sprint PCS's rights and remedies
under our affiliation agreements with Sprint PCS for the benefit of Nortel and
future holders of the Nortel senior financing and any refinancing thereof, which
was a condition to the funding of any amounts under the Nortel financing. The
consent and agreement with Nortel generally provides, among other things, Sprint
PCS's consent to the pledge of substantially all of our assets, including our
rights in our affiliation agreements with Sprint PCS, and that our affiliation
agreements with Sprint PCS generally 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.
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
certain terms.
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.
DESCRIPTION OF OUR INDEBTEDNESS: SENIOR DISCOUNT NOTES
We raised $187.1 million through a public offering of our senior discount
notes. The senior discount notes are unsecured obligations, rank equally with
all our existing and future senior debt and rank senior to all our existing and
future subordinated debt.
The senior discount notes are fully and unconditionally, jointly and
severally guaranteed on a senior subordinated basis by our current subsidiaries
and our future restricted subsidiaries. See "Item 1. Business -- Our Background"
regarding the ownership structure of our subsidiaries. The guarantees are
unsecured obligations and:
o are subordinate to each subsidiary guarantor's obligations under the
Nortel financing and other credit facilities with banks or
institutional lenders;
o rank equally with all existing and future senior subordinated debt of
each subsidiary guarantor; and
o are senior to all existing and future subordinated debt of each
subsidiary guarantor.
We may redeem some or all of the senior discount notes beginning in 2005,
and until 2003 we may redeem a portion of the senior discount notes with the net
proceeds of an equity offering.
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The senior discount notes were issued at a discount to their principal
amount and 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 contain covenants
limiting our ability and the ability of our subsidiaries to:
o incur additional debt or issue preferred stock;
o pay dividends, redeem capital stock or make other restricted payments
or investments;
o create liens on assets;
o merge, consolidate or dispose of assets;
o enter into transactions with affiliates; and
o change lines of business.
Holders of the senior discount notes have the right to require us to
repurchase all or any part of their senior discount notes, at 101% of the
accreted value, if before 2005, or 101% of the aggregate principal amount
thereafter, together with accrued and unpaid interest, upon a change of control
of Alamosa.
Events of default in respect of the senior discount notes include, among
others, failure to pay interest or principal on the senior discount notes when
due, failure to perform covenants, acceleration of the maturity of other debt,
events of bankruptcy, certain judgments against us and the occurrence of any
event of default pursuant to our affiliation agreements with Sprint PCS.
We anticipate that the proceeds from our offering of senior discount notes
will not be needed to fund the required capital expenditures, working capital
requirements, operating losses and other cash needs of our current business
plan. We used a portion of the proceeds of that offering to prepay $75.0 million
of indebtedness outstanding under the Nortel facility (and under the
circumstances provided for in the credit agreement, we may borrow those prepaid
amounts in the future). We may decide to use the remaining proceeds of that
offering to:
o accelerate coverage within our existing territory
o build-out additional areas within our existing territory;
o expand our existing territory;
o pursue additional telecommunications business opportunities or acquire
other telecommunications businesses or assets; or
o cover general corporate purposes.
However, if we do not use the remaining proceeds of our notes offering for
these purposes, we may decide to:
o prepay additional debt outstanding under the Nortel facility; or
o avoid drawing additional amounts under the Nortel facility.
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RISK FACTORS: RISKS RELATED TO OUR RELATIONSHIP WITH SPRINT PCS
We operate in a changing environment that involves numerous risks, some of
which are beyond our control. The following highlights some of these risks.
THE TERMINATION OF OUR AFFILIATION AGREEMENTS WITH SPRINT PCS WOULD SEVERELY
RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS
Our relationship with Sprint PCS is governed by our affiliation agreements
with Sprint PCS. Since we do not own any licenses to operate a wireless network,
our business depends on the continued effectiveness of those affiliation
agreements. However, Sprint PCS can terminate our affiliation agreements if we
materially breach them. Among other things, a failure to meet the build-out
requirements for any one of the individual markets in our territory or a failure
to meet Sprint PCS's technical or customer service requirements would constitute
a material breach of our management agreement with Sprint PCS that could lead to
its termination. If Sprint PCS terminates any of our affiliation agreements, we
would no longer be a part of the Sprint PCS network and would have extreme
difficulty conducting our business.
IF SPRINT PCS DOES NOT RENEW OUR AFFILIATION AGREEMENTS WITH THEM, OUR ABILITY
TO CONDUCT OUR BUSINESS WOULD BE SEVERELY RESTRICTED
Our affiliation agreements with Sprint PCS are not perpetual, and will
eventually expire. Sprint PCS can choose not to renew these agreements at the
expiration of the 20-year initial term or any ten-year renewal term. If Sprint
PCS decides not to renew our affiliation agreements with them, we would no
longer be a part of the Sprint PCS network and would have extreme difficulty
conducting our business.
PROVISIONS OF OUR AFFILIATION AGREEMENTS WITH SPRINT PCS MAY DIMINISH OUR VALUE
AND RESTRICT THE SALE OF OUR BUSINESS
Under specific circumstances and without further stockholder approval,
Sprint PCS may purchase our operating assets or capital stock for 72% or 80%,
depending on the circumstances, of the "entire business value" of Alamosa, which
value includes the spectrum licenses, business operations and other assets more
fully described in "Item 1. Business -- Our Affiliation Agreements with Sprint
PCS -- The Management Agreement -- Determination of Entire Business Value."
Sprint PCS must approve any change of control of our ownership and consent to
any assignment of our affiliation agreements with them. In addition, Sprint PCS
has a right of first refusal if we decide to sell our operating assets to a
third party. We are also subject to a number of restrictions on the transfer of
our business, including a prohibition on the sale of Alamosa or our operating
assets to competitors of Sprint or Sprint PCS. These restrictions and other
restrictions in our affiliation agreements with Sprint PCS could adversely
affect the value of our common stock, may limit our ability to sell the
business, may reduce the value a buyer would be willing to pay for our business
and may reduce the "entire business value" of Alamosa.
SPRINT PCS MAY MAKE DECISIONS THAT COULD INCREASE OUR EXPENSES, REDUCE OUR
REVENUES OR MAKE OUR AFFILIATE RELATIONSHIP WITH THEM LESS COMPETITIVE
Sprint PCS, under our affiliation agreements with them, has a substantial
amount of control over the conduct of our business. Accordingly, Sprint PCS may
make decisions that adversely affect our business, such as the following:
o 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.
o 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.
o Sprint PCS could withhold its consent, which is required for us to
sell non-Sprint PCS approved equipment.
o 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.
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A CHANGE OF CONTROL OF SPRINT OR SPRINT PCS MAY RESULT IN A NAME CHANGE OR
COULD INCREASE THE LIKELIHOOD THAT OUR AFFILIATION AGREEMENTS WILL NOT BE
RENEWED
Sprint or Sprint PCS may experience a change of control, sale or merger that
could adversely affect our relationships with them or result in a name change.
MCI WorldCom Inc. and Sprint have announced a proposed merger in which owners of
each class of Sprint's common stock would exchange their Sprint stock for MCI
common stock. If the merger is completed, we expect that our affiliation
agreements with the merged company would be on the same terms as our current
affiliation agreements with Sprint PCS. However, the consummation of the merger
may increase the likelihood that our affiliation agreements will not be renewed
if, among other reasons, the combined company has a different strategy related
to affiliate relationships. Additionally, we may lose the use of the
recognizable Sprint and Sprint PCS brand names if the merger results in a name
change.
PROBLEMS EXPERIENCED BY SPRINT PCS WITH ITS INTERNAL SUPPORT SYSTEMS COULD LEAD
TO CUSTOMER DISSATISFACTION OR INCREASE OUR COSTS
We rely on Sprint PCS's internal support systems, including customer care,
billing and back-office support. As Sprint PCS has expanded, its internal
support systems have been subject to increased demand and, in some cases,
suffered a degradation in service. We cannot assure you that Sprint PCS will be
able to successfully add system capacity or that its internal support systems
will be adequate. It is likely that problems with Sprint PCS's internal support
systems could cause:
o delays or problems in our own operations or service;
o 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;
o a loss of Sprint PCS customers; and
o 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.
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IF WE FAIL TO PAY OUR DEBT, OUR LENDERS MAY SELL OUR LOANS TO SPRINT PCS AND
GIVE SPRINT PCS RIGHTS OF A CREDITOR TO FORECLOSE ON OUR ASSETS
Sprint PCS has contractual rights to purchase Nortel's rights as a senior
lender under the Nortel financing documents. These rights are triggered by an
acceleration of the maturity of the Nortel financing. To the extent Sprint PCS
purchases these obligations, Sprint PCS's interests as a creditor could conflict
with ours. Sprint PCS's rights as a senior lender would enable it to exercise
rights with respect to our assets, including the right to foreclose on those
assets, in a manner not otherwise permitted under our affiliation agreements
with Sprint PCS.
IF SPRINT PCS DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, OUR
AFFILIATION AGREEMENTS WITH SPRINT PCS MAY BE TERMINATED
Sprint PCS, not Alamosa, owns the licenses necessary to provide wireless
services in our territory. The Federal Communications Commission requires that
licensees like Sprint PCS maintain control of their licensed systems and not
delegate control to third party operators or managers like Alamosa. Although our
affiliation agreements with Sprint PCS reflect an arrangement that the parties
believe meets the Federal Communications Commission requirements for licensee
control of licensed spectrum, we cannot assure you that the Federal
Communications Commission will agree with us. If the Federal Communications
Commission were to determine that our affiliation agreements with Sprint PCS
need to be modified to increase the level of licensee control, we have agreed
with Sprint PCS to use our best efforts to modify the agreements to comply with
applicable law. If we cannot agree with Sprint PCS to modify the agreements,
they may be terminated. If the agreements are terminated, we would no longer be
a part of the Sprint PCS network and we would have extreme difficulty in
conducting our business.
THE FEDERAL COMMUNICATIONS COMMISSION MAY NOT RENEW THE SPRINT PCS LICENSES,
WHICH WOULD PREVENT US FROM PROVIDING WIRELESS SERVICES
We do not own any licenses to operate a wireless network. We are dependent
on Sprint PCS's licenses, which are subject to renewal and revocation. Sprint
PCS's licenses in our territory will expire in 2005 or 2007 but may be renewed
for additional ten-year terms. The Federal Communications Commission has adopted
specific standards that apply to wireless personal communications services
license renewals. Any failure by Sprint PCS or us to comply with these standards
could cause revocation or forfeiture of the Sprint PCS licenses for our
territory. Additionally, if Sprint PCS does not demonstrate to the Federal
Communications Commission that Sprint PCS has met the five-year and ten-year
construction requirements for each of its wireless personal communications
services licenses, it can lose those licenses. If Sprint PCS loses its licenses
in our territory for any of these reasons, we would not be able to provide
wireless services without obtaining rights to other licenses.
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:
o $3.8 million paid during 1999;
o $3.5 million that we estimate will be paid during 2000;
o an aggregate of $7.4 million in current and prior contractual
commitments beginning in 1998; and
o 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
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<PAGE> 47
CHR Solutions may require significant professional time and effort and may
reduce the time and effort he is able to devote to Alamosa. However, his
employment agreement with us requires Mr. Sharbutt to devote his full time and
effort to the business and affairs of Alamosa. See "Item 13. Certain
Relationships and Related Transactions" for details related to this and other
related party transactions.
OUR STOCKHOLDERS, MEMBERS OF MANAGEMENT AND DIRECTORS MAY BE SUBJECT TO
CONFLICTS OF INTEREST
Some of our stockholders and members of management have significant
investments in communications services companies that compete with Alamosa. In
addition, several of our directors serve as directors of other communications
services companies. As a result, these persons may be subject to conflicts of
interest because of their investments or status as director that will have to be
resolved by those persons and Alamosa. This conflict could require that such
persons not participate in the decision-making related to, or implementation of,
transactions or issues in which such conflicts arise. For a discussion of the
magnitude of these risks, please see "Item 10. Directors and Executive Officers
of the Registrant" and "Item 13. Certain Relationships and Related
Transactions."
WE HAVE A VERY LIMITED OPERATING HISTORY AND MAY NOT ACHIEVE OR SUSTAIN
OPERATING PROFITABILITY OR POSITIVE CASH FLOWS, WHICH WOULD LIKELY RESULT IN A
DROP IN OUR STOCK PRICE
Our operating history is very limited. We initiated commercial operations in
our first market in June 1999. We expect to incur significant operating losses
and to generate significant negative cash flow from operating activities at
least through the year ending December 31, 2001. We have already incurred $31.6
million in operating losses through December 31, 1999. Our operating
profitability will depend upon many factors, including, among others, our
ability to market Sprint PCS services, achieve our projected market penetration
and manage customer turnover rates. If we do not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, our stock price could fall and you could lose all or part of your
investment.
FAILURE TO OBTAIN ADDITIONAL CAPITAL, IF NEEDED TO COMPLETE THE BUILD-OUT OF OUR
PORTION OF THE SPRINT PCS NETWORK, COULD CAUSE DELAY OR ABANDONMENT OF OUR
DEVELOPMENT PLANS
The build-out of our portion of the Sprint PCS network will require
substantial capital. As of January 1, 2000, we estimated that requirements to
complete the current build-out plan and fund working 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 and the remaining
$178.1 million available under the Amended and Restated Nortel Credit Facility.
Additional funds could be required for a variety of reasons, including
unforeseen delays, unanticipated expenses, increased capital requirements,
higher than expected operating losses, engineering design changes and other
technology risks or other corporate purposes. In addition, if we complete our
build-out more rapidly than currently anticipated, or if we contract to develop
additional markets, we will need to raise additional equity or debt capital.
These additional funds may not be available. Even if those funds are available,
we may not be able to obtain them on a timely basis, on terms acceptable to us
or within limitations permitted under our existing debt covenants or the
covenants with respect to the senior discount notes. Failure to obtain
additional funds, should the need for them develop, could result in the delay or
abandonment of our development and expansion plans and we may be unable to fund
our ongoing operations.
BECAUSE WE DEPEND HEAVILY ON OUTSOURCING, THE INABILITY OF THIRD PARTIES TO
FULFILL THEIR CONTRACTUAL OBLIGATIONS TO US MAY DISRUPT OUR SERVICES OR THE
BUILD-OUT OF OUR PORTION OF THE SPRINT PCS NETWORK
Because we decided to outsource portions of our business, we depend heavily
on third-party vendors, suppliers, consultants, contractors and local exchange
carriers. We have retained those persons to:
o design and engineer our systems;
o construct base stations, switch facilities and towers;
o lease base stations;
o install T-1 lines; and
o deploy our wireless personal communications services network systems.
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<PAGE> 48
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:
o 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;
o the price of a roaming call may not be competitive with prices of
other wireless companies for roaming calls;
o customers may have to use a more expensive dual-band/dual mode handset
with diminished standby and talk time capacities;
o customers must end a call in progress and initiate a new call when
leaving the Sprint PCS network and entering another wireless network;
and
o 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 "Item 1. 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 "Item 1. Business -- Roaming." For further information on the
Sprint PCS network technology, see "Item 1. Business -- Technology."
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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:
o continued development of our operational and administrative systems;
o stringent control of costs of network build-out;
o integration of our network infrastructure with the rest of the Sprint
PCS network;
o increased marketing activities;
o the ability to attract and retain qualified management, technical and
sales personnel; and
o the training of new personnel.
Failure to successfully manage our expected rapid growth and development
could impair our ability to complete the build-out of our portion of the Sprint
PCS network, manage the expanding systems in our territory and achieve
profitability.
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 "Item 1. Business --
Technology."
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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.
RISK FACTORS: RISKS PARTICULAR TO ALAMOSA'S INDEBTEDNESS
WE HAVE SUBSTANTIAL DEBT AND EXPECT TO INCUR SUBSTANTIAL ADDITIONAL DEBT, WHICH
WILL REQUIRE LARGE PAYMENTS AND MAY RESULT IN OUR LENDERS CONTROLLING OUR ASSETS
As of December 31, 1999, our outstanding long-term debt totaled $72.8
million. In addition, under our current business plan, we expect to incur
substantial additional debt, including $187.1 million from our senior discount
notes offering, before achieving break-even operating cash flow.
Our substantial debt will have a number of important consequences for our
operations and our investors, including the following:
o 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;
o we may not have sufficient funds to pay interest on, and principal of,
our debt; and
o due to the liens on substantially all of our assets that secure our
senior debt, lenders or holders of our senior debt may control our
assets or our subsidiaries' assets upon a default.
IF WE DO NOT MEET ALL OF THE CONDITIONS REQUIRED UNDER OUR NORTEL FINANCING
AGREEMENTS, WE MAY NOT BE ABLE TO DRAW DOWN ALL OF THE FUNDS WE ANTICIPATE
RECEIVING FROM NORTEL AND MAY NOT BE ABLE TO COMPLETE THE BUILD-OUT OF OUR
PORTION OF THE SPRINT PCS NETWORK
We have received $71.9 million as of December 31, 1999 under our financing
agreements with Nortel. The remaining $178.1 million, which we expect to receive
in the future, is subject at each funding date to several conditions, including:
o acquiring minimum numbers of Sprint PCS subscribers;
o providing coverage to a minimum number of residents; and
o adhering to financial covenants.
If we do not meet these conditions at each funding date, Nortel may choose
not to lend any or all of the remaining amounts. If other sources of funds are
not available, we may be unable to complete the build-out of our portion of the
Sprint PCS network. If we do not have sufficient funds to complete our network
build-out, we may be in breach of our management agreement with Sprint PCS and
be in default under our financing from Nortel.
IF WE DO NOT HAVE ACCESS TO THE CAPITAL MARKETS ON TERMS REASONABLY SATISFACTORY
TO US, WE MAY BE UNABLE TO REPAY THE NORTEL FACILITY AT MATURITY, OR REFINANCE
THE NORTEL FACILITY BEFORE WE ARE REQUIRED TO ISSUE WARRANTS TO NORTEL
Failure to repay the Nortel facility at maturity will result in a default
under that agreement. It is unlikely that we can repay the Nortel facility
without refinancing the facility, and we may have inadequate access to the
capital markets to permit such refinancing. A default under the Nortel facility
could:
o prevent us from operating or completing the build-out of our portion
of the Sprint PCS network;
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o constitute a default under the senior discount notes or a default
under our affiliation agreements with Sprint PCS; and
o could make it extremely difficult for us to obtain any future
financing.
If we are unable to refinance and repay a portion of the Nortel financing
prior to the second anniversary of the closing date of the Nortel facility, we
will likely be required to issue warrants to purchase shares of our stock to
Nortel, which would be dilutive to our stockholders if Nortel exercises those
warrants.
OUR NEW INDEBTEDNESS WILL PLACE RESTRICTIONS ON US WHICH MAY LIMIT OUR OPERATING
FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS
The indenture governing the senior discount notes impose material operating
and financial restrictions on us. These restrictions, subject to ordinary course
of business exceptions, may limit our ability to engage in some transactions,
including the following:
o consummating designated types of mergers or consolidations;
o paying dividends or other distributions to our stockholders;
o making investments;
o selling assets;
o repurchasing our common stock;
o changing lines of business;
o borrowing additional money; and
o engaging in transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.
RISK FACTORS: 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:
o Sprint PCS does not require its customers to sign long term contracts;
and
o Sprint PCS's handset return policy allows customers to return used
handsets within 30 days of purchase and receive a full refund.
A high rate of customer turnover could adversely affect our competitive
position, results of operations and our costs of, or losses incurred in,
obtaining new subscribers, especially because we subsidize some of the costs of
initial purchases of handsets by customers.
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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.
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:
o be linked to various health problems resulting from continued or
excessive use, including cancer;
o interfere with various electronic medical devices, including hearing
aids and pacemakers; and
o cause explosions if used while fueling an automobile.
Widespread concerns over radio frequency emissions may expose us to
potential litigation or discourage the use of wireless handsets. Any resulting
decrease in demand for our services could impair our ability to profitably
operate our business.
WORSE THAN EXPECTED FOURTH QUARTER RESULTS MAY CAUSE OUR STOCK PRICE TO DROP AND
SIGNIFICANTLY REDUCE OUR OVERALL RESULTS OF OPERATIONS
The wireless industry is heavily dependent on fourth quarter results. Among
other things, the industry relies on significantly higher customer additions and
handset sales in the fourth quarter as compared to the other three fiscal
quarters.
The price of our common stock may drop and our overall results of operations
could be significantly reduced if Alamosa has a worse than expected fourth
quarter for any reason, including the following:
o Alamosa's inability to match or beat pricing plans offered by
competitors;
o the failure to adequately promote Sprint PCS's products, services and
pricing plans;
o the inability of Alamosa to obtain an adequate supply or selection of
handsets;
o a downturn in the economy of some or all markets in our territory; or
o 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
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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 "Item 1. Business -- Competition."
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.
RISK FACTORS: RISKS RELATING TO OUR STOCK
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
Our existing stockholders, directors and officers beneficially own
approximately 84% of our outstanding common stock on a diluted basis.
Consequently, those persons, if they act as a group, are able to control the
outcome of matters submitted for stockholder action, including the election of
members to our board of directors and the approval of significant change in
control transactions. This may have the effect of delaying or preventing a
change in control even though a change in ownership may be economically
beneficial to us and our stockholders. For more information on this subject,
please refer to "Item 10. Directors and Executive Officers of the Registrant"
and "Item 12. Security Ownership of Certain Beneficial Owners and Management."
ACTUAL OR ANTICIPATED SALES OF OUR COMMON STOCK BY OUR CURRENT STOCKHOLDERS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECREASE
Many of our current stockholders hold large portions of our common stock. In
August 2000, approximately 47,763,659 shares of our common stock, including
shares issuable pursuant to stock options immediately exercisable or exercisable
prior to the termination of the lock-up period, will no longer have transfer
restrictions imposed by a lock-up period. On February 8, 2001, approximately
48,500,008 shares of common stock will be eligible for sale pursuant to Rule 144
of the Securities Act. The occurrence of sales of a large number of these
shares, or the perception that these sales could occur, could cause a drop in
our stock price and could impair our ability to obtain capital through an
offering of equity securities.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BYLAWS COULD LIMIT OUR SHARE PRICE
AND DELAY A CHANGE IN CONTROL OF ALAMOSA
Our certificate of incorporation provides that our board of directors may
issue preferred stock without stockholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. These provisions, among others, may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of Alamosa, even though a change in ownership might be economically beneficial
to us and our stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
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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,
--------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate Instruments:
Senior discount notes............... $ 207 $ 235 $ 266 $ 301 $ 341 $ 350
Fixed interest rate............... 12.875% 12.875% 12.875% 12.875% 12.875% 12.875%
Principal payments................ -- -- -- -- -- $ 350
Capital Leases -- Annual Minimum
Lease Payments(1)................. $ .11 $ .11 $ .11 $ .11 $ .11 $ 1.09
Average Interest Rate............. 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Variable Rate Instruments:
Nortel Senior Debt(2)............... $ 25 $ 100 $ 150 $ 120 $ 40 --
Average Interest Rate(3).......... 9.75% 9.75% 9.75% 9.75% 9.75% --
Principal payments................ $ 75 -- $ 13 $ 30 $ 80 $ 40
</TABLE>
- ----------
(1) These amounts represent the estimated minimum annual payments due under our
estimated capital lease obligations for the periods presented.
(2) The amounts 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 6.0% for all periods
presented.
Our primary market risk exposure relates to:
o the interest rate risk on long-term and short-term borrowings;
o our ability to refinance our senior discount notes at maturity at
market rates; and
o 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. We do not hold or issue financial or derivative financial
instruments for trading or speculative purposes. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements required by this item are submitted as a separate
section of this annual report on Form 10-K. See "Financial Statements"
commencing on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table presents information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- ---------------------
<S> <C> <C>
David E. Sharbutt......................... 50 Chairman of the Board of Directors and
Chief Executive Officer
Jerry W. Brantley......................... 54 Chief Operating Officer
Kendall W. Cowan.......................... 45 Chief Financial Officer
W. Don Stull.............................. 37 Chief Technology Officer
Michael R. Budagher....................... 41 Director
Ray M. Clapp, Jr.......................... 39 Director
Scotty Hart............................... 49 Director
Thomas Hyde............................... 54 Director
Schuyler B. Marshall...................... 54 Director
Tom M. Phelps............................. 50 Director
Reagan W. Silber.......................... 39 Director
Jimmy R. White............................ 60 Director
</TABLE>
David E. Sharbutt. Mr. Sharbutt has been our Chairman and a director since
Alamosa was founded in July 1998. Mr. Sharbutt was named our Chief Executive
Officer on October 1, 1999. Mr. Sharbutt was formerly the President and Chief
Executive Officer of Hicks & Ragland, now known as CHR Solutions, Inc. Mr.
Sharbutt is currently employed by CHR Solutions as a Senior Consultant. He has
been at CHR Solutions since 1977, where he has worked with independent telephone
companies in developing strategic, engineering and implementation plans for
various types of telecommunications services. Before he joined CHR Solutions,
Mr. Sharbutt was employed by Southwestern Bell. Mr. Sharbutt holds a Bachelor of
Science degree in Electrical Engineering from Texas Tech University. Mr.
Sharbutt was Vice President of Alamo IV LLC until its dissolution in November
1999. He also serves as a director for, and is a shareholder of, CHR Solutions
and is a director for, and shareholder and President of US Consultants, Inc. In
addition, he is a director for TechTel Communications Corporation, Accipiter
Communications, and previously was a director of Alamo Cellular, Inc., all
non-public companies.
Jerry W. Brantley. Mr. Brantley has been our Chief Operating Officer since
October 1998. He is responsible for overseeing all aspects of operations
including market operations, network build-out, marketing and distribution. From
June 1996 to October 1998, he was General Manager of the H&R Strategic Group of
Hicks & Ragland. From December 1994 to June 1996, Mr. Brantley was Executive
Vice President and General Manager for Mainstreet Wireless, a national wireless
personal communications services consortium of independent telecommunications
companies and other companies. From May 1993 to November 1994, Mr. Brantley was
President and General Manager of the Business Crime Council of South Texas,
Inc., a crime prevention organization. From 1984 to 1993, Mr. Brantley held
various executive management positions in sales, marketing, public relations and
regulatory matters for Southwestern Bell Mobile Systems. Mr. Brantley holds a
Bachelor of Business Administration degree from the University of Oklahoma.
Kendall W. Cowan. Mr. Cowan became our Chief Financial Officer in December
1999. From October 1993 to December 1999, he was a partner in the public
accounting firm of Robinson Burdette Martin & Cowan, L.L.P. and from January
1986 to September 1993, he was a partner in the Lubbock and Dallas offices of
Coopers & Lybrand. He provided consulting and accounting services to a wide
range of clients at both firms including public companies. He is a Certified
Public Accountant and a member of both the American Institute of Certified
Public Accountants and the Texas Society of Certified Public Accountants. Mr.
Cowan is Chairman of the Board and a stockholder of ShaCo Xpress, Inc., a
director of Robert Heath Trucking, Inc., and a member of C.C. & Co., L.L.C., all
of which are non-public companies.
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<PAGE> 56
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
1980 to 1999. 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.
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.
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<PAGE> 57
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
The size of our board of directors is fixed at nine members and our board of
directors is divided 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. 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.
BOARD COMMITTEES
Our board of directors has established five committees. They are the:
o audit committee;
o compensation committee;
o finance committee;
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<PAGE> 58
o stock option plan committee; and
o 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.
The nominating committee is responsible for:
o seeking out possible candidates for the board of directors;
o reviewing the slate of directors to be elected by the stockholders;
o reviewing the qualifications for candidates for corporate officers
recommending the officers for approval by the board of directors; and
o evaluating the performance of current directors.
The current members of the nominating committee are Messrs. Phelps,
Budagher, White, Clapp, Silber, Marshall, Hyde and Sharbutt.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who beneficially own more than 10% of our common stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Because we were not a reporting company during fiscal year
1999, no reports were required that year. Accordingly, we believe that we fully
complied with any reporting requirements of Section 16(a).
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<PAGE> 59
ITEM 11. EXECUTIVE COMPENSATION.
The following table presents summary information with respect to the
compensation paid to David E. Sharbutt, Jerry W. Brantley, Kendall W. Cowan and
W. Don Stull during the period from the inception of Alamosa, July 16, 1998, to
December 31, 1998 and for the year ended December 31, 1999. We had no chief
executive officer during the period from inception, July 16, 1998, to December
31, 1998. Mr. Brantley, as Chief Operating Officer, acted in a capacity similar
to that of chief executive officer during that period. David E. Sharbutt became
our chief executive officer effective as of October 1, 1999, and has served as
our chief executive officer since that time.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------------------ RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Sharbutt
Chief Executive
Officer(1)............... 1999 $ 43,750 $ 43,750 -- 1,697,500 $ 3,750(2)
Jerry W. Brantley
Chief Operating Officer.. 1999 $ 175,000 $ 142,309 -- 1,697,500(3) $ 7,200(4)
1998 $ 43,077 $ 25,823 -- --(3) $ 1,662(4)
Kendall W. Cowan
Chief Financial
Officer(5)............... 1999 $ 12,500 $ 12,500 -- 1,455,000 $ 600(4)
W. Don Stull
Chief Technology
Officer.................. 1999 $ 90,000 $ 58,875 -- 145,500(6) $ 4,800(4)
1998 $ 16,108 $ 0 -- --(6) $ 554(4)
</TABLE>
- ----------
(1) Mr. Sharbutt became Chief Executive Officer on October 1, 1999.
(2) Consists of a monthly car and club dues allowance.
(3) During 1998, we granted Mr. Brantley three series of options to purchase up
to an aggregate 1.5% membership interest in Alamosa PCS, LLC. The exercise
price per share was $1.08 for the first of these series, $1.15 for the
second series and $1.25 for the third series. We will record compensation
expense totaling $11,523,600 in connection with these options. As part of
our reorganization, these options were terminated and replaced by two
options granted under the 1999 Long-Term Incentive Plan. The first option
is exercisable immediately prior to the completion of the initial public
offering for 242,500 shares of our common stock at an exercise price of
$1.15 per share. The second option vests over the
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<PAGE> 60
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 our
reorganization, these options were terminated and replaced by three
series of options to purchase an aggregate of 145,500 shares of our common
stock. The exercise price per share is $1.1296 for the first series,
$1.2477 for the second series and $1.4238 for the third series of these
common stock options. One-third of each option series is fully vested and
exercisable and another one-third of each series will vest on each of
October 29, 2000 and October 29, 2001.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers in fiscal year 1999. None of the named executive
officers received stock appreciation rights, or SARs.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------------------
POTENTIAL POTENTIAL REALIZABLE VALUE
% OF TOTAL REALIZABLE AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS VALUE AT OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE INITIAL PUBLIC FOR OPTION TERM(1)
UNDERLYING EMPLOYEES IN PRICE EXPIRATION OFFERING PRICE ---------------------------
NAME OPTIONS FISCAL YEAR (PER SHARE) DATE OF $17($) 5%($) 10%($)
---- ---------- ------------ ----------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
David E. Sharbutt... 242,500(2) 5% $ 1.15 1/5/2009 3,843,625 6,436,243 10,413,828
1,455,000 29% $ 17.00 1/5/2009 -- 15,555,709 39,421,220
Jerry W. Brantley... 242,500(3) 5% $ 1.15 1/5/2009 3,843,625 6,436,243 10,413,828
1,455,000(3) 29% $ 17.00 1/5/2009 -- 15,555,709 39,421,220
Kendall W. Cowan.... 1,455,000 29% $ 17.00 1/5/2009 -- 15,555,709 39,421,220
W. Don Stull........ 48,500(4) 1% $ 1.13 12/31/2006 769,714 1,288,238 2,083,755
48,500(4) 1% $ 1.25 12/31/2006 763,987 1,282,510 2,078,027
48,500(4) 1% $ 1.42 12/31/2006 755,446 1,273,969 2,069,486
</TABLE>
- ----------
(1) Based on the initial public offering price of $17.00.
(2) In connection with these options, we will record compensation expense
totaling $3,116,125.
(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 $11,523,600 in connection with these options. As part of
our reorganization, these options were terminated and replaced by two
options granted under the 1999 Long-Term Incentive Plan. The first option
is exercisable immediately prior to the completion of the initial public
offering for 242,500 shares of our common stock at an exercise price of
$1.15 per share. The second option vests over the next four years and is
exercisable for 1,455,000 shares of our common stock with an exercise price
equal to the initial public offering price.
(4) During 1998, we granted Mr. Stull three series of options to purchase up to
an aggregate 0.3% membership interest in Alamosa PCS, LLC that vest monthly
beginning on April 29, 2000 and expire on December 31, 2006. As part of our
reorganization, these options were terminated and replaced by three
series of options to purchase an aggregate of 145,500 shares of our common
stock. The exercise price per share is $1.1296 for the first series,
$1.2477 for the second series and $1.4238 for the third series of these
common stock options. One-third of each option series is fully vested and
exercisable and another one-third of each series will vest on each of
October 29, 2000 and October 29, 2001.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table provides summary information regarding options held by
our named executive officers as of December 31, 1999. There was no public market
for the common stock as of December 31, 1999. Accordingly, the value of
unexercised in-the-money options is based on the initial public offering price
of $17.00, less the exercise price payable for such shares.
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<PAGE> 61
<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 -- -- --/1,697,500 $0/$3,843,625
Jerry W. Brantley -- -- --/1,697,500 $0/$3,843,625
Kendall W. Cowan -- -- --/1,455,000 --/$0
W. Don Stull -- -- 48,498/97,002 $763,017/$1,526,129
</TABLE>
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:
o incentive stock options;
o nonqualified stock options;
o tandem and independent stock appreciation rights;
o stock bonuses; and
o 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 the
initial public offering to purchase 5,554,000 shares of our common stock with an
exercise price equal to the initial public offering price per share to
directors, officers, employees and consultants and to purchase 630,500 shares of
our common stock with per share exercise prices ranging from $1.13 to $1.42 to
three of our executive officers, of which options to purchase 533,498 shares
were exercised immediately prior to the initial public offering.
The option plan is administered by our board of directors or by a stock
option plan committee appointed by our board of directors, which is authorized,
subject to the provisions of the option plan, to grant awards and establish
rules and regulations as it deems necessary for the proper administration of the
option plan and to make whatever determinations and interpretations it deems
necessary or advisable.
An incentive option may not have an exercise price less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant and is subject to other limitations
which allow the option holder to qualify for favorable tax treatment.
Nonqualified options may have an exercise price of less than, equal to or
greater than the fair market value of the underlying common stock on the date of
grant but, like incentive options, are limited to an exercise period of no
longer than ten years.
The committee determines and designates those persons to whom awards are
granted and determines:
o the award period;
o the date of grant;
o the vesting period; and
o other terms, provisions, limitations and performance requirements
approved by the committee, but not inconsistent with the plan.
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The committee also has the discretion to reprice stock option awards.
An option will not be transferable except by will or by the laws of descent
or distribution, unless specified in the plan or determined otherwise by our
board of directors or the committee.
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:
o the approval by our stockholders of a plan to dissolve or liquidate
Alamosa;
o 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;
o 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
o a sale of substantially all of our assets, unless the sale is due to
the default by us or our affiliates under any:
o credit or related agreement among us or our affiliates or successors
and Nortel Networks, Inc. or any other lender; or
o 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:
o 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
o 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.
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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 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 amended and restated 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
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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 the employment agreement, he
will be entitled to severance pay equal to the lesser of one year's base salary
and the unpaid balance of his salary which would be payable to him through
November 30, 2004. Mr. Cowan has agreed, pursuant to the employment agreement,
not to compete with us during employment and for a period of two years following
termination of his employment. Mr. Cowan's investment in the securities of any
publicly traded company where such investment does not represent greater than
five percent of the outstanding stock of that company, and Mr. Cowan's
investment in any company or entity in which Mr. Cowan is an owner or
stockholder at the time of entering into the employment agreement are, however,
exceptions to the non-competition covenant. Further, Mr. Cowan has agreed not to
disclose any of our confidential information at any time during or subsequent to
his employment with us without our written consent.
W. Don Stull. We are a party to an amended and restated employment agreement
with W. Don Stull, effective October 29, 1999 and continuing until October 31,
2001. This amended employment agreement provides that Mr. Stull receive a
minimum base salary of $90,000, payable no less often than semi-monthly, subject
to increases at our discretion. Additionally, Mr. Stull is entitled to receive a
bonus of up to $15,000 for each calendar quarter in which we meet certain
corporate milestones. Mr. Stull also is entitled to reimbursement for reasonable
expenses, $400 per month as a vehicle allowance, reimbursement for vehicle
business mileage at eighteen cents per mile, and incentive, retirement,
profit-sharing, life, medical, disability and other benefit plans as may be
available to our other executives with comparable responsibilities, subject to
the terms of those programs. If we terminate Mr. Stull's employment for other
than cause or nonperformance, both as defined in the employment agreement, or
due to his death or disability, we would be required to pay him severance pay
equal to one year's base salary. If Mr. Stull should terminate his employment
for cause, as defined in the employment agreement, he will be entitled to
severance pay equal to lesser of one year's base salary or the unpaid balance of
the base salary that would be payable to him through September 30, 2001.
Pursuant to the employment agreement, Mr. Stull has agreed not to compete with
us during his employment and not to compete with us within a defined area for a
period of two years following termination of his employment. Mr. Stull's
investment in the securities of any public company where such investment does
not represent greater than five percent of the outstanding stock of that company
and Mr. Stull's investment in any company or entity in which Mr. Stull was an
owner or stockholder at the time of entering into the employment agreement are
exceptions to the non-competition covenant. Further, Mr. Stull has agreed not to
disclose any of our confidential information at any time during or subsequent to
his employment with us without our written consent. The employment agreement
also modifies the options granted to Mr. Stull to convert those options into
three series of options, each series consisting of an option to purchase 48,500
shares, for an aggregate of 145,500 shares. The three series of options provide
for exercise prices of $1.1296, $1.2477 and $1.4238 per share, respectively.
One-third of each option series is fully vested and exercisable and another
one-third of each series will vest on each of October 29, 2000 and October 29,
2001. In addition, upon Mr. Stull's death or disability he shall be vested in a
fractional portion of the series options that would have vested on the October
29 immediately following such death or disability based on the number of months
since the previous October 29. If Mr. Stull should terminate his employment for
cause, as defined in the employment agreement, he shall be vested in the portion
of the series options that would have vested on the October 29 immediately
following such termination. If we terminate Mr. Stull's employment for other
than cause or nonperformance, both as defined in the employment agreement, all
of the options in each series not previously vested shall be immediately vested,
and if we terminate his employment for cause all of his previously unexercised
options in each series, regardless of whether or not previously vested, shall be
forfeited. All vested options not exercised by December 31, 2006, shall be
canceled.
COMPENSATION OF DIRECTORS
Currently, we do not compensate our directors. No director who is also our
employee 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 Mr. Sharbutt's services as Chairman of
our board of directors. This arrangement with Hicks & Ragland ended on October
1, 1999, when Mr. Sharbutt became our Chief Executive Officer.
Pursuant to the 1999 Long-Term Incentive Plan, each of our current directors
who is an independent director because he or she is not also our officer or
employee has received an initial option to purchase 28,000 shares of our common
stock. We granted an option to purchase an additional 15,000 shares of our
common stock to Mr. Clapp for his performance of additional duties as director
with respect to our initial public offering and our debt offering. These initial
options became exercisable with respect to 100% of the shares covered thereby
upon consummation of our initial public offering. Directors joining us now,
after our initial public offering, will automatically receive an initial option
to purchase 28,000 shares of our common stock on the date he or she becomes one
of our directors. All initial options will expire on the tenth anniversary of
the date of grant. In addition to the initial option, each independent director
will receive a grant pursuant to our 1999 Long-Term Incentive Plan of an annual
option to purchase that number of shares of our common stock equal to $60,000
divided by the fair market value of our common stock on the date of grant. The
annual option will be automatically granted on the date of the first full
meeting of our board of directors following the end of each fiscal year. The
annual option will immediately vest on the date of grant and will expire on the
tenth anniversary of the date of grant. The exercise price of all options
granted to independent directors must be equal to the fair market value of our
common stock on the date of grant. Directors who are also our officers or
employees receive no additional compensation for serving as directors. All of
our directors are entitled to reimbursement of their reasonable out-of-pocket
expenses in connection with their travel to, and attendance at, meetings of the
board of directors or committees thereof.
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 "Item 13. Certain
Relationships and Related Transactions" for more details regarding 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
represented a company called Harlamo LLC, prior to its dissolution in November
1999 that was a member of Alamo IV LLC and he also served as Vice President of
Alamo IV LLC. Thomas Hyde, who is one of our directors, along with Scotty Hart
and Jimmy White, served as executive officers of Alamo IV LLC.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Our full board of directors addressed all matters concerning executive
compensation until December 9, 1999, when we formed an executive compensation
committee consisting of Messrs. Silber, Marshall and Hyde. Since its formation,
the compensation committee has addressed executive compensation matters.
Our executive compensation philosophy reflects our belief that the
compensation of executives should:
o be linked to achievement of our business and strategic goals;
o be aligned with the interests of stockholders through awards of stock
options and other stock-based compensation;
o recognize individual contributions, as well as overall business
results; and
o 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:
o base salary;
o annual incentive compensation, the receipt of which is based on:
o our financial performance from year to year; and/or
o significant individual contributions; and
o long-term incentive compensation, primarily in the form of stock
options.
Jerry Brantley, as Chief Operating Officer, acted in a capacity similar to that
of chief executive officer during the period from the inception of Alamosa, July
16, 1998, to October 1, 1999, when David Sharbutt was elected Chief Executive
Officer. Mr. Sharbutt has served as our chief executive officer since that time.
The structure of Mr. Brantley's fiscal 1999 compensation was based in part on
comparisons to the compensation of executives in similar positions with other
companies in the industry, as well as Mr. Brantley's level of responsibility,
experience and contribution to our business objectives and the board's ongoing
assessment of our operations. In accordance with such factors, we entered into
an amended and restated employment agreement with Mr. Brantley, effective
October 1, 1999. This agreement provides for a base salary of $175,000, subject
to increases at our board's discretion. In addition, the agreement provides that
Mr. Brantley is eligible for quarterly bonuses upon the achievement of certain
performance targets established by our board, and grants Mr. Brantley stock
options that vest over three years. See "-- Employment Agreements -- Jerry W.
Brantley." Pursuant to this employment agreement, Mr. Brantley received
compensation totaling $324,509 for fiscal 1999, representing a salary of
$175,000, a bonus of $142,309 and a car allowance of $7,200. Our board believes
that the structure of Mr. Brantley's compensation, with its emphasis on our
performance, is in the best interest of our stockholders because it more closely
aligns the interests of Mr. Brantley and our stockholders.
The structure of Mr. Sharbutt's fiscal 1999 compensation was also based in
part on comparisons to the compensation of executives in similar positions with
other companies in the industry, as well as Mr. Sharbutt's level of
responsibility, experience and contribution to our business objectives and the
board's ongoing assessment of our operations. In accordance with such factors,
we entered into an employment agreement with Mr. Sharbutt, effective October 1,
1999. This agreement provides for a base salary of $175,000, subject to
increases at our board's discretion. In addition, the agreement provides that
Mr. Sharbutt is eligible for quarterly bonuses upon the achievement of certain
performance targets established by our board. See "-- Employment Agreements --
David E. Sharbutt." Pursuant to this employment agreement, Mr. Sharbutt received
compensation totaling $91,250 for fiscal 1999, representing a salary of $43,750,
a bonus of $43,750 and a car/club dues allowance of $3,750. Our board believes
that the structure of Mr. Sharbutt's compensation, with its emphasis on our
performance, is in the best interest of our stockholders because it more closely
aligns the interests of Mr. Sharbutt and our stockholders.
Other than Mr. Brantley as Chief Operating Officer and Mr. Sharbutt as Chief
Executive Officer, W. Don Stull, as Chief Technology Officer, also received
substantial compensation during fiscal 1999. Our philosophy for the compensation
of our executive officers focuses on each individual's level of responsibility,
experience and contribution to our business objectives and the board's ongoing
assessment of our operations. The board places emphasis on compensation that
closely aligns the executive's interests with the stockholders' interests.
Therefore, a significant percentage of each executive officer's total
compensation is tied to our performance through:
o bonus eligibility, based on a combination of our performance and
individual achievement; and
o 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.
David E. Sharbutt (Chairman) Schuyler B. Marshall
Michael R. Budagher Tom M. Phelps
Ray M. Clapp, Jr. Reagan W. Silber
Scotty Hart Jimmy R. White
Thomas Hyde
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table presents information regarding the beneficial ownership
of common stock as of February 29, 2000, and assumes that each member of Alamosa
PCS, LLC received its proportional number of shares of our common stock as of
such date, with respect to:
o each person who, to our knowledge, is the beneficial owner of 5% or
more of the outstanding common stock;
o each of the directors;
o each of the executive officers; and
o all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME AND ADDRESS(1) OWNED(2) OWNERSHIP(3)
------------------- ---------------- -------------
<S> <C> <C>
5% STOCKHOLDERS:
Rosewood Telecommunications, L.L.C ......... 9,671,769 15.8
100 Crescent Court, Suite 1700
Dallas, TX 75201
Caroline Hunt Trust Estate(3) .............. 9,671,769 15.8
South Plains Advanced Communications &
Electronics, Inc.(4) ..................... 8,769,732 14.3
Post Office Box 1379
Lubbock, TX 79408
South Plains Telephone
Cooperative(5) ........................... 8,769,732 14.3
Budagher Family, LLC(6) .................... 7,284,776 11.9
3702 Holland Avenue #2
Dallas, TX 75219
Taylor Telecommunications, Inc.(4) ......... 5,175,700 8.4
9796 N. Interstate 20
Merkel, TX 79536
Tregan International Corp. ................. 3,017,647 4.9
2711 North Haskell Avenue
5th Floor LB 32
Dallas, TX 75204
Trevor Pearlman(7) ......................... 3,017,647 4.9
Plateau Telecommunications,
Incorporated(4) .......................... 3,194,215 5.2
7111 North Prince
Clovis, NM 88102-1947
XIT Telecommunication & Technology,
Inc.(4) .................................. 2,750,000 4.5
Highway 87 North
Dalhart, TX 79022
LEC Development, Inc.(4)(8) ................ 2,535,294 4.1
1807 Main Street
Tahoka, TX 79373
Wes-Tex Telecommunications,
Inc.(4)(9) ............................... 2,500,000 4.1
1500 West Business 20
Stanton, TX 79782
DIRECTORS AND EXECUTIVE
OFFICERS:
David E. Sharbutt .......................... 884,724(10) 1.4
Jerry W. Brantley .......................... 257,500(11) *
Kendall W. Cowan ........................... -- --
W. Don Stull ............................... 149,449(12) *
Michael R. Budagher ........................ 7,312,776(13) 11.9
Ray M. Clapp ............................... 43,000(14) *
Scotty Hart ................................ 29,300(15) *
Thomas Hyde ................................ 28,000(16) *
Schuyler B. Marshall ....................... 28,000(17) *
Tom M. Phelps .............................. 28,000(18) *
Reagan W. Silber ........................... 3,045,647(19) 5.0
Jimmy R. White ............................. 29,014(20) *
All Directors and Executive Officers
as a Group (12 persons) .................. 11,835,410 19.2
</TABLE>
- ----------
* Less than one percent.
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(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
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) Consists of shares owned of record by Rosewood Telecommunications, L.L.C.
The Caroline Hunt Trust estate is a beneficial owner of these shares based
on its 100% ownership of the Rosewood Corporation, which owns a 100%
interest in DFL Investing, Inc., which owns a 100% interest in Rosewood
Financial, Inc. Rosewood Financial, Inc. and the Caroline Hunt Trust Estate
together own approximately 84.4% of Rosewood Telecommunications, L.L.C. The
address for the Caroline Hunt Trust Estate is the same as the address for
Rosewood Telecommunications, L.L.C.
(4) Previous member of Alamo IV LLC. Prior to its dissolution, Alamo IV LLC
held 56.3% of Alamosa PCS, LLC, and was comprised of these previous members
and Harlamo, LLC.
(5) Consists of shares held of record by South Plains Advanced Communications &
Electronics, Inc., SPACE. South Plains Telephone Cooperative is a
beneficial owner of these shares based on its 100% ownership of SPACE. The
address for South Plains Telephone Cooperative is the same as the address
for SPACE.
(6) Consists of 7,072,915 shares held of record by Budagher Family, LLC and
211,861 shares held of record by West Texas PCS, LLC, a wholly-owned
subsidiary of Budagher Family, LLC.
(7) Consists of shares held of record by Tregan International Corp. Mr.
Pearlman is a director, officer and 50% stockholder of Tregan International
Corp. and is a beneficial owner of these shares. The address for Mr.
Pearlman is the same as the address for Tregan International Corp.
(8) Wilton J. Payne is the General Manager of LEC Development, Inc. and may be
considered the beneficial owner of these shares. Mr. Payne disclaims
beneficial ownership of these shares. The address for Mr. Payne is the same
as the address for LEC Development, Inc.
(9) J.R. Wilson is the general manager of Wes-Tex Telecommunications, Inc. and
may be considered the beneficial owner of these shares. Mr. Wilson
disclaims beneficial ownership of these shares. The address for Mr. Wilson
is the same as the address for Wes-Tex Telecommunications, Inc.
(10) Consists of 242,500 shares held individually by Mr. Sharbutt, 48,824 shares
held in Mr. Sharbutt's 401(k) plan, 593,200 shares beneficially owned by
Five S, Ltd. and 200 shares beneficially owned by Mr. Sharbutt's children.
Mr. Sharbutt is a limited partner of Five S, Ltd. and President of Sharbutt
Inc., the general partner of Five S Ltd., and may be considered a
beneficial owner of the shares owned by Five S, Ltd. Mr. Sharbutt disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest therein. Additionally, Mr. Sharbutt is a director, shareholder and
the President of US Consultants, Inc., the general partner of Harness,
Ltd., which holds of record 292,938 shares. Mr. Sharbutt disclaims
beneficial ownership 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 242,500 shares held individually by Mr. Brantley and 15,000
shares held of record by Mr. Brantley's wife.
(12) Consists of 124,705 shares held individually by Mr. Stull, 332 shares held
of record by Mr. Stull's wife and 24,412 shares held in Mr. Stull's 401(k)
plan.
(13) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days, 7,072,915 shares held of record by Budagher Family, LLC and
211,861 shares held of record by West Texas PCS, LLC. Mr. Budagher is a
Manager of Budagher Family, LLC and West Texas PCS, LLC and is a beneficial
owner of the shares held by both of those entities. Mr. Budagher's address
is the same as the address for Budagher Family, LLC.
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(14) Consists of shares issuable pursuant to options exercisable within 60 days.
(15) Consists of 1,000 shares held individually by Mr. Hart, 28,000 shares
issuable pursuant to options exercisable within 60 days and 300 shares held
of record by Lubbock HLH, Ltd. Mr. Hart controls Lubbock HLH, Ltd. and is a
beneficial owner of the shares held by Lubbock HLH, Ltd. Additionally, Mr.
Hart is General Manager of South Plains Advanced Communications &
Electronics, Inc., SPACE, which holds of record 8,769,732 shares. Mr. Hart
disclaims beneficial ownership of the shares held by SPACE. Mr. Hart's
address is the same as the address for SPACE.
(16) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days. Additionally, Mr. Hyde is a Manager of Taylor Telecommunications,
Inc., which holds of record 5,175,700 shares. Mr. Hyde disclaims beneficial
ownership of the shares held by Taylor Telecommunications, Inc. Mr. Hyde's
address is the same as the address for Taylor Telecommunications, Inc.
(17) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days. Additionally, Mr. Marshall is the Manager and President of
Rosewood Telecommunications, L.L.C., which holds of record 9,671,769
shares. Mr. Marshall disclaims beneficial ownership of the shares held by
Rosewood Telecommunications, L.L.C. The address for Mr. Marshall is the
same as the address for Rosewood Telecommunications, L.L.C.
(18) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days. Additionally, Mr. Phelps is the Executive Vice President of
Plateau Telecommunications, Incorporated, which holds of record 3,194,215
shares. Mr. Phelps disclaims beneficial ownership of the shares held by
Plateau Telecommunications, Incorporated. The address for Mr. Phelps is the
same as the address for Plateau Telecommunications, Incorporated.
(19) Consists of 28,000 shares issuable pursuant to options exercisable within
60 days as well as 3,017,647 shares held of record by Tregan International
Corp. Mr. Silber is a director, the President and 50% stockholder of Tregan
International Corp. and is a beneficial owner of the shares owned by Tregan
International Corp. Mr. Silber's address is the same as the address for
Tregan International Corp.
(20) Consists of 1,014 shares held individually by Mr. White and 28,000 shares
issuable pursuant to options exercisable within 60 days. Additionally, Mr.
White is the General Manager of XIT Telecommunications & Technology, Inc.,
which holds of record 2,750,000 shares. Mr. White disclaims beneficial
ownership of the shares held by XIT Telecommunications & Technology, Inc.
Mr. White's address is the same as the address for XIT Telecommunications &
Technology, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
FORMATION OF ALAMOSA PCS, LLC
On July 24, 1998, Alamo IV LLC, Rosewood Telecommunications, L.L.C., Tregan
International Corp., West Texas PCS, LLC and Longmont PCS, LLC formed Alamosa
PCS, LLC. Those investors received membership interests in exchange for their
capital commitments. The investors amended the formation documents on December
11, 1998 to allow for a new member, Yellow Rock PCS, L.P., and to modify their
membership interests and capital commitments. Yellow Rock agreed to contribute a
total of $400,000 of capital in exchange for a 0.82% membership interest in us.
Pursuant to the agreement, Yellow Rock committed to a funding schedule beginning
with a payment of $123,711 on December 15, 1998 and ending on January 1, 2001.
The original investors retained the remaining 99.18% membership interest in us
in exchange for their capital commitments of $48,100,000. In November 1999, the
members of Alamo IV LLC dissolved Alamo IV LLC and distributed Alamo IV's
membership interest in Alamosa PCS, LLC to Alamo IV's members.
The obligations to commit capital and the other regulations under the
formation documents were eliminated when we reorganized from a limited liability
company to a holding company structure prior to the closing of our initial
public offering.
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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 terminated prior to the closing of our
initial public offering.
AGREEMENTS WITH CHR SOLUTIONS
We have entered into a number of arrangements with CHR Solutions as
described in more detail below. David Sharbutt, our Chairman and Chief Executive
Officer, was at the time the agreements were executed the President, Chief
Executive Officer, a director and a shareholder of CHR Solutions. Mr. Sharbutt
is currently employed as a Senior Consultant by CHR Solutions.
o 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 in 1998
and $2,951,476 in 1999 for these services.
o 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.
o As of April 6, 1999, we entered into a telecommunications service
agreement with Tech Telephone Company Limited Partnership, an
affiliate of CHR Solutions, to install and provide DS1
telecommunications lines between Sprint PCS and our Lubbock operations
and between our Lubbock operations and our other markets. The original
term of the agreement is three years, with automatic renewal for
successive 30-day terms until terminated by either party. The total
amount of fees paid through the end of 1999 was approximately
$212,000.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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.
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AGREEMENT WITH AMERICAN TOWER CORPORATION
In August 1998, we entered into a master site development and lease
agreement with Specialty, a subsidiary of Specialty Teleconstructors, Inc. that
has since merged with American Tower Corporation. Pursuant to the agreement,
Specialty arranges for collocation of our equipment, or constructs new
facilities, in areas we identify for build-out. The initial term of this lease
is for five years, with automatic renewal for three additional terms of five
years each. The agreement provides for monthly payments aggregating to
approximately $5 million a year, subject to an annual adjustment based on the
Consumer Price Index. Michael Budagher, who is one of our directors and a
manager of West Texas PCS, LLC, one of our stockholders, was, at the time the
agreement was entered into the Vice Chairman, Chief Operating Officer and a
director of Specialty Teleconstructors, Inc., and the Chief Executive Officer,
President and sole director of Specialty. Michael Budagher is also a member and
the General Manager of the Budagher Family LLC, which was, at the time the
agreement was entered into, a stockholder of Specialty Teleconstructors, Inc.
Mr. Budagher no longer holds any of these positions at Specialty or Specialty
Teleconstructors, Inc. and the Budagher Family LLC is no longer a stockholder of
Specialty Teleconstructors, Inc. Additionally, Jeff Howard, who was one of our
directors at the time the agreement was entered into, is a manager of Longmont
PCS, LLC, one of our stockholders, is a stockholder of Specialty
Teleconstructors, Inc. and acts as a Vice President of American Tower
Corporation though he has not been designated as an officer by American Tower
Corporation's board of directors and has no management authority.
RESERVE OF SHARES BY UNDERWRITERS
As part of the initial public offering of our common stock, the underwriters
reserved a maximum of 10% of the shares of our common stock sold in the offering
for sale to our current stockholders at a price per share of $15.8525, the
public offering price less the underwriting discount. The underwriters were not
entitled to any discount or commission on these shares and the proceeds to us
were the same as if the shares were sold to the general public. Current
stockholders purchased 757,589 shares pursuant to this arrangement.
In connection with our initial public offering, Salomon Smith Barney Inc.
reserved up to approximately five percent of the shares being offered as
directed shares for sale at the initial public offering price to persons who are
directors, officers or our employees, or who are otherwise associated with us
and our affiliates or employees, and who have advised us of their desire to
purchase these shares. The number of shares of common stock available for sale
to the general public was reduced to the extent of sales of directed shares to
any of the persons for whom they have been reserved. A total of 535,000 shares
of common stock were so purchased by such persons.
OTHER RELATED PARTY TRANSACTIONS
On April 23, 1999, we entered into a $100,000 loan agreement with one of our
officers. The loan matures on April 2014 and accrues interest at an annual rate
of 7.75%.
In November 1998, we entered into an agreement to lease space for telephone
switching equipment in Albuquerque with SASR Limited Partnership, 50% owned by
one of our directors and a manager of West Texas PCS, LLC and Budagher Family,
LLC, two of our interest holders. The lease has a term of five years with two
optional five-year terms. The lease provides for monthly payments aggregating to
$18,720 a year with 10% increase at the beginning of the two option periods, as
well as a pro rata portion of real estate taxes on the property.
In connection with our distribution and sales of Sprint PCS wireless
communications equipment, on December 28, 1998, we 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 Holding's directors and the general manager of
South Plains Advance Communications & Electronics, Inc. ("SPACE"). SPACE is one
of our stockholders. This lease has a term of 15 years and provides for monthly
payments aggregating to approximately $110,000 a year, subject to adjustment
based on the Consumer Price Index on the first day of the sixth lease year and
on the first day of the eleventh lease year. No amounts were paid or outstanding
under this lease at December 31, 1998. During 1999, $73,233 was paid under this
lease. No amount was payable at December 31, 1999.
69
<PAGE> 70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this annual report on
Form 10-K:
1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the year
ended December 31, 1999, for the period July 16,
1998 (inception) through December 31, 1998, and
cumulative for the period July 16, 1998
(inception) through December 31, 1999
Consolidated Statements of Stockholders' Equity for
the period July 16, 1998 (inception) through the
year ended December 31, 1999
Consolidated Statements of Cash Flows for the year
ended December 31, 1999, for the period July 16,
1998 (inception) through December 31, 1998, and
cumulative for the period July 16, 1998
(inception) through December 31, 1999
Notes to Financial Statements
2. Financial Statement Schedule
Report of Independent Accountants on Financial Statement
Schedules
Consolidated Valuation and Qualifying Accounts
3. Exhibits
(a) Index to Exhibits
EXHIBIT
NUMBER EXHIBIT TITLE
------- ------------------------------------------------------------
2.1 -- 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 -- Agreement and Plan of Conversion of Alamosa PCS LLC, a Texas
limited liability company into Alamosa PCS Holdings, Inc., a
Texas corporation.
3.1* -- Amended and Restated Certificate of Incorporation of
Alamosa.
3.2* -- Amended and Restated Bylaws of Alamosa.
4.1* -- Specimen Common Stock Certificate.
4.2* -- Rights Agreement between Alamosa PCS Holdings, Inc. and
ChaseMellon Shareholder Services, L.L.C., as rights agent.
4.3* -- Amended and Restated Certificate of Incorporation of Alamosa
(filed as Exhibit 3.1 above).
4.4* -- Amended and Restated Bylaws of Alamosa (filed as Exhibit 3.2
above).
4.5 -- Amended and Restated Credit Agreement by and among 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,
executed on February 8, 2000 (filed as Exhibit 10.12 below).
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.
70
<PAGE> 71
10.5* -- 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.
10.6* -- Sprint PCS Management Agreement (Wisconsin), as amended,
dated as of December 6, 1999 by and between Sprint Spectrum,
LP, WirelessCo, LP and Alamosa Wisconsin Limited
Partnership.
10.7* -- Sprint PCS Services Agreement (Wisconsin) dated as of
December 6, 1999 by and between Sprint Spectrum, LP and
Alamosa Wisconsin Limited Partnership.
10.8* -- Sprint Trademark and Service Mark License Agreement
(Wisconsin) dated as of December 6, 1999 by and between
Sprint Communications Company, LP and Alamosa Wisconsin
Limited Partnership.
10.9* -- 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.
10.10* -- 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.
10.11* -- Master Site Development and Lease Agreement, as amended,
dated as of August 1998 by and between Alamosa PCS, LLC and
Specialty Capital Services, Inc.
10.12 -- Amended and Restated Credit Agreement by and among 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,
executed on February 8, 2000.
10.13** -- Alamosa PCS Holdings, Inc. 1999 Long-Term Incentive Plan.
10.14** -- Employment Agreement effective as of October 1, 1999 by and
between Alamosa PCS LLC and David Sharbutt.
10.15** -- Employment Agreement effective as of December 1, 1999 by and
between Alamosa PCS, LLC and Kendall W. Cowan.
10.16* -- Sprint PCS Management Agreement, as amended, dated as of
December 23, 1999 by and between Sprint Spectrum, LP,
WirelessCo, LP, Cox Communications PCS, L.P., Cox CPS
License, LLC, SprintCom, Inc. and Alamosa PCS, LLC.
10.17* -- Sprint PCS Services Agreement dated as of December 23, 1999
by and between Sprint Spectrum, LP and Alamosa PCS, LLC.
10.18* -- Sprint Trademark and Service Mark License Agreement dated as
of December 23, 1999 by and between Sprint Communications
Company, LP and Alamosa PCS, LLC.
10.19* -- Sprint Spectrum Trademark and Service Mark Agreement dated
as of December 23, 1999 by and between Sprint Spectrum, LP
and Alamosa PCS, LLC.
10.20 -- 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, effective as of February 8, 2000.
10.21** -- Amended and Restated Employment Agreement effective as of
October 1, 1999 by and between Alamosa PCS, LLC and Jerry
Brantley.
10.22** -- Amended and Restated Employment Agreement effective as of
October 1, 1999 by and between Alamosa PCS, LLC and W. Don
Stull.
10.23 -- Amended and Restated Master Design Build Agreement, dated as
of March 21, 2000, by and between Texas Telecommunications,
L.P. and Alamosa Wisconsin Limited Partnership and SBA
Towers, Inc.
21.1* -- Subsidiaries of Alamosa.
23.1 -- Consent of PricewaterhouseCoopers LLP.
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1999.
- ----------
* Previously filed, together with the Registration Statement on Form
S-1, file no. 333-89995, dated February 4, 2000, and incorporated
herein by reference.
** Compensatory plans and arrangements for executives and others.
Previously filed, together with the Registration Statement on Form
S-1, file no. 333-89995, dated February 4, 2000, and incorporated
herein by reference.
71
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 23, 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 Exchange Act of 1934
thereunto, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ DAVID E. SHARBUTT Chairman of the Board of March 23, 2000
----------------------- Directors and Chief Executive Officer
David E. Sharbutt (Principal Executive Officer)
/s/ KENDALL W. COWAN Chief Financial Officer March 23, 2000
------------------------ (Principal Financial and Accounting Officer)
Kendall W. Cowan
/s/ MICHAEL R. BUDAGHER Director March 23, 2000
------------------------
Michael R. Budagher
/s/ RAY M. CLAPP, JR. Director March 23, 2000
------------------------
Ray M. Clapp, Jr.
/s/ SCOTTY HART Director March 23, 2000
------------------------
Scotty Hart
/s/ THOMAS HYDE Director March 23, 2000
------------------------
Thomas Hyde
/s/ SCHUYLER B. MARSHALL Director March 23, 2000
------------------------
Schuyler B. Marshall
/s/ TOM M. PHELPS Director March 23, 2000
----------------------
Tom M. Phelps
/s/ REAGAN W. SILBER Director March 23, 2000
----------------------
Reagan W. Silber
/s/ JIMMY R. WHITE Director March 23, 2000
----------------------
Jimmy R. White
</TABLE>
72
<PAGE> 73
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS, LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants....................................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998............................... F-3
Consolidated Statements of Operations for the year ended December 31, 1999, for the period July 16,
1998 (inception) through December 31, 1998, and cumulative for the period July 16, 1998
(inception) through December 31, 1999................................................................ F-4
Consolidated Statements of Stockholders' Equity for the period July 16, 1998 (inception) through the
year ended December 31, 1999......................................................................... F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1999, for the period July 16,
1998 (inception) through December 31, 1998, and cumulative for the period July 16, 1998
(inception) through December 31, 1999................................................................ F-6
Notes to Financial Statements........................................................................... F-8
</TABLE>
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Alamosa PCS Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Alamosa PCS
Holdings, Inc. (a development stage enterprise) and its subsidiaries at December
31, 1999 and December 31, 1998, and the results of their operations and their
cash flows for the year ended December 31, 1999, the period from July 16, 1998
(inception) through December 31, 1998, and the period from July 16, 1998
(inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States 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
February 28, 2000
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 75
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,655,711 $ 13,529,077
Accounts receivable, net of allowance for doubtful accounts of
$161,704 at December 31, 1999 1,675,636 --
Inventory 5,777,375 --
Prepaid expenses and other assets 882,516 52,046
------------- -------------
Total current assets 13,991,238 13,581,123
Property and equipment, net 84,713,724 2,092,762
Note receivable from officer 100,000 --
Debt issuance costs, net 3,743,308 --
Restricted cash 518,017 --
Other noncurrent assets 1,425,912 --
------------- -------------
Total assets $ 104,492,199 $ 15,673,885
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,153,068 $ 395,355
Accounts payable to related parties 1,182,225 450,496
Current installments of capital leases 21,818 20,145
Bank line of credit 363,665 23,637
Microwave relocation obligation 3,578,155 --
------------- -------------
Total current liabilities 20,298,931 889,633
Capital lease obligations, noncurrent 827,024 708,074
Long-term debt 71,926,414 --
------------- -------------
Total liabilities 93,052,369 1,597,707
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no
shares issued -- --
Common stock, $.01 par value; 290,000,000 shares authorized,
48,500,008 issued and outstanding 485,000 485,000
Additional paid-in capital 50,824,876 14,515,000
Deficit accumulated during the development stage (33,759,681) (923,822)
Unearned compensation (6,110,365) --
------------- -------------
Total stockholders' equity 11,439,830 14,076,178
------------- -------------
Total liabilities and stockholders' equity $ 104,492,199 $ 15,673,885
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 76
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 16, 1998 CUMULATIVE FOR THE
YEAR (INCEPTION) PERIOD JULY 16,
ENDED THROUGH 1998 (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
1999 1998 1999
------------ -------------- --------------------
<S> <C> <C> <C>
Revenues:
Service revenues $ 6,533,623 $ -- $ 6,533,623
Product sales 2,450,090 -- 2,450,090
------------ ------------ ------------
Total revenue 8,983,713 -- 8,983,713
------------ ------------ ------------
Costs and expenses:
Cost of service and operations 6,616,266 -- 6,616,266
Cost of service and operations - related parties 824,210 -- 824,210
Cost of product sold 2,403,306 -- 2,403,306
Selling and marketing 13,941,917 -- 13,941,917
Selling and marketing - related parties 404,561 -- 404,561
General and administrative expenses (excluding non-cash
compensation expense) 3,711,548 949,445 4,660,993
Non-cash compensation expense 8,199,511 -- 8,199,511
General and administrative - related parties 497,427 6,886 504,313
Depreciation and amortization 3,056,923 2,063 3,058,986
------------ ------------ ------------
Total costs and expenses 39,655,669 958,394 40,614,063
------------ ------------ ------------
Loss from operations (30,671,956) (958,394) (31,630,350)
Interest and other income 477,390 34,589 511,979
Interest expense (2,641,293) (17) (2,641,310)
------------ ------------ ------------
Net loss $(32,835,859) $ (923,822) $(33,759,681)
============ ============ ============
Pro forma information:
Net loss $(32,835,859) $ (923,822) $(33,759,681)
Pro forma income tax adjustment:
Income tax benefit 10,854,083 317,592 11,171,675
Deferred tax valuation allowance (10,854,083) (317,592) (11,171,675)
------------ ------------ ------------
Pro forma net loss $(32,835,859) $ (923,822) $(33,759,681)
============ ============ ============
Pro forma basic and diluted weighted average common shares
outstanding 48,500,008 48,500,008 48,500,008
============ ============ ============
Basic and diluted pro forma net loss per common share $ (0.68) $ (0.02) $ (0.70)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 77
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JULY 16, 1998 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING
----------------- ----------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
------ ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 16,
1998 (inception) -- $ -- -- $ -- $ -- $ --
Members'
contribution -- -- 48,500,008 485,000 14,515,000 --
Net loss -- -- -- -- -- (923,822)
------ ------ ------------ ------------ ------------ ------------
Balance, December
31, 1998 -- -- 48,500,008 485,000 14,515,000 (923,822)
Members'
contributions -- -- -- -- 22,000,000 --
Stock options -- -- -- -- 14,309,876 --
Amortization of
unearned
compensation -- -- -- -- -- --
Net loss -- -- -- -- -- (32,835,859)
------ ------ ------------ ------------ ------------ ------------
Balance, December
31, 1999 -- $ -- 48,500,008 $ 485,000 $ 50,824,876 $(33,759,681)
====== ====== ============ ============ ============ ============
<CAPTION>
UNEARNED
COMPENSATION TOTAL
------------ ------------
<S> <C> <C>
Balance, July 16,
1998 (inception) $ -- $ --
Members'
contribution -- 15,000,000
Net loss -- (923,822)
------------ ------------
Balance, December
31, 1998 -- 14,076,178
Members'
contributions -- 22,000,000
Stock options (14,309,876) --
Amortization of
unearned
compensation 8,199,511 8,199,511
Net loss -- (32,835,859)
------------ ------------
Balance, December
31, 1999 $ (6,110,365) $ 11,439,830
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 78
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 16, 1998 CUMULATIVE FOR THE
YEAR (INCEPTION) PERIOD JULY 16,
ENDED THROUGH 1998 (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
1999 1998 1999
------------- -------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (32,835,859) $ (923,822) $ (33,759,681)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash compensation expense 8,199,511 -- 8,199,511
Depreciation and amortization 3,056,923 2,063 3,058,986
Amortization of debt issuance costs 331,063 -- 331,063
Deferred interest expense 2,068,601 -- 2,068,601
(Increase) decrease in:
Accounts receivable (1,675,636) -- (1,675,636)
Inventory (5,777,375) -- (5,777,375)
Prepaid expenses and other assets (594,027) (52,046) (646,073)
Increase (decrease) in:
Accounts payable and accrued expenses 10,137,095 845,851 10,982,946
------------- ------------- -------------
Net cash used in operating activities (17,089,704) (127,954) (17,217,658)
------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (76,601,004) (1,366,606) (77,967,610)
Issuance of note receivable from officer (100,000) -- (100,000)
Change in restricted cash (518,017) -- (518,017)
------------- ------------- -------------
Net cash used in investing activities (77,219,021) (1,366,606) (78,585,627)
------------- ------------- -------------
Cash flows from financing activities:
Capital contributions 22,000,000 15,000,000 37,000,000
Increase in notes payable 66,357,841 23,637 66,381,478
Debt and equity offering costs (1,360,405) -- (1,360,405)
Debt issuance costs (234,371) -- (234,371)
Payments on capital leases (25,756) -- (25,756)
Interest rate cap premiums (301,950) -- (301,950)
------------- ------------- -------------
Net cash provided by financing activities 86,435,359 15,023,637 101,458,996
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (7,873,366) 13,529,077 5,655,711
Cash and cash equivalents at beginning of period 13,529,077 -- --
------------- ------------- -------------
Cash and cash equivalents at end of period $ 5,655,711 $ 13,529,077 $ 5,655,711
============= ============= =============
Supplemental disclosure - cash paid for interest $ 218,142 $ -- $ 218,142
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 79
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 16, 1998 CUMULATIVE FOR THE
YEAR (INCEPTION) PERIOD JULY 16,
ENDED THROUGH 1998 (INCEPTION)
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
1999 1998 1999
------------ -------------- --------------------
<S> <C> <C> <C>
Supplemental disclosure of noncash activities:
Capitalized lease obligations incurred $ 146,379 $ 728,219 $ 874,598
Liabilities assumed in connection with purchase of
property and equipment 5,352,347 -- 5,352,347
Liabilities assumed in connection with debt issuance
costs 3,840,000 -- 3,840,000
Liabilities assumed in connection with microwave
relocation 3,578,155 -- 3,578,155
------------ ------------ ------------
$ 12,916,881 $ 728,219 $ 13,645,100
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 80
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa PCS Holdings Inc. ("Holdings") was formed in October 1999 in
anticipation of an initial public offering as described in Note 14.
Immediately prior to the offering in February 2000, shares of Holdings, the
registrant, were exchanged for Alamosa PCS LLC's ("Alamosa") membership
interests, and Alamosa became wholly owned by Holdings. These financial
statements are presented as if the reorganization had occurred as of the
beginning of the periods presented. There were no activities within
Holdings prior to the reorganization. Holdings and its subsidiaries,
including Alamosa, are collectively referred to in these financial
statements as the "Company." Other subsidiaries formed include Texas
Telecommunications LP ("Texas") and Alamosa Wisconsin Limited Partnership
("Wisconsin").
Alamosa and its successor Alamosa PCS, Inc., referred to in these financial
statements as 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 provided 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. Alamosa amended its affiliation agreements with
Sprint PCS in December 1999 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.
Holdings and Alamosa are 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 and equipment through 2002. These expenditures will be
funded through member contributions of $37 million, a financing agreement
with Nortel Networks, Inc. ("Nortel") of $250 million and proceeds of the
initial public offering and Senior Discount Notes proceeds described in
Note 14. From inception through December 31, 1999, the Company has
commenced operations in eleven markets. Since inception, the Company has
incurred revenues and expenses of $8,983,713 and $42,743,394 resulting in a
deficit accumulated during the development stage of $33,759,681 at December
31, 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 is
the development of the Sprint PCS subscriber base within that market.
Prior to the reorganization discussed above, the Regulations of Alamosa, as
amended, provided for the governance and administration of its business,
allocation of profits and losses, tax allocations, transactions with
partners, disposition of ownership interest and other matters. The
Regulations established two classes of membership interests. Class I
members had full voting rights and were entitled to full benefits of
ownership of their share of Alamosa. Class II members consisted of
additional non-voting share interests of Alamosa, which the Board of
Managers may authorize to be distributed to employees of Alamosa under an
incentive bonus plan. The Regulations generally provided 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-8
<PAGE> 81
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The members of the Company had the following Class I ownerships interests
as of December 31, 1998 and December 31, 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>
Alamo IV, LLC was dissolved in November 1999. Upon the dissolution, its
members received their pro rata portions of ownership interest of Alamosa
PCS LLC. In conjunction with the reorganization described above, the
ownership interests of Alamosa PCS LLC were exchanged for an equivalent
interest in Holdings' common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
Cash and cash equivalents - Cash and cash equivalents include cash, money
market funds, and commercial paper with minimal interest rate risk and
original maturities of three months or less at the date of acquisition. The
carrying amount approximates fair value.
Inventory - Inventory consists of handsets and related accessories.
Inventories purchased for resale are carried at the lower of cost,
determined using weighted average, or market. Market will be determined
using replacement cost in accordance with industry standards.
Property and equipment - 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.
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.
F-9
<PAGE> 82
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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. Total interest capitalized is $656,985 as of December 31,
1999. No interest was capitalized in 1998.
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 $84,312 for the year ended
December 31, 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 $411,000 and $11,500 at
December 31, 1999 and 1998, respectively, are recorded in property and
equipment. The Company amortized computer software costs of approximately
$40,000 and $1,000 during 1999 and 1998, respectively.
Start-up costs - In April 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting
on the Costs of Start-Up Activities." This statement became effective
January 1, 1999 and required that costs of start up activities and
organization costs be expensed as incurred.
Advertising costs - Advertising costs are expensed as incurred. Advertising
expenses totaled approximately $7,300,925 and $2,000 during 1999 and 1998,
respectively. Advertising costs include handset subsidy expenses
representing the excess of the cost of handsets over the retail sales
price. Handset subsidy expense was $5,023,430 for the year ended December
31, 1999. There was no handset subsidy expense during 1998.
Income taxes - At December 31, 1999 and 1998, Alamosa was organized as a
Texas limited liability company. Therefore, the taxable loss of the Company
was included in the income tax returns of its members. While no benefit for
income taxes was recorded in the financial statements of Alamosa, the
statements of operations includes proforma information as if Alamosa was a
taxable entity as described in Note 3.
Revenue recognition - The Company recognizes revenue as services are
performed. Sprint PCS handles Alamosa's billings and collections and
retains 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 is recorded in Cost of
Service and Operations. Revenues generated from the sale of handsets and
accessories and from roaming services provided to Sprint PCS customers who
are not based in Alamosa's territory are not subject to the 8% retainage.
Sprint PCS pays 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 service when
incurred.
Product revenues consisting of proceeds from sales of handsets and
accessories are recorded net of an allowance for sales returns. The
allowance is estimated based on Sprint PCS's handset return policy that
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 year ended
December 31, 1999 product revenue was $2,450,090. The cost of these
products was $7,426,736, of which $2,403,306 has been classified as cost of
products sold and $5,023,430 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
F-10
<PAGE> 83
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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 Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee stock
options. The non-cash compensation expense relates to three employees whose
cash compensation is recorded in cost of service and operations and general
and administrative expenses. The Company has implemented the
disclosure-only provisions of Statement of Financial Accounting Standards
("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.
Reclassification - Certain reclassifications have been made to prior year
balances to conform to current year presentations.
Effects of recent accounting pronouncements - In June 1998 and June 1999,
the Financial Accounting Standards Board ("FASB"), issued 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.
In June 1997, FASB issued SFAS 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. No items represent comprehensive
income as defined in SFAS No. 130 during 1999 and 1998.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB101"), "Revenue Recognition in Financial
Statements." SAB101 summarizes certain of the staff's interpretations in
applying generally accepted accounting principles to revenue recognition.
The provisions of SAB101 are effective for Alamosa's quarter ending March
31, 2000. Management is currently assessing the impact of the adoption of
SAB101.
3. UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma information reflects certain assumptions regarding
transactions and their effects that occurred as a result of the
reorganization described in Note 1.
F-11
<PAGE> 84
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Unaudited pro forma income information - The unaudited pro forma
information as shown on the statements of operations is presented to show
the effects of income taxes related to the Company's subsequent 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 year ended December
31, 1999. Application of the provisions of SFAS 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.
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 1.
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 1. The calculation
was made in accordance with SFAS No. 128, "Earnings Per Share." Diluted
weighted average shares outstanding at December 31, 1999 exclude 141,042
incremental potential common shares from stock options because inclusion
would have been antidilutive.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Land and building $ 2,817,426 $ --
Network equipment 76,867,836 --
Vehicles 477,353 23,637
Furniture and office equipment 2,266,966 92,418
------------ ------------
82,429,581 116,055
Accumulated depreciation (2,974,674) (2,063)
------------ ------------
Subtotal 79,454,907 113,992
------------ ------------
Microwave relocation costs 3,578,155 --
Accumulated amortization (84,312) --
------------ ------------
Subtotal 3,493,843 --
------------ ------------
Construction in progress:
Network equipment 374,680 1,628,271
Leasehold improvements 1,390,294 350,499
------------ ------------
Subtotal 1,764,974 1,978,770
------------ ------------
Total $ 84,713,724 $ 2,092,762
============ ============
</TABLE>
F-12
<PAGE> 85
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
5. LEASES
Operating leases - The Company has various operating leases, primarily
related to rentals of tower sites and offices. Rental expense was
$1,924,848 and $15,208 for 1999 and 1998, respectively. At December 31,
1999, the aggregate minimum rental commitments under noncancelable
operating leases for the periods shown are as follows:
<TABLE>
<CAPTION>
YEARS:
<S> <C>
2000 $ 3,433,809
2001 3,456,342
2002 3,470,805
2003 3,495,462
2004 3,532,010
Thereafter 15,997,042
---------------
Total $ 33,385,470
===============
</TABLE>
Included in total minimum rental commitments is $1,508,000 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 $848,842
and $728,219 at December 31, 1999 and 1998, respectively, and was included
in property and equipment. Amortization recorded under these leases was
$30,894 for the year ended December 31, 1999 and was minimal during 1998.
At December 31, 1999, the future payments under capital lease obligations,
less imputed interest, are as follows:
<TABLE>
<CAPTION>
YEARS:
<S> <C>
2000 $ 105,720
2001 105,720
2002 105,720
2003 105,720
2004 113,970
Thereafter 1,085,480
---------------
Total minimum lease payments 1,622,330
Less: imputed interest 773,488
---------------
Present value of minimum lease payments 848,842
Less: current installments 21,818
---------------
Long-term capital lease obligations at December 31, 1999 $ 827,024
===============
</TABLE>
6. BANK LINE OF CREDIT
Alamosa has a $500,000 revolving line of credit with a bank that expires
June 9, 2000. The line of credit has a variable interest rate of 9.25% at
December 31, 1999. Proceeds from this line of credit are used to purchase
vehicles for service representatives. As of December 31, 1999, $363,665 was
outstanding on the line of credit. The vehicles purchased under this line
of credit and all of Alamosa's cash and cash equivalents held at the 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
$22,035 was paid during the year ended December 31, 1999.
F-13
<PAGE> 86
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
7. LONG-TERM DEBT
Long-term debt at December 31, 1999 included $71,876,379 owed to Nortel and
$50,035 owed to another party relating to the build-out of retail
facilities.
On February 3, 1999, Alamosa issued a $7,500,000 letter of credit in favor
of Nortel. The letter of credit expired in June 1999. On June 10, 1999,
Alamosa entered into a credit agreement with Nortel. The proceeds of that
credit facility are used to purchase equipment, to fund the construction of
the Company's portion of the Sprint PCS network, and to pay associated
financing costs. The financing terms permit Alamosa to borrow $123 million
under three commitment tranches through February 18, 2002, and will require
minimum equipment purchases.
The Nortel credit facility is collateralized by all of Alamosa's current
and future assets and capital stock. Alamosa is required to maintain
certain financial ratios and other financial conditions including minimum
levels of revenue and wireless subscribers. In addition, Alamosa is
required to maintain a $1,000,000 cash balance as collateral against the
facility. At December 31, 1999, Alamosa was not in compliance with this
agreement; however, a waiver of this requirement was obtained from Nortel.
In connection with the credit agreement with Nortel, each of the former
members of Alamosa pledged its ownership interest in Alamosa to Nortel to
collateralize Alamosa's obligations under the credit agreement. The members
secured 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 14. 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 under the Nortel credit facility 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 3.75%. The LIBOR was 9.5% at December 31, 1999.
In addition, an annual unused facility fee of 0.75% will be charged
beginning six months after the closing date on the portion of the available
credit that has not been borrowed. 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 the end of the applicable interest period, not to exceed three
months, in the case of Eurodollar loans. Interest expense for the year
ended December 31, 1999 totaled $2,068,601. 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, including 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.
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 of substantially all of Alamosa's assets to Nortel,
including the affiliation agreements. 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 agreement with Nortel.
Alamosa incurred approximately $4,074,000 of costs associated with
obtaining the Nortel financing. Those costs consisted of a loan origination
fee, legal fees and other debt issue costs that have been capitalized and
are being amortized to interest expense using the straight-line method over
the term of the credit facility.
F-14
<PAGE> 87
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
See Note 14 for a discussion of the amendment of the credit facility
subsequent to year end.
8. 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, Inc. ("CHR") as described in more detail
below. CHR 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.
On July 27, 1998, Alamosa entered into an engineering services contract
with CHR 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 $2,951,476 and $902,243 for these
services during 1999 and 1998, respectively. Engineering fees under this
agreement are recorded in construction in progress and property and
equipment and comprise approximately 4% and 72% of fixed asset purchases
during 1999 and 1998, respectively. At December 31, 1999 and 1998, amounts
payable under these agreements amounted to $709,987 and $443,610,
respectively.
Effective September 20, 1998, Alamosa entered into a special services
contract with CHR 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 $424,994 for these services for the year ended December 31,
1999. The amounts payable under these agreements was $139,822 at December
31, 1999.
On April 9, 1999, Alamosa entered into a data communications services
contract with CHR 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 year ended December 31, 1999. The amount payable under
this agreement amounted to $20,132 at December 31, 1999.
As of April 6, 1999, Alamosa entered into a telecommunications service
agreement with Tech Telephone Company Limited Partnership, an affiliate of
CHR, 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. 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. Transport expenses
under the agreement amounted to $346,740 for 1999 and are included in Cost
of Service and Operations.
As of August 13, 1999, Alamosa entered into a distribution agreement with
TechTel Communications Corporation, an affiliate of CHR, authorizing it to
become a third party distributor of Sprint PCS products and services for
Alamosa in Lubbock.
As of October 8, 1999, we entered into a special service contract with CHR
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
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
F-15
<PAGE> 88
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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
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
to provide us with radio frequency "driver 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, Alamosa entered
into a master site development and lease agreement with Specialty Capital
Services, Inc. ("Specialty"), a subsidiary of Specialty Teleconstructors,
Inc. ("Teleconstructors"), that has since merged with American Tower
Corporation ("American"). 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 October 1, 1999, Specialty was related to Alamosa through one of
Alamosa's directors who owned interests in both Alamosa and
Teleconstructors and was an employee and officer of Specialty and
Teleconstructors. 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 former members. This individual was
also a stockholder of Teleconstructors and acted as a vice president of
American, which acquired Teleconstructors. The two individuals completed
the disposition of their ownership interests in American by September 30,
1999 and are no longer associated with American. No amounts were paid or
outstanding under this agreement during 1998. Through September 30, 1999,
$165,300 was 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, and Budagher Family LLC,
two 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 with 10% increase at the beginning of the two
option periods, as well as a pro rata portion of real estate taxes on the
property.
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 Holding's directors and
the general manager of South Plains Advance Communications & Electronics,
Inc. ("SPACE"). SPACE is a stockholder of Alamosa. This lease has a term of
15 years and provides for monthly payments aggregating to approximately
$110,000 a year, subject to adjustment based on the Consumer Price Index on
the first day of the sixth lease year and on the first day of the eleventh
lease year. No amounts were paid or outstanding under this lease at
December 31, 1998. During 1999, $73,233 was paid under this lease. No
amount was payable at December 31, 1999.
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, 1999 and 1998.
F-16
<PAGE> 89
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE BENEFITS
Effective November 13, 1998, Alamosa 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 13, 1999 and 1998.
Effective October 1, 1999, Alamosa entered into a three-year employment
agreement with its Chief Executive Officer ("CEO"), Alamosa's chairman. In
addition, in December 1999, Alamosa granted options to the CEO to acquire
242,500 common shares at an exercise price of $1.15 per share which vested
immediately prior to the completion of the initial public offering and
1,455,000 shares at an exercise price equal to the initial public offering
price which vest 33% per year beginning September 30, 2000. The options
expire January 5, 2009. The Company will recognize compensation expense of
$3,116,125 related to the 242,500 options issued with an exercise price
below the initial public offering price over the options vesting period.
Compensation expense recorded for the year ended December 31, 1999 was
$351,328.
On October 2, 1998, Alamosa entered into an employee agreement with its
Chief Operating Officer ("COO"). The agreement provides for the granting
of stock options in three series. The initial exercise price was 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 increased 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 were to be
exchanged for options in Holdings 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. Effective December 1999, the Company amended his
options such that each of his three series of original options were
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 vested immediately prior to
completion of the initial public offering. The second option to acquire
1,455,000 shares of common stock has an exercise price equal to the initial
public offering price and vests 25% per year beginning September 30, 2000.
The expiration date of all of the COO's options was extended from January
5, 2008 to January 5, 2009. These amendments resulted in a new measurement
date. The Company will record compensation expense totaling $11,523,600 in
connection with these options. Compensation expense recorded for the year
ended December 31, 1999 was $6,588,755.
Effective December 1, 1999, the Company entered into a five-year employment
agreement with its Chief Financial Officer ("CFO"). In addition, Alamosa
granted the CFO options to purchase 1,455,000 shares at the initial public
offering price and that will expire January 5, 2009. There is no
compensation cost related to these options.
On October 14, 1998, the Board of Members of Alamosa approved an Incentive
Ownership Plan. The plan consisted of 3,500 units comprised of 1200 Series
8, 1150 Series 15 and 1150 Series 25 units. The exercise price for each
series was based on a pre-defined strike price which increased by an annual
rate of 8%, 15% or 25% compounded monthly beginning July 1, 2000. The
initial exercise prices were $564.79, $623.84 and $711.88 for Series 8,
Series 15 and Series 25 options, respectively. Each unit provided the
holder an option to purchase an interest in the Company. Vested units could
have been 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 were to 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.
Effective as of the IPO, these options were converted into options of
Holdings and were amended such that his original options with exercise
prices that increased by an annual rate of 8%, 15%, or 25% (compounded
monthly beginning July 1, 2000) were 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. These amendments will resulted in a
F-17
<PAGE> 90
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
new measurement date. The Company will record compensation expense totaling
$1,852,651 in connection with these options. Compensation expense recorded
for the year ended December 31, 1999 was $1,259,427.
10. STOCK-BASED COMPENSATION
Holdings adopted an Incentive Stock Option Plan (the "Plan") effective
November 12, 1999, which provides for the granting of either incentive
stock options or nonqualified stock options to purchase shares of Holdings'
common stock and for other stock-based awards to officers, directors and
key employees for the direction and management of the Company and to
non-employee consultants and independent contractors. At December 31, 1999,
7,000,000 shares of common stock were reserved for issuance under the Plan.
The compensation committee of the board of directors administers the Plan
and determines grant prices and vesting periods.
The Company applies APB No. 25, "Accounting for Stock Issued to Employees"
and related interpretation, in accounting for its employee stock options.
In accordance with APB No. 25, no compensation expense or unearned
compensation was recorded as of December 31, 1998. As of December 31, 1999,
the Company has recorded compensation of $14,309,876. This amount is being
recognized over the vesting period in accordance with FASB Interpretation
No. 28 when applicable. For the year ended December 31, 1999, non-cash
compensation of $8,199,511 has been recognized.
As discussed in Note 2, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Had compensation cost for the Company's stock
option plans been determined based on the fair value provisions of SFAS No.
123, the Company's net income and net income per share would have been
decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JULY 16, CUMULATIVE FOR THE
1998 (INCEPTION) PERIOD FROM
YEAR END THROUGH JULY 16, 1998
DECEMBER 31, DECEMBER 31, (INCEPTION) THROUGH
1999 1998 DECEMBER 31, 1999
------------ ---------------- -------------------
<S> <C> <C> <C>
Net loss - as reported $(32,835,859) $ (923,822) $(33,759,681)
Net loss - pro forma $(32,835,859) $ (997,531) $(33,833,390)
Net loss per share - as reported
Basic and Diluted $ (.68) $ (.02) $ (.70)
Net loss per share - pro forma
Basic and Diluted $ (.68) $ (.02) $ (.70)
</TABLE>
The pro forma disclosures provided are not likely to be representative of
the effects on reported net income or loss for future years due to future
grants and the vesting requirements of the Company's stock option plans.
The weighted-average fair value for options with exercise prices greater
than the market price issued of the stock at the grant date was $0.46 for
1998. There were no options issued with exercise prices greater than market
price at the grant date during 1999. The weighted-average fair value for
options with exercise prices equal to the market price of the stock at the
grant date was $9.22 in 1999. There were no options issued with exercise
prices equal to market price of the stock at grant date during 1998. The
weighted-average fair value for options with exercise prices below the
market price of stock at grant date was $13.04 in 1999. There were no
options issued with exercise prices below the market price at the grant
date during 1998. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
F-18
<PAGE> 91
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 16, 1998
YEAR END (INCEPTION) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -------------------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 70% 70%
Risk-free rate of return 5.5% 5.5%
Expected life 5.53 3
</TABLE>
The following summarizes activity under the Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE EXERCISE
NUMBER OF OPTIONS PRICE PER SHARE
--------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD
FROM JULY 16, FROM JULY 16,
1998 (INCEPTION) 1998 (INCEPTION)
YEAR END THROUGH YEAR END THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of the
period 873,000 -- $ 1.18 $ --
Granted 5,282,000 873,000 12.47 1.18
Exercised -- -- -- --
Canceled (873,000) -- (1.18) --
------------ ------------ ------------ ------------
Options outstanding at
the end of the
period 5,282,000 873,000 $ 12.47 $ 1.18
============ ============ ============ ============
Options exercisable at
end of the period 48,498 -- $ 1.27 $ --
</TABLE>
The following table summarizes information for stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING CONTRACTUAL
EXERCISE PRICES NUMBER OF OPTIONS EXERCISE PRICE LIFE
---------------- -------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
$1.13 - $1.42 630,500 $ 1.18 8.55
$14.00 4,651,500 14.00 9.07
-------------------- -------------- ---------------
5,282,000 $ 12.47 9.01
==================== ============== ===============
</TABLE>
F-19
<PAGE> 92
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
11. 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, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Notional amount $ 35,607,000 $ --
Fair value 125,815 --
Carrying amount 282,958 --
------------ ------------
Net unrecognized gain (loss) $ (157,143) $ --
============ ============
</TABLE>
These fair value estimates are subjective in nature and involve
uncertainties and matters of considerable judgment and therefore, cannot be
determined with precision. Changes in assumptions could significantly
affect these estimates.
12. COMMITMENTS AND CONTINGENCIES
On December 21, 1998, Alamosa entered into a three-year agreement with
Nortel to purchase network equipment and infrastructure. Pursuant to that
agreement, Nortel also agreed to provide installation and optimization
services, such as network engineering and radio frequency engineering, for
the equipment and to grant Alamosa a nonexclusive license to use the
software associated with the Nortel equipment. Alamosa has committed to
purchase $82.0 million worth of equipment and services from Nortel, which
Nortel has agreed to 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. Alamosa
entered into a modification of the agreement with Nortel after December 31,
1999 as described in Note 14.
F-20
<PAGE> 93
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations (unaudited) for 1998 and 1999 per
quarter are as follows:
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
(In thousands, except per share amount)
<S> <C> <C> <C> <C>
1998:
Net sales $ -- $ -- $ -- $ --
Operating loss -- -- (401) (558)
Net loss -- -- (400) (523)
Basic and diluted
earnings per share $ -- $ -- $ (.01) $ (.01)
1999:
Net sales $ -- $ 35 $ 1,965 $ 6,984
Operating loss (1,963) (4,005) (11,279) (13,425)
Net loss (1,745) (4,018) (11,926) (15,147)
Basic and diluted
earnings per share $ (.02) $ (.08) $ (.25) $ (.31)
</TABLE>
The sum of the quarterly per share amounts may not equal the annual per
share amounts due to relative changes in the weighted average number of
shares used in the per share computations.
14. SUBSEQUENT EVENTS
Initial Public Offering of Common Stock - On October 29, 1999, Holdings
filed a registration statement with the Securities and Exchange Commission
for the sale of 10,714,000 shares of its common stock (the "Stock
Offering"). The Stock Offering became effective and the shares were issued
on February 3, 2000 at the initial price of $17.00 per share. Subsequently,
the underwriters exercised their over-allotment option of 1,607,100 shares.
Holdings received net proceeds of $194.3 million after commissions of $13.3
million and expenses of approximately $1.0 million. The proceeds of the
Stock Offering are to be used for the build out of the system, to fund
operating working capital needs and for other general corporate purposes.
Initial Public Offering of Senior Discount Notes - On December 23, 1999,
Holdings filed a registration statement with the Securities and Exchange
Commission for the issuance of $350 million face amount of Senior Discount
Notes (the "Notes Offering"). The Notes Offering was completed on February
8, 2000 and generated net proceeds of approximately $181 million after
underwriters' commissions and expenses of approximate $6.1 million. The
Senior Discount Notes ("Notes") mature in ten years (February 15, 2010) and
carry a coupon rate of 12 7/8%, and to provide for interest deferral for
the first five years. The Notes will accrete to their $350 million face
amount by February 8, 2005, after which, interest will be paid in cash
semiannually. The proceeds of the Notes Offering are to be used to prepay
$75 million of the Nortel credit facility (see Note 7), to pay costs to
build out the system, to fund operating working capital needs and for other
general corporate purposes. Significant terms of the Notes include:
o Ranking - The Notes are senior unsecured obligations of Holdings,
equal in right of payment to all future senior debt of Holdings
and senior in right of payment to all future subordinated debt of
Holdings;
F-21
<PAGE> 94
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
o Guarantees - The Notes are unsecured obligations and will rank
equally with all existing and future senior debt and senior to
all existing and future subordinate debt. The 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 Holdings. In addition, Holdings will
have no assets or operations other than its investments in
Alamosa PCS Inc., and there are no non-guarantor subsidiaries.
Therefore, financial statements of guarantor subsidiaries have
been omitted;
o Optional Redemption - During the first thirty six (36) months
after the Notes Offering, we may use net proceeds of an equity
offering to redeem up to 35% of the accreted value of the notes
at a redemption price of 112 7/8%;
o Change of Control - Upon a change of control as defined by the
Notes Offering, we will be required to make an offer to purchase
the notes at a price equal to 101% of the accreted value
(original principal amount plus accrued interest) before February
15, 2005, or 101% of the principal amount at maturity thereafter;
o Restrictive Covenants - The indenture governing the Notes contain
covenants that, among other things and subject to important
exceptions, limit our ability and the ability of our subsidiaries
to incur additional debt, issue preferred stock, pay dividends,
redeem capital stock or make other restricted payments or
investments as defined by the Notes Offering, create liens on
assets, merge, consolidate or dispose of assets, or enter into
transactions with affiliates and change lines of business.
Revision to credit facility with Nortel Networks, Inc. - On February 8,
2000, Alamosa entered into an Amended and Restated Credit Facility (the
"New Facility"), which replaced the $123 million facility entered into on
June 10, 1999. The new agreement increased the facility to $250 million to
provide for the financing of additional equipment needs to complete the
buildout of the existing territory and the additional territory received
from Sprint PCS (see following subsequent event). The terms of the New
Facility are mostly the same as the original $123 million facility
discussed in Note 7, but there are certain exceptions, key ones of which
are detailed here. Under the New Facility, there are no equity commitments
by former members of Alamosa. The interest rate on base rate loans was
increased to prime plus 2.75% and on Eurodollar loans to LIBOR plus 3.75%.
In addition, each of the tranches A, B and C were increased to $167.0
million, $58.0 million and $25.0 million, respectively. The New Facility
also provided for warrants representing 2% of the outstanding common stock
of Holdings. These warrants were eliminated, by prior agreement, when
Alamosa used $75 million of the equity contribution from Holdings to prepay
the Nortel debt in February 2000. Under the circumstances provided in the
New Credit Facility, those prepaid amounts may be re-borrowed.
In addition to the $75 million prepayment, in conjunction with the closing
of the New Facility, Alamosa also paid origination and other fees along
with interest accrued of approximately $4.7 million.
Revision to purchase contract with Nortel Networks, Inc. - On February 8,
2000, the Company amended its equipment purchase contract with Nortel and
increased its purchase commitment to $167 million. In addition, the
requirement to pay a premium for purchases financed by Nortel (see Note 11)
was eliminated once the Company's purchases under the contract exceed $82
million.
Contract for towers - On February 22, 2000, the Company entered into the
Master Design Build Agreement with a tower contractor to provide towers in
the expansion areas including Wisconsin.
F-22
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Alamosa PCS Holdings, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 28, 2000 appearing in the 1999 annual report on Form 10-K of
Alamosa Holdings Inc. also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
February 28, 2000
<PAGE> 96
SCHEDULE II
ALAMOSA PCS HOLDINGS, INC.
(FORMERLY ALAMOSA PCS LLC)
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD JULY 16, 1998 (INCEPTION) THROUGH
DECEMBER 31, 1999 (IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
CLASSIFICATION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
- -------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1998
Allowance for doubtful accounts $ -- $ -- $ -- $ --
December 31, 1999
Allowance for doubtful accounts $ -- $ 162 $ -- $ 162
</TABLE>
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto that appear in
this annual report on Form 10-K.
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<S> <C>
2.1 -- 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 -- Agreement and Plan of Conversion of Alamosa PCS LLC, a Texas
limited liability company into Alamosa PCS Holdings, Inc., a
Texas corporation.
3.1* -- Amended and Restated Certificate of Incorporation of
Alamosa.
3.2* -- Amended and Restated Bylaws of Alamosa.
4.1* -- Specimen Common Stock Certificate.
4.2* -- Rights Agreement between Alamosa PCS Holdings, Inc. and
ChaseMellon Shareholder Services, L.L.C., as rights agent.
4.3* -- Amended and Restated Certificate of Incorporation of Alamosa
(filed as Exhibit 3.1 above).
4.4* -- Amended and Restated Bylaws of Alamosa (filed as Exhibit 3.2
above).
4.5 -- Amended and Restated Credit Agreement by and among 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,
executed on February 8, 2000 (filed as Exhibit 10.12 below).
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.
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
10.5* -- 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.
10.6* -- Sprint PCS Management Agreement (Wisconsin), as amended,
dated as of December 6, 1999 by and between Sprint Spectrum,
LP, WirelessCo, LP and Alamosa Wisconsin Limited
Partnership.
10.7* -- Sprint PCS Services Agreement (Wisconsin) dated as of
December 6, 1999 by and between Sprint Spectrum, LP and
Alamosa Wisconsin Limited Partnership.
10.8* -- Sprint Trademark and Service Mark License Agreement
(Wisconsin) dated as of December 6, 1999 by and between
Sprint Communications Company, LP and Alamosa Wisconsin
Limited Partnership.
10.9* -- 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.
10.10* -- 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.
10.11* -- Master Site Development and Lease Agreement, as amended,
dated as of August 1998 by and between Alamosa PCS, LLC and
Specialty Capital Services, Inc.
10.12 -- Amended and Restated Credit Agreement by and among 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,
executed on February 8, 2000.
10.13** -- Alamosa PCS Holdings, Inc. 1999 Long-Term Incentive Plan.
10.14** -- Employment Agreement effective as of October 1, 1999 by and
between Alamosa PCS LLC and David Sharbutt.
10.15** -- Employment Agreement effective as of December 1, 1999 by and
between Alamosa PCS, LLC and Kendall W. Cowan.
10.16* -- Sprint PCS Management Agreement, as amended, dated as of
December 23, 1999 by and between Sprint Spectrum, LP,
WirelessCo, LP, Cox Communications PCS, L.P., Cox CPS
License, LLC, SprintCom, Inc. and Alamosa PCS, LLC.
10.17* -- Sprint PCS Services Agreement dated as of December 23, 1999
by and between Sprint Spectrum, LP and Alamosa PCS, LLC.
10.18* -- Sprint Trademark and Service Mark License Agreement dated as
of December 23, 1999 by and between Sprint Communications
Company, LP and Alamosa PCS, LLC.
10.19* -- Sprint Spectrum Trademark and Service Mark Agreement dated
as of December 23, 1999 by and between Sprint Spectrum, LP
and Alamosa PCS, LLC.
10.20 -- 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, effective as of February 8, 2000.
10.21** -- Amended and Restated Employment Agreement effective as of
October 1, 1999 by and between Alamosa PCS, LLC and Jerry
Brantley.
10.22** -- Amended and Restated Employment Agreement effective as of
October 1, 1999 by and between Alamosa PCS, LLC and W. Don
Stull.
10.23 -- Amended and Restated Master Design Build Agreement, dated as
of March 21, 2000, by and between Texas Telecommunications,
L.P. and Alamosa Wisconsin Limited Partnership and SBA
Towers, Inc.
21.1* -- Subsidiaries of Alamosa.
23.1 -- Consent of PricewaterhouseCoopers LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- ----------
* Previously filed, together with the Registration Statement on Form
S-1, file no. 333-89995, dated February 4, 2000, and incorporated
herein by reference.
** Compensatory plans and arrangements for executives and others.
Previously filed, together with the Registration Statement on Form
S-1, file no. 333-89995, dated February 4, 2000, and incorporated
herein by reference.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF
ALAMOSA PCS HOLDINGS, INC.,
A TEXAS CORPORATION
WITH AND INTO
ALAMOSA PCS HOLDINGS, INC.,
A DELAWARE CORPORATION
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), is entered into by
and among Alamosa PCS Holdings, Inc., a Texas corporation ("ALAMOSA-TX") and
Alamosa PCS Holdings, a Delaware corporation and wholly-owned subsidiary of
Alamosa-TX ("ALAMOSA-DE").
RECITALS
WHEREAS, Alamosa-TX desires to reincorporate from Texas to Delaware;
WHEREAS, the respective Boards of Directors of Alamosa-TX and
Alamosa-DE have approved the business combination transaction provided for
herein in which Alamosa-TX would merge with and into Alamosa-DE, its
wholly-owned subsidiary (the "MERGER"), with Alamosa-DE surviving the Merger, on
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, at least two-thirds (2/3rds) of the shareholders of Alamosa-TX
have approved the Merger; and
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE").
AGREEMENT OF MERGER
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
Capitalized terms used in this Agreement are used as defined in this
Article I or elsewhere in this Agreement.
"ALAMOSA-DE STOCK" means shares of the Alamosa-DE's Common Stock, $0.01
par value.
Agreement and Plan of Merger
ALAMOSA PCS HOLDINGS, INC.
<PAGE> 2
"ALAMOSA-TX STOCK" means Alamosa-TX's Common Stock, $0.01 par value.
"CLOSING" has the meaning set forth in Section 2.03.
"CLOSING DATE" has the meaning set forth in Section 2.03.
"DGCL" means the Delaware General Corporation Law, as amended.
"EFFECTIVE TIME" has the meaning set forth in Section 2.04.
"MERGER CONSIDERATION" means, in respect of each share of Alamosa-TX
Stock the right to receive one (1) fully-paid and nonassessable share of
Alamosa-DE Stock.
"TBCA" means the Texas Business Corporation Act, as amended.
ARTICLE II - THE MERGER
2.01 SHAREHOLDER & DIRECTOR APPROVAL. At least two-thirds (2/3rds) of
the shareholders of Alamosa-TX approved the Merger by written consent on January
19, 2000. In addition, the respective Boards of Directors of Alamosa-TX approved
the Merger by written consent effective on January 19, 2000, and the Board of
Directors of Alamosa-DE approved the Merger by written consent on January 5,
2000.
2.02 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, Alamosa-TX shall be merged with and into Alamosa-DE at the
Effective Time of the Merger. Following the Merger, the separate corporate
existence of Alamosa-TX shall cease and Alamosa-DE shall continue as the
surviving corporation and shall succeed to and assume all the rights and
obligations of Alamosa-TX in accordance with the DGCL and TBCA. Alamosa-DE, the
surviving corporation, will be responsible for, and obligated to pay, all
applicable Texas franchise tax and related fees of Alamosa-TX, if the same are
not timely paid.
2.03 CLOSING. The Closing of the Merger (the "CLOSING") will take place
at Alamosa-DE's principal office at a date to be mutually agreed upon between
the parties (the date of the Closing being referred to herein as the "CLOSING
DATE"). At the Closing, (i) the Certificates required by Article III shall be
delivered, (ii) the appropriate officers of Alamosa-TX and Alamosa-DE shall
execute and acknowledge the Articles of Merger, and the Certificate of Merger
and (iii) the parties shall take such further action as is required to
consummate the transactions described in this Agreement, the Articles of Merger
and the Certificate of Merger.
2.04 EFFECTIVE TIME. As soon as practicable on or after the Closing
Date, the parties shall file Articles of Merger and a Certificate of Merger
executed in accordance with the relevant provisions of the TBCA and DGCL,
respectively, and shall make all other filings or recordings required under the
laws of the TBCA and DGCL. The Merger shall become effective upon the later of
the filing of the Articles of Merger with the Texas Secretary of State or
Certificate of Merger with the Delaware Secretary of State (the time the Merger
becomes effective being the "EFFECTIVE TIME" of the Merger).
Agreement and Plan of Merger
ALAMOSA PCS HOLDINGS, INC.
2
<PAGE> 3
2.05 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the laws of the DGCL and TBCA.
2.06 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Amended and Restated Certificate of Incorporation of
Alamosa-DE as in effect at the Effective Time shall be the Certificate of
Incorporation of Alamosa-DE, the surviving corporation, until thereafter changed
or amended as provided therein or by applicable law.
(b) The Amended and Restated Bylaws of Alamosa-DE as in effect at
the Effective Time of the Merger shall be the Bylaws of Alamosa-DE, the
surviving corporation, until thereafter changed or amended as provided therein
or by applicable law.
2.07 DIRECTORS. The directors of Alamosa-DE at the Effective Time of
the Merger shall be the directors of Alamosa-DE, the surviving corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
2.08 OFFICERS. The officers of Alamosa-DE at the Effective Time of the
Merger shall be the officers of Alamosa-DE, the surviving corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
2.09 COPY OF THE AGREEMENT. An executed copy of this Agreement will be
kept on file at the offices of Alamosa-DE, the surviving corporation. A copy of
the Agreement will be furnished by Alamosa-DE, on written request and without
cost, to any holder of capital stock of Alamosa-DE (or former holder of capital
stock of Alamosa-TX) and to any creditor or obligee of Alamosa-DE or Alamosa-TX
at the time of the Merger if such obligation is then outstanding.
ARTICLE III - EFFECT OF MERGER ON CAPITAL STOCK
OF THE PARTIES; EXCHANGE OF CERTIFICATES
3.01 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger,
by virtue of the Merger and without any action on the part of the holder of any
shares of Alamosa-TX Stock or any shares of capital stock of Alamosa-DE:
(a) CONVERSION OF ALAMOSA-TX STOCK. Each share of Alamosa-TX Stock
issued and outstanding as of the Effective Time of the Merger shall be converted
into the right to receive the Merger Consideration; provided, however, any
shares of Alamosa-TX Stock held by Alamosa-DE shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist. As of the
Effective Time of the Merger, all shares of Alamosa-TX Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any shares of Alamosa-TX
Stock shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration in exchange therefor.
(b) CANCELLATION OF TREASURY STOCK. All shares of Alamosa-TX
Stock, if any, that are owned as treasury stock as of the Effective Time of the
Merger shall be canceled and retired and shall cease to exist and no capital
stock of Alamosa-DE or other consideration shall be delivered in exchange
therefor.
Agreement and Plan of Merger
ALAMOSA PCS HOLDINGS, INC.
3
<PAGE> 4
3.02 EXCHANGE OF CERTIFICATES; PAYMENT OF MERGER CONSIDERATION. Each
holder of record of a certificate or certificates that immediately prior to the
Effective Time of the Merger represented issued and outstanding shares of
Alamosa-TX Stock (the "CERTIFICATES") whose shares were converted into the right
to receive the Merger Consideration pursuant to Section 3.01 shall surrender
such Certificates for cancellation to Alamosa-DE, duly executed, and immediately
following the Effective Time. Alamosa-DE shall issue to such holder in exchange
therefor a certificate representing the number of shares of Alamosa-DE Stock
that such holder has the right to receive pursuant to the provisions of Section
3.01. Upon payment of the Merger Consideration, the Certificates so surrendered
shall forthwith be canceled.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE(S) TO FOLLOW.
Agreement and Plan of Merger
ALAMOSA PCS HOLDINGS, INC.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned corporations have executed this
Agreement as of the 19th day of January, 2000.
ALAMOSA PCS HOLDINGS, INC.,
a Texas corporation
By: /s/ DAVID E. SHARBUTT
---------------------------
David E. Sharbutt,
President
ALAMOSA PCS HOLDINGS, INC.,
a Delaware corporation
By: /s/ DAVID E. SHARBUTT
---------------------------
David E. Sharbutt,
President
Agreement and Plan of Merger
ALAMOSA PCS HOLDINGS, INC.
5
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF CONVERSION
OF
ALAMOSA PCS LLC,
A TEXAS LIMITED LIABILITY COMPANY
INTO
ALAMOSA PCS HOLDINGS, INC.,
A TEXAS CORPORATION
THIS AGREEMENT AND PLAN OF CONVERSION dated as of January 19, 2000 (the
dated as of "AGREEMENT"), is entered into by the Members of Alamosa PCS LLC, a
Texas limited liability company.
RECITALS
WHEREAS, the Members of Alamosa PCS LLC, a Texas limited liability
company, desire to convert the entity to Alamosa PCS Holdings, Inc., a Texas
corporation;
WHEREAS, following the conversion, Alamosa PCS LLC, will continue its
existence in the organizational form of Alamosa PCS Holdings, Inc., a Texas
corporation;
WHEREAS, pursuant to Section 3.19(a) of the Regulations of Alamosa PCS
LLC, this Agreement has been approved by the Members by Super-Majority Approval
(defined in the Regulations to mean the approval of Members holding at least
seventy-six percent (76%) of the percentage interests of all Members).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereby agree as follows:
A. Pursuant to Section 3.1(a) of the Regulations of Alamosa PCS LLC,
this Agreement was approved by the Members by Super-Majority Approval (defined
in the Regulations to mean the approval of Members holding at least seventy-six
percent (76%) of the percentage interests of all Members) by written consent on
January 19, 2000. A copy of the written consent of the Members will be on file
at the offices of Alamosa PCS LLC (prior to the conversion) and Alamosa PCS
Holdings, Inc. (after the conversion).
B. The conversion of Alamosa PCS LLC to Alamosa PCS Holdings, Inc. is
to occur upon the filing of Articles of Conversion of Alamosa PCS LLC and
Articles of Incorporation of Alamosa PCS Holdings, Inc. with the Secretary of
State of the State of Texas. A copy of the Articles of Conversion of Alamosa PCS
LLC and a copy of the Articles of Incorporation of Alamosa PCS Holdings, Inc.
will be on file at the offices of Alamosa PCS LLC (before the conversion) and
Alamosa PCS Holdings, Inc. (after the conversion).
Agreement and Plan of Conversion
ALAMOSA PCS LLC
<PAGE> 2
C. After the conversion, Alamosa PCS Holdings, Inc. will continue the
business of Alamosa PCS LLC and assume all liabilities and obligations of
Alamosa PCS LLC. Alamosa PCS Holdings, Inc. will be responsible for, and
obligated to pay, all applicable Texas franchise tax and related fees of Alamosa
PCS LLC, if the same are not timely paid.
D. Upon the conversion of Alamosa PCS LLC, the Members will exchange
their membership interests in Alamosa PCS LLC for shares of common stock in
Alamosa PCS Holdings, Inc. There will be a total of 48,500,008 shares of common
stock issued to the Members upon the conversion, and each Member will receive
the number of shares of common stock equal to the product of (i) such Member's
percentage interest in Alamosa PCS LLC as of the date hereof, multiplied by (ii)
48,500,008 shares of common stock to be issued upon conversion. Therefore, each
Member will own the following number of shares of stock in Alamosa PCS Holdings,
Inc.:
<TABLE>
<CAPTION>
Member/Shareholder Number of Shares of Common Stock
------------------ --------------------------------
<S> <C>
Rosewood Telecommunications, L.L.C. 9,725,000
South Plains Advanced Communications &
Electronics, Inc. 8,652,085
West Texas PCS, LLC 7,072,915
Taylor Telecommunications, Inc. 5,100,000
Plateau Telecommunications, Incorporated 3,000,000
Tregan International Corp. 3,000,000
XIT Telecommunication & Technology, Inc. 2,750,000
LEC Development, Inc. 2,500,000
Wes-Tex Telecommunications, Inc. 2,500,000
Longmont PCS, LLC 1,000,000
J&M Family Partnership Ltd. 666,434
Five S, Ltd. 593,200
Yellow Rock PCS, L.P. 400,000
John St. Clair 292,938
Harness, Ltd. 292,938
Anthony E. Bliss 239,232
Romoso, Ltd. 153,792
Don Stull 73,235
J. Frank Eldridge 73,235
</TABLE>
Agreement and Plan of Conversion
ALAMOSA PCS LLC
2
<PAGE> 3
<TABLE>
<S> <C>
Randall D. Yeisley 24,412
Addie Lee Hicks 24,412
Paula Sexton 24,412
Will Payne 24,412
Gail McVicker 24,412
Gaylord Ellerman 24,412
PNB Financial Bank, Trustee of the Hicks & Ragland Engineering Co., Inc. Profit
Sharing and Investment Plan ("Plan"), as Trustee making a self-directed
investment, pursuant to the Plan for:
David E. Sharbutt 48,824
Anthony E. Bliss 48,824
William R. Overman 24,412
Barry J. Moore 48,824
Steven Steele 24,412
Randall D. Yeisley 24,412
James E. McDuff 24,412
Don Stull 24,412
Jim McDuff 24,412
</TABLE>
E. A copy of this Agreement will be kept on file at the offices of
Alamosa PCS Holdings, Inc. and any shareholder (or former Member of Alamosa PCS
LLC) may request a copy at no charge at any time.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE(S) TO FOLLOW.
Agreement and Plan of Conversion
ALAMOSA PCS LLC
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned Manager certifies that this
Agreement has been adopted by the Members by written consent on January 19,
2000.
ALAMOSA PCS LLC,
a Texas limited liability company
By: /s/ DAVID E. SHARBUTT
--------------------------------
David E. Sharbutt,
Manager
Agreement and Plan of Conversion
ALAMOSA PCS LLC
<PAGE> 1
EXHIBIT 10.12
===============================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of February 8, 2000
by and among
ALAMOSA PCS, INC.
as Borrower
and
ALAMOSA PCS HOLDINGS, INC.
TEXAS TELECOMMUNICATIONS, LP
and
ALAMOSA WISCONSIN LIMITED PARTNERSHIP
as Guarantors
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$250,000,000 ADVANCING TERM LOAN FACILITIES
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions.....................................................................................3
Section 1.1 Definitions, etc.......................................................................3
Section 1.2 Other Definitional Provisions.........................................................32
Section 1.3 Accounting Terms and Determinations...................................................32
Section 1.4 Financial Covenants and Reporting.....................................................33
ARTICLE 2 Loans..........................................................................................33
Section 2.1 Commitments...........................................................................33
Section 2.2 Notes.................................................................................35
Section 2.3 Repayment of Loans....................................................................35
Section 2.4 Interest..............................................................................36
Section 2.5 Borrowing Procedure...................................................................37
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans..........................38
Section 2.7 Mandatory Prepayments.................................................................38
Section 2.8 Minimum Amounts.......................................................................39
Section 2.9 Certain Notices.......................................................................39
Section 2.10 Use of Proceeds.......................................................................40
Section 2.11 Fees..................................................................................42
Section 2.12 Computations..........................................................................42
Section 2.13 Termination or Reduction of Commitments...............................................42
ARTICLE 3 Payments.......................................................................................43
Section 3.1 Method of Payment.....................................................................43
Section 3.2 Pro Rata Treatment....................................................................44
Section 3.3 Sharing of Payments, Etc..............................................................44
Section 3.4 Non-Receipt of Funds by the Administrative Agent......................................44
Section 3.5 Taxes.................................................................................45
Section 3.6 Withholding Tax Exemption.............................................................46
Section 3.7 Reinstatement of Obligations..........................................................46
Section 3.8 No Force Majeure, Disputes............................................................47
ARTICLE 4 Yield Protection and Illegality................................................................47
Section 4.1 Additional Costs......................................................................47
Section 4.2 Limitation on Types of Loans..........................................................49
Section 4.3 Illegality............................................................................49
Section 4.4 Treatment of Affected Loans...........................................................49
Section 4.5 Compensation..........................................................................50
Section 4.6 Capital Adequacy......................................................................50
Section 4.7 Additional Interest on Eurodollar Loans...............................................51
Section 4.8 Replacement of Lenders................................................................51
</TABLE>
CREDIT AGREEMENT - Page i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 Security.......................................................................................51
Section 5.1 Collateral............................................................................51
Section 5.2 Guaranties............................................................................53
Section 5.3 New Subsidiaries; Additional Capital Stock............................................53
Section 5.4 Mortgaged Properties; Landlord Subordinations or Waivers..............................54
Section 5.5 Setoff................................................................................55
Section 5.6 Further Assurances....................................................................55
ARTICLE 6 Conditions Precedent...........................................................................55
Section 6.1 Initial Extension of Credit...........................................................55
Section 6.2 All Extensions of Credit..............................................................60
Section 6.3 Closing Certificates..................................................................61
ARTICLE 7 Representations and Warranties.................................................................61
Section 7.1 Existence, etc........................................................................61
Section 7.2 Financial Statements..................................................................62
Section 7.3 Corporate Action; No Breach...........................................................62
Section 7.4 Operation of Business; Licenses.......................................................63
Section 7.5 Intellectual Property.................................................................63
Section 7.6 Litigation and Judgments..............................................................63
Section 7.7 Rights in Properties; Liens...........................................................64
Section 7.8 Enforceability........................................................................64
Section 7.9 Approvals.............................................................................64
Section 7.10 Debt..................................................................................64
Section 7.11 Taxes.................................................................................65
Section 7.12 Margin Securities.....................................................................65
Section 7.13 ERISA.................................................................................65
Section 7.14 Disclosure............................................................................66
Section 7.15 Loan Parties; Capitalization..........................................................66
Section 7.16 Compliance with Laws..................................................................66
Section 7.17 Investment Company Act................................................................66
Section 7.18 Public Utility Holding Company Act....................................................66
Section 7.19 Environmental Matters.................................................................67
Section 7.20 Year 2000 Compliance..................................................................68
Section 7.21 Labor Disputes and Acts of God........................................................68
Section 7.22 Material Contracts....................................................................68
Section 7.23 Bank Accounts.........................................................................69
Section 7.24 Outstanding Securities................................................................69
Section 7.25 Solvency..............................................................................69
Section 7.26 Employee Matters......................................................................69
Section 7.27 Insurance.............................................................................69
Section 7.28 Common Enterprise.....................................................................69
Section 7.29 Reorganization Transactions. ........................................................69
</TABLE>
CREDIT AGREEMENT - Page ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8 Affirmative Covenants..........................................................................70
Section 8.1 Reporting Requirements................................................................70
Section 8.2 Maintenance of Existence; Conduct of Business.........................................74
Section 8.3 Maintenance of Properties and Permits.................................................74
Section 8.4 Taxes and Claims......................................................................74
Section 8.5 Insurance.............................................................................74
Section 8.6 Inspection Rights.....................................................................76
Section 8.7 Keeping Books and Records.............................................................76
Section 8.8 Compliance with Laws..................................................................76
Section 8.9 Compliance with Agreements............................................................77
Section 8.10 Further Assurances....................................................................77
Section 8.11 ERISA.................................................................................77
Section 8.12 Interest Rate Protection..............................................................77
Section 8.13 Sprint Agreements. ...................................................................77
Section 8.14 Non-Consolidation.....................................................................77
Section 8.15 Year 2000 Compliance..................................................................78
Section 8.16 Trade Accounts Payable................................................................78
Section 8.17 Delivery of Certain Amendments and Material Contracts.................................78
Section 8.18 Ownership of Operating Assets.........................................................78
Section 8.19 Observation Rights....................................................................78
ARTICLE 9 Negative Covenants.............................................................................79
Section 9.1 Debt. ...............................................................................79
Section 9.2 Limitation on Liens...................................................................80
Section 9.3 Mergers, Etc..........................................................................80
Section 9.4 Restricted Payments...................................................................81
Section 9.5 Investments...........................................................................82
Section 9.6 Limitation on Issuance of Capital Stock...............................................83
Section 9.7 Transactions with Affiliates..........................................................83
Section 9.8 Disposition of Property...............................................................83
Section 9.9 Sale and Leaseback....................................................................84
Section 9.10 Lines of Business.....................................................................85
Section 9.11 Environmental Protection..............................................................85
Section 9.12 Intercompany Transactions.............................................................85
Section 9.13 Management Fees.......................................................................85
Section 9.14 Supply Agreement......................................................................86
Section 9.15 Modification of Certain Agreements....................................................86
Section 9.16 ERISA.................................................................................86
Section 9.17 Sprint PCS Fees.......................................................................86
Section 9.18 No Prepayment of Debt, Etc............................................................86
ARTICLE 10 Financial Covenants............................................................................87
Section 10.1 Total Debt to Total Capitalization....................................................87
Section 10.2 Total Debt to Annualized EBITDA......................................................88
Section 10.3 Annualized EBITDA.....................................................................88
</TABLE>
CREDIT AGREEMENT - Page iii
<PAGE> 5
<TABLE>
<S> <C>
Section 10.4 Fixed Charge Coverage.................................................................88
Section 10.5 Capital Expenditures..................................................................88
Section 10.6 Quarterly Minimum Revenue Levels......................................................88
Section 10.7 Wireless Subscribers..................................................................88
Section 10.8 Operating Leases......................................................................88
ARTICLE 11 Default........................................................................................89
Section 11.1 Events of Default.....................................................................89
Section 11.2 Remedies..............................................................................92
Section 11.3 Performance by the Administrative Agent, etc..........................................93
ARTICLE 12 The Administrative Agent.......................................................................93
Section 12.1 Appointment, Powers and Immunities....................................................93
Section 12.2 Rights of Administrative Agent as a Lender............................................94
Section 12.3 Defaults..............................................................................94
Section 12.4 INDEMNIFICATION.......................................................................95
Section 12.5 Independent Credit Decisions..........................................................96
Section 12.6 Several Commitments...................................................................96
Section 12.7 Successor Administrative Agent........................................................96
ARTICLE 13 Miscellaneous..................................................................................97
Section 13.1 Expenses..............................................................................97
Section 13.2 INDEMNIFICATION.......................................................................97
Section 13.3 Limitation of Liability...............................................................98
Section 13.4 No Duty...............................................................................99
Section 13.5 No Fiduciary Relationship.............................................................99
Section 13.6 Equitable Relief......................................................................99
Section 13.7 No Waiver; Cumulative Remedies........................................................99
Section 13.8 Successors and Assigns................................................................99
Section 13.9 Survival.............................................................................103
Section 13.10 ENTIRE AGREEMENT.....................................................................103
Section 13.11 Amendments...........................................................................103
Section 13.12 Maximum Interest Rate................................................................104
Section 13.13 Notices..............................................................................105
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS...................................................................105
Section 13.15 Counterparts.........................................................................106
Section 13.16 Severability.........................................................................106
Section 13.17 Headings.............................................................................106
Section 13.18 Construction.........................................................................106
Section 13.19 Independence of Covenants............................................................106
Section 13.20 Confidentiality......................................................................106
Section 13.21 WAIVER OF JURY TRIAL.................................................................107
Section 13.22 Approvals and Consent................................................................107
Section 13.23 Service of Process...................................................................108
</TABLE>
CREDIT AGREEMENT - Page iv
<PAGE> 6
<TABLE>
<S> <C>
Section 13.24 Reaffirmation of Supply Agreement....................................................108
Section 13.25 Amendment and Restatement of the Original Credit Agreement...........................108
Section 13.26 Assignments of Original Loans........................................................108
Section 13.27 No Requirement of Assumption or Payment of Another Person's
Debt.................................................................................108
</TABLE>
CREDIT AGREEMENT - Page v
<PAGE> 7
<TABLE>
INDEX TO EXHIBITS
<S> <C> <C>
Exhibit A - Form of Assignment and Acceptance
Exhibit B-1 - Form of Tranche A Note
Exhibit B-2 - Form of Tranche B Note
Exhibit B-3 - Form of Tranche C Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations and
Prepayments
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Permitted Third-Party Expenses Borrowing Base Report
INDEX TO SCHEDULES
Schedule 1.1(a) - Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 1.1(c) - Service Area (Basic Trading Areas)
Schedule 7.4 - Permits, Franchises and Authorizations required by Governmental
Requirements or issued by Governmental Authorities
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.15 - Subsidiaries; Capitalization
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 8.15 - Year 2000 Compliance
Schedule 9.5 - Certain Investments
Schedule 10.1 - Total Debt to Total Capitalization
Schedule 10.2 - Total Debt to Annualized EBITDA
Schedule 10.3 - Annualized EBITDA
Schedule 10.4 - Fixed Charge Coverage
Schedule 10.5 - Capital Expenditures
Schedule 10.6 - Quarterly Minimum Revenue Levels
Schedule 10.7 - Wireless Subscribers
</TABLE>
CREDIT AGREEMENT - Page vi
<PAGE> 8
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 8,
2000, is by and among ALAMOSA PCS, INC. (the "Borrower"), a Delaware
corporation, ALAMOSA PCS HOLDINGS, INC. ("Holdings"), a Delaware corporation,
TEXAS TELECOMMUNICATIONS, LP ("Alamosa Texas"), a Texas limited partnership,
ALAMOSA WISCONSIN LIMITED PARTNERSHIP ("Alamosa Wisconsin"), a Wisconsin
limited partnership, each of the lending entities which is a party hereto (as
evidenced by the signature pages of this Agreement) or which may from time to
time become a party hereto as a lender or any successor or assignee thereof
(individually, a "Lender" and, collectively, the "Lenders"), and NORTEL
NETWORKS INC., a Delaware corporation, as administrative agent for itself and
the other Lenders (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
RECITALS:
A. Alamosa PCS LCC (the "Original Borrower"), a Texas limited
liability company, is a party to that certain Credit Agreement dated as of June
10, 1999, among the Original Borrower, the lenders named therein (including
Nortel Networks Inc., the "Original Lenders") and Nortel Networks Inc. as
administrative agent (the "Original Administrative Agent") for itself and such
lenders (as amended by that certain First Amendment to Credit Agreement dated
as of December 22, 1999, the "Original Credit Agreement") pursuant to which the
Original Borrower was provided advancing term loan facilities in the aggregate
principal amount of $123,000,000. The Original Lenders made loans to the
Original Borrower under the Original Credit Agreement, which loans remain
outstanding.
B. Prior hereto and (in certain cases, substantially concurrently
herewith), the following transactions have occurred (collectively the
"Reorganization Transactions"):
(i) Holdings was incorporated and organized (but no Capital Stock of
Holdings was initially issued);
(ii) the Original Borrower formed and organized (a) Alamosa Wisconsin
GP, LLC ("Alamosa Wisconsin GP"), a Wisconsin limited liability company and the
general partner of Alamosa Wisconsin, (b) Alamosa Wisconsin, (c) Alamosa
Delaware GP, LLC ("Alamosa Texas GP"), a Delaware limited liability company and
the general partner of Alamosa Texas, and (d) Alamosa Texas;
(iii) the Original Borrower formed and organized the Borrower as a
wholly-owned subsidiary of the Original Borrower;
(iv) Holdings issued 100 shares of its common stock to the Original
Borrower, with the effect that Holdings became a wholly-owned subsidiary of the
Original Borrower;
CREDIT AGREEMENT - Page 1
<PAGE> 9
(v) the Original Borrower contributed 1% of its assets (other than its
Wisconsin assets) to Alamosa Texas GP and 99% of its assets (other than its
Wisconsin assets) to Alamosa Texas, and Alamosa Texas GP contributed all of its
assets to Alamosa Texas;
(vi) the Original Borrower contributed 1% of its Wisconsin assets to
Alamosa Wisconsin GP and 99% of its Wisconsin assets to Alamosa Wisconsin, and
Alamosa Wisconsin GP contributed all of its assets to Alamosa Wisconsin;
(vii) the Original Borrower converted from a Texas limited liability
company to a Texas corporation using the name "Alamosa PCS Holdings, Inc."
("Texas Holdings");
(viii) Texas Holdings contributed to the Borrower (a) 100% of the
limited liability company interests in Alamosa Texas GP, (b) 100% of the
limited liability company interests in Alamosa Wisconsin GP, (c) 99% of the
limited partnership interests in Alamosa Texas, and (d) 98.75% of the limited
partnership interests in Alamosa Wisconsin and, in connection with the
foregoing contributions of assets, the Borrower assumed all of the Original
Obligations;
(ix) Texas Holdings merged with and into Holdings, with Holdings being
the surviving entity in such merger; and
(x) in connection with each of the aforesaid contributions and/or
transfers of assets, such assets were contributed and/or transferred subject to
the security interests in such assets previously granted by the Original
Borrower to the Original Administrative Agent in connection with the Original
Credit Agreement.
C. The Borrower, Alamosa Texas and Alamosa Wisconsin are parties to
various agreements with Sprint PCS relating to the construction and operation
of PCS systems in the Service Area.
D. The Borrower desires to amend and restate the advancing term loan
facilities under the original Credit Agreement and to obtain advancing term
loan facilities in the aggregate principal amount of $250,000,000 to finance a
portion of its costs to construct and operate such PCS systems.
E. The Lender(s) identified on the signature pages of this Agreement
desire to provide such credit facilities with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
CREDIT AGREEMENT - Page 2
<PAGE> 10
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent) determined by the Administrative Agent to be equal
to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period
divided by (b) one minus the Reserve Requirement for such Eurodollar Loan for
such Interest Period.
"Adjusted Net Income" means for any period, Consolidated Net Income less
(without duplication) to the extent that any of the following shall have been
included in Consolidated Net Income for such period (a) any net gain or loss
arising from the sale of capital assets, (b) any net gain or loss arising from
any write-up or write-down of assets, (c) earnings or losses of any other
Person, substantially all of the assets of which have been acquired by the
Borrower or a Consolidated Subsidiary of the Borrower in any manner, to the
extent that such earnings or losses were realized by such other Person prior to
the date of such acquisition, (d) earnings or losses of any Person (other than a
Consolidated Subsidiary of the Borrower) in which the Borrower or a
Consolidated Subsidiary has an ownership interest, unless such earnings have
actually been received by the Borrower or such Consolidated Subsidiary in the
form of cash distributions, and (e) any net gain or loss arising from the
acquisition of any securities of the Borrower or a Consolidated Subsidiary of
the Borrower.
"Administrative Agent" means as specified in the introductory paragraph of
this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
February 8, 2000 between the Administrative Agent and the Borrower.
"Advances" means the Loans made under this Agreement.
"Affiliate" means, as to any Person, any other Person (a) that directly or
indirectly through one or more intermediaries controls or is controlled by, or
is under direct or indirect common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds ten percent or more of any
class of voting Capital Stock of such first Person, or (c) ten percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. 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 Loan Documents, neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any of its Subsidiaries.
CREDIT AGREEMENT - Page 3
<PAGE> 11
"Aggregate Commitments" means, as to all Lenders, the Tranche A
Commitments, Tranche B Commitments and Tranche C Commitments.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Alamosa Texas" means as specified in the initial paragraph of this
Agreement.
"Alamosa Texas GP" means as specified in clause (iii) of Recital B.
"Alamosa Wisconsin" means as specified in the initial paragraph of
this Agreement.
"Alamosa Wisconsin GP" means as specified in clause (ii) of Recital B.
"Amortization Commencement Date" means the earlier to occur of (a)
August 8, 2002, or (b) February 8, 2001, if less than $100,000,000 in aggregate
principal amount of the Loans has been advanced as of such date.
"Annualized EBITDA" means, for the applicable period, EBITDA for the
two most recently completed fiscal quarters multiplied by two.
"Applicable Lending Office" means for each Lender and each Type of
Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan below its name on the signature pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant
to an assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower
and the Administrative Agent as the office by which its Loans of such Type are
to be made and maintained.
"Applicable Margin" means the rate per annum equal to (a) with respect
to each Base Rate Loan, two and three-quarters of one percent (2.75%) and (b)
with respect to each Eurodollar Loan, three and three-quarters of one percent
(3.75%).
"Approved Fund" means (a) with respect to any Lender which is a fund
primarily engaged in making, purchasing or otherwise investing in commercial
loans, any other fund which is primarily engaged in making, purchasing or
otherwise investing in commercial loans or extending, or investing in
extensions of, credit for its own account in the ordinary course of its
business and which is managed or advised by the same investment advisor as such
Lender or by an Affiliate of such investment advisor or (b) any other entity
which has been approved by the Administrative Agent and which is (or which is
managed by a manager which manages funds which are) primarily engaged in
making, purchasing or otherwise investing in commercial loans or extending, or
investing in extensions of, credit for its own account in the ordinary course
of its business; provided, however, that Approved Fund shall not include any
Affiliate of the Borrower.
CREDIT AGREEMENT - Page 4
<PAGE> 12
"Approved Subordinated Debt" means all Debt which is unsecured and
which is structurally or contractually subordinated, as to payment, to the
payment of the Loans and other Obligations on terms, and pursuant to agreements
in form and substance, satisfactory to, and approved in writing by, the
Administrative Agent and the Required Lenders.
"Approved Subordinated Debt Documents" means any and all agreements,
documents and instruments now or hereafter evidencing or governing any Approved
Subordinated Debt.
"Asset Disposition" means the disposition of any or all of the
Property of any Loan Party, other than a disposition of Capital Stock of an
Unrestricted Subsidiary, whether by sale, lease, transfer, assignment,
condemnation or otherwise, but excluding (a) sales of inventory in the ordinary
course of business, (b) the grant of a Lien as security, (c) any involuntary
disposition resulting from casualty damage to Property, and (d) dispositions of
equipment if and to the extent that the equipment disposed of is, concurrently
therewith, exchanged or replaced by equipment of equal or greater value.
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Availability" means, as of any date of determination, the lesser of
(a) the unused amount of the Commitments or (b) the sum of (i) 150% of the
amount paid by the Borrower and its Subsidiaries to Nortel Networks for Nortel
Networks Goods and Services for the Service Area Network plus (ii) the unused
amount of the Tranche C Commitments.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of
interest per annum then most recently announced or established by the Reference
Bank at its principal office in New York City as its highest commercial prime
or base rate then in effect, or (b) the Federal Funds Rate then in effect plus
one-half of one percent (0.50%). The Base Rate may not necessarily be the
lowest rate of interest charged by the Reference Bank to its commercial
borrowers. Each change in any interest rate provided for herein based upon the
prime or base rate or the Federal Funds Rate resulting from a change in the
prime or base rate or the Federal Funds Rate, respectively, shall take effect
without notice to the Borrower at the time of such change in the prime or base
rate or the Federal Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon
the Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International
CREDIT AGREEMENT - Page 5
<PAGE> 13
Convergence of Capital Measurement and Capital Standards" dated July 1988, as
amended, supplemented and otherwise modified and in effect from time to time,
or any replacement thereof.
"Board of Directors" means (a) with respect to Holdings, the Borrower
and any Subsidiary of the Borrower which is a corporation, the board of
directors of Holdings, the Borrower or such Subsidiary of the Borrower, as
applicable based upon the context in which such term appears, (b) with respect
to Alamosa Texas and Alamosa Wisconsin, the general partner of Alamosa Texas
and Alamosa Wisconsin, respectively, (c) with respect to Alamosa Texas GP and
Alamosa Wisconsin GP, the manager of Alamosa Texas GP and Alamosa Wisconsin GP,
respectively, and (d) with respect to any other Loan Party, the board of
directors if such Loan Party is a corporation, the general partner if such Loan
Party is a limited partnership, the managing partner if such Loan Party is a
general partnership, or the manager if such Loan Party is a limited liability
company or an analogous body, officer or representative which is the functional
equivalent of the board of directors of a corporation if such Loan Party is
another type of entity, in each case which body, officer or representative has
the power and authority to authorize and effectuate the execution, delivery and
performance of the Loan Documents and other actions to be taken by such Loan
Party.
"Board Resolution" means a resolution certified by the Secretary or an
Assistant Secretary or analogous officer of any Loan Party, as applicable based
upon the context in which such term appears, to have been duly adopted by the
Board of Directors of such entity and to be in full force and effect on the
date of such certification.
"Borrower" means as specified in the initial paragraph of this
Agreement.
"BTA" means a Basic Trading Area for which a Basic Trading Area (BTA)
license is issued by the FCC.
"Build-out Plan" means the plan agreed upon by the Borrower and the
Operating Subsidiaries and Sprint PCS, along with any modifications and updates
to the plan, respecting the construction and design of the Service Area
Network, a copy of which is attached as Exhibit 2.1 to the Sprint Management
Agreements.
"Business Day" means (a) any day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required by law to close
in New York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in
connection with Eurodollar Loans, any day which is a Business Day described in
clause (a) above and which is also a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"Business Plan" means the Borrower's marketing and construction plans
for the Service Area Network, budget and schedule as submitted to and approved
by the Administrative Agent, including financial projections of the Borrower
and its respective Consolidated Subsidiaries for the eight year period
beginning on January 1, 2000, certified by the chief financial officer of the
Borrower as being prepared generally in accordance with GAAP (except for the
absence of footnotes), such construction plans giving effect to the Build-out
Plan and such projections giving effect to the Debt to be incurred
CREDIT AGREEMENT - Page 6
<PAGE> 14
under this Agreement as well as the other Debt to be incurred by the Borrower
and its Consolidated Subsidiaries during such period. Unless any amendment or
modification thereto or replacement thereof is subsequently approved by the
Administrative Agent in accordance with Section 9.15, the Business Plan
identified as "Version 31D-1" shall be the Business Plan for purposes of this
Agreement.
"Capital Expenditures" means amounts paid or Debt incurred by the
Borrower and/or any of its Subsidiaries in connection with the purchase or
lease by any such Person or Persons of Property that would be required to be
capitalized and shown on the balance sheet of such Person or Persons in
accordance with GAAP.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal Property, which
obligations are classified as a capital lease on a balance sheet of such Person
under GAAP. For purposes of this Agreement, the amount of such Capital Lease
Obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Capital Stock" means corporate stock and any and all securities,
shares, partnership interests, limited partnership interests, limited liability
company interests, membership interests, equity interests, participations,
rights or other equivalents (however designated) of corporate stock or any of
the foregoing issued by any entity (whether a corporation, a partnership or
another entity) and includes, without limitation, securities convertible into
Capital Stock and rights, warrants or options to acquire Capital Stock.
"Change in Control" means the existence or occurrence of any of the
following: (a) any of the Capital Stock of the Borrower is owned by any Person
other than Holdings; (b) any Capital Stock of any Subsidiary of the Borrower is
owned directly or indirectly by any Person other than the Borrower, provided,
that with respect to (i) Alamosa Texas, up to one percent of its ownership
interests may be owned by Alamosa Texas GP and (ii) with respect to Alamosa
Wisconsin, up to one percent of its ownership interests may be owned by Alamosa
Wisconsin GP and up to three percent of its limited partnership interests may
be owned by Wisconsin telephone companies, in each case (i.e., as to each of
clauses (i) and (ii) preceding) without a Change in Control resulting from such
ownership by other than the Borrower, (c) any Person or two or more Persons
(other than the Permitted Holders) acting as a group (as defined in Section
13d-3 of the Exchange Act) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Exchange Act) of 35% or more of the outstanding shares of Voting Stock of
Holdings; (d) individuals who, as of the Closing Date, constitute the Board of
Directors of Holdings (the "Holdings Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of Holdings; provided,
however, that any individual becoming a director of Holdings subsequent to the
Closing Date whose election, or nomination for election by Holdings'
shareholders was approved by a vote of at least a majority of the directors
then comprising the Holdings Incumbent Board shall be considered as though such
individual were a member of the Holdings Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened
CREDIT AGREEMENT - Page 7
<PAGE> 15
solicitation of proxies or contest by or on behalf of a Person other than the
Board of Directors of Holdings; or (e) the consummation of any transaction the
result of which is that any Person or group beneficially owns ten percent (10%)
or more of the outstanding shares of Voting Stock of Holdings and more of the
Voting Stock of Holdings than is beneficially owned, in the aggregate, by the
Permitted Holders.
"Closing Date" means the date of the making of the initial Loan under
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported to be created by any Loan Document as
security for the Obligations or any portion thereof.
"Commitment Percentage" means, as to any Lender and as to the Tranche
A Commitments, the Tranche B Commitments, the Tranche C Commitments or the
Aggregate Commitments (as applicable based upon the context in which such term
is used), the percentage equivalent of a fraction, the numerator of which is
the amount of the outstanding Tranche A Commitments, Tranche B Commitments,
Tranche C Commitments or the Aggregate Commitments (as applicable) of such
Lender (or, if such applicable commitment has terminated or expired, the
outstanding principal amount of Tranche A Loans, Tranche B Loans, Tranche C
Loans or Loans, respectively, of such Lender) and the denominator of which is
the aggregate amount of the outstanding Tranche A Commitments, Tranche B
Commitments, Tranche C Commitments or Aggregate Commitments (as applicable) of
all Lenders (or, if such applicable commitments have terminated or expired, the
aggregate outstanding principal amount of Tranche A Loans, Tranche B Loans,
Tranche C Loans or Loans, respectively, of all Lenders), as adjusted from time
to time in accordance with Section 13.8.
"Commitments" means, as to any Lender, such Lender's Tranche A
Commitment, Tranche B Commitment and Tranche C Commitment.
"Communications Act" means the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consent and Agreement (Alamosa Texas)" means that certain Amended and
Restated Consent and Agreement dated as of February 8, 2000, among Sprint
Spectrum, SprintCom, Inc., Sprint Communications Company, L.P., Cox
Communications PCS, L.P., Cox PCS License, LLC, WirelessCo, L.P. and the
Administrative Agent, as acknowledged, consented and agreed to by the Borrower
and the Operating Subsidiaries and certain other Loan Parties, and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Consent and Agreement (Alamosa Wisconsin)" means that certain Consent
and Agreement dated as of February 8, 2000, among Sprint Spectrum, WirelessCo,
L.P., Sprint Communications Company, L.P. and the Administrative Agent, as
acknowledged, consented and agreed to by the
CREDIT AGREEMENT - Page 8
<PAGE> 16
Borrower and the Operating Subsidiaries and certain other Loan Parties, and any
and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Consents and Agreements" means the Consent and Agreement (Alamosa
Texas) and the Consent and Agreement (Alamosa Wisconsin).
"Consolidated Fixed Charges" means, for any period, the sum of (a)
Consolidated Interest Expense for the Borrower and its Consolidated
Subsidiaries paid or payable in cash during such period (excluding interest
accrued on the Loans on or before the second anniversary of the Closing Date
which has been paid by the Borrower with the proceeds of Tranche C Loans), plus
(b) all scheduled payments (as such scheduled payments are reduced by
application of any prepayments) of principal with respect to the Loans and
other outstanding Debt during such period, plus (c) taxes of the Borrower and
its Consolidated Subsidiaries paid or payable in cash during such period, plus
(d) the scheduled amount paid or payable by the Borrower and its Consolidated
Subsidiaries during such period on account of Capital Expenditures.
"Consolidated Interest Expense" means, for any period, all interest on
Debt of the Borrower and its Consolidated Subsidiaries paid in cash during such
period, including the interest portion of payments under Capital Lease
Obligations.
"Consolidated Net Income" means, for any period, the net income (or
loss) of the Borrower and its Consolidated Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which would be consolidated with those
of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Contributed Capital" means, as to any Person and as of any date of
determination, the sum of (a) all equity contributions then made in cash or
previously made in cash to such Person (including equity contributed on or
before the Closing Date), minus (b) all Restricted Payments (in any form) then
made or previously made by such Person to or for the benefit of any other
Person.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior
to the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
CREDIT AGREEMENT - Page 9
<PAGE> 17
"Debt" means as to any Person at any time (without duplication): (a)
all indebtedness, liabilities and obligations of such Person for borrowed
money, (b) all indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments, (c) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more
than 90 days, (d) all Capital Lease Obligations of such Person, (e) all Debt of
others Guaranteed by such Person, (f) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by such Person,
whether or not the indebtedness, liabilities or obligations secured thereby
have been assumed by such Person or are non-recourse to such Person, (g) all
reimbursement obligations of such Person (whether contingent or otherwise) in
respect of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments, (h) all indebtedness, liabilities and obligations of such
Person to redeem or retire shares of Capital Stock of such Person, (i) all
indebtedness, liabilities and obligations of such Person under Interest Rate
Protection Agreements, and (j) all indebtedness, liabilities and obligations of
such Person in respect of unfunded vested benefits under any pension plans.
"Debt Service Coverage Ratio" means, as of the end of any calendar
quarter, the ratio of (a) Annualized EBITDA for the period ended as of the end
of such calendar quarter, exclusive of EBITDA attributable to tower sales, to
(b) the sum of (i) Consolidated Interest Expense for the four calendar quarter
period ended as of the end of such calendar quarter plus (ii) the aggregate
amount of all principal payments on Debt paid or due and owing during such four
calendar quarter period.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all
times during which any Default has occurred and is continuing or in respect of
any other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period of such Default
or during the period commencing on the due date of such other amount until such
other amount is paid in full, respectively, equal to the lesser of (a) the sum
of three percent (3.00%) plus the Base Rate as in effect from time to time plus
the Applicable Margin for Base Rate Loans or (b) the Maximum Rate; provided,
however, that if such amount in default is principal of a Eurodollar Loan and
the due date is a day other than the last day of an Interest Period therefor,
the "Default Rate" for such principal shall be, for the period from and
including the due date and to but excluding the last day of the Interest Period
therefor, the lesser of the rate per annum equal to (i) the sum of three
percent (3.00%) plus the interest rate for such Eurodollar Loan for such
Interest Period as provided in clause (ii) of Section 2.4(a) hereof or (ii) the
Maximum Rate and, thereafter, the rate provided for above in this definition.
"Dollars" and "$" mean lawful money of the U.S.
"EBITDA" means, for any period, without duplication, the sum of the
following for the Borrower and its Consolidated Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP: (a) Adjusted Net
Income, plus (b) Consolidated Interest Expense, plus (c)
CREDIT AGREEMENT - Page 10
<PAGE> 18
income and franchise taxes to the extent deducted in determining Adjusted Net
Income, plus (d) depreciation and amortization expense and other non-cash,
non-tax items to the extent deducted in determining Adjusted Net Income, minus
(e) non-cash income (or losses) to the extent included in determining Adjusted
Net Income.
"Eligible Assignee" means (a) any Lender or Affiliate of a Lender, (b)
any commercial bank, savings and loan association, savings bank, finance
company, insurance company, pension fund, mutual fund or other financial
institution (whether a corporation, partnership or other entity) which has been
approved by the Administrative Agent as a Lender under this Agreement or (c)
any Approved Fund; provided, however, that (i) Eligible Assignee shall not
include any Affiliate of the Borrower and (ii) Eligible Assignee shall not
include any business competitor of the Borrower or any Operating Subsidiary of
the Borrower engaged in the same line of business as the Borrower or any
Operating Subsidiary of the Borrower, respectively, except after the occurrence
and during the continuance of an Event of Default.
"Environmental Law" means any federal, state, provincial, local or
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to pollution or
the protection, cleanup or restoration of the environment or natural resources,
or to the public health or safety, or otherwise governing the generation, use,
handling, collection, treatment, storage, transportation, recovery, recycling,
discharge or disposal of Hazardous Materials, including, without limitation as
to U.S. laws, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the Superfund Amendment
and Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the
Occupational Safety and Health Act, 29 U S.C. Section 651 et seq., the Clean
Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section
1251 et seq., the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001 et seq., the Federal Insecticide, Fungicide and Rodenticide Act,
7 U.S.C. Section 136 et seq., and the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
CREDIT AGREEMENT - Page 11
<PAGE> 19
"ERISA Affiliate" means any corporation or trade or business which is
a member of a group of entities, organizations or employers of which a Loan
Party is also a member and which is treated as a single employer within the
meaning of Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars in the approximate
amount of the proposed Eurodollar Loan at approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period. If such rate ceases to be available
from Telerate News Service, the Eurodollar Rate shall be determined by the
Administrative Agent in good faith from another financial reporting service,
which service shall be reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Cash Flow" means, for any fiscal year and without duplication,
EBITDA for such fiscal year minus (a) taxes payable in cash for such fiscal
year, (b) all principal and cash interest payments on Debt made during such
fiscal year whether optional, mandatory or scheduled payments, (c) Capital
Expenditures (but only to the extent paid in cash and not financed) made during
such fiscal year, and (d) the aggregate amount of dividends paid by the
Borrower to Holdings, and permitted to be paid by the Borrower to Holdings, in
accordance with clause (c) of Section 9.4.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
agency.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of
1%)) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if
such rate is not so published on such next succeeding Business Day, the Federal
Funds Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"Former Members" means the former owners of membership interests in
the Original Borrower.
CREDIT AGREEMENT - Page 12
<PAGE> 20
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Gross Revenues" means, for any period, gross revenues, determined on
a consolidated basis, of the Borrower and its Consolidated Subsidiaries
determined in accordance with GAAP for such period.
"Gross Up Lender" means any Lender which requests a payment from the
Borrower pursuant to Section 3.5, 4.1 or 4.6.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any indebtedness, liability or 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 or other obligation
(whether arising by virtue of partnership arrangements, by agreement 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 of such Debt or
other indebtedness, liability or obligation as to the payment thereof or to
protect the obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning. The amount of any Guarantee shall be deemed
to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made or, if not stated or
determinable, the maximum anticipated liability in respect thereof (assuming
such Person is required to perform thereunder).
"Guarantors" means Holdings, each Subsidiary of Holdings, other than
Unrestricted Subsidiaries of Holdings, at any time existing, each Subsidiary of
the Borrower at any time existing and each other Person which has executed a
Guaranty (each individually a "Guarantor" and collectively the "Guarantors").
CREDIT AGREEMENT - Page 13
<PAGE> 21
"Guaranty" means a guaranty agreement guaranteeing payment and
performance of the Obligations in form and substance satisfactory to the
Administrative Agent executed by a Guarantor in favor of the Administrative
Agent and the Lenders, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro- organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is,
or is deemed to be, alone or in any combination, hazardous, hazardous waste,
toxic, a pollutant, a deleterious substance, a contaminant or a source of
pollution or contamination under any Environmental Law, including, without
limitation, asbestos, petroleum, underground storage tanks (whether empty or
containing any substance) and polychlorinated biphenyls.
"Holdings" means as specified in the initial paragraph of this
Agreement.
"Holdings Public Offering" means an initial public offering of the
common stock of Holdings providing net cash proceeds to Holdings of at least
$140,000,000.
"Holdings Senior Notes" means senior discount notes due 2010
contemplated to be issued by Holdings that will yield gross proceeds at
issuance of approximately $156,000,000, which notes shall be unsecured and
shall otherwise be in form and substance satisfactory to, and approved in
writing (subsequent to the Closing Date) by, the Administrative Agent and the
Required Lenders.
"Holdings Senior Notes Documents" means any and all agreements,
documents and instruments now or hereafter evidencing or governing the Holdings
Senior Notes and includes, without limitation, the Holdings Senior Notes
Indenture.
"Holdings Senior Notes Event of Default" means an "Event of Default"
as such term is defined in the Holdings Senior Note Indenture.
"Holdings Senior Notes Indenture" means an indenture in form and
substance satisfactory to, and approved in writing (subsequent to the Closing
Date) by, the Administrative Agent and the Required Lenders which governs the
Holdings Senior Notes.
"Insurance Recovery" means, with respect to any Property of any Loan
Party and any single occurrence or related occurrences with respect thereto,
the receipt or constructive receipt by such Person, or the payment by an
insurance company to the Administrative Agent, of proceeds of any such Property
or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark
and service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source
CREDIT AGREEMENT - Page 14
<PAGE> 22
codes, manufacturing research and similar technical information, engineering
know-how, customer and supplier information, assembly and test data drawings or
royalty rights.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from a Base Rate
Loan or (if Continued) the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 2.9 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (a) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, if such succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the Maturity Date shall
end on the Maturity Date; (c) no more than five Interest Periods for Eurodollar
Loans shall be in effect at the same time; (d) no Interest Period shall have a
duration of less than one month and, if the Interest Period for any Eurodollar
Loans would otherwise be a shorter period, such Loans shall not be available
hereunder; and (e) no Interest Period for a Loan may commence before, and end
after, any principal payment date unless, after giving effect thereto, the
aggregate principal amount of the Eurodollar Loans having Interest Periods that
end after such principal payment date shall be equal to or less than the amount
of the applicable Loans scheduled to be outstanding hereunder after such
principal payment date.
"Interest Rate Protection Agreements" means, with respect to the
Borrower, an interest rate swap, cap or collar agreement or similar arrangement
between the Borrower and one or more Lenders or other counterparties providing
for the transfer or mitigation of interest rate risks either generally or under
specified contingencies.
"Investments" means as specified in Section 9.5.
"Lender" and "Lenders" means as specified in the initial paragraph of
this Agreement.
"Lien" means, with respect to any Property, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or other
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Administrative Agent's Letter, the Consents and Agreements and
all other agreements, documents, instruments and certificates now or hereafter
executed and/or delivered pursuant to or in connection with any of the
foregoing, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
CREDIT AGREEMENT - Page 15
<PAGE> 23
"Loan Party" means any of Holdings, the Borrower, any Operating
Subsidiary, any Subsidiary of Holdings other than an Unrestricted Subsidiary,
any Subsidiary of the Borrower, any Guarantor or any Person who grants a Lien
on any Property to secure the payment or performance of the Obligations or any
portion thereof, and "Loan Parties" means all of such Persons.
"Loans" means the Tranche A Loans, the Tranche B Loans and the Tranche
C Loans, and "Loan" means any of such loans.
"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of Holdings and its Subsidiaries taken as a whole, the Borrower and
its Subsidiaries taken as a whole, (b) the validity or enforceability of any of
the Loan Documents or the Liens created or purported to be created thereby or
the rights and/or remedies of the Administrative Agent and the Lenders
thereunder, (c) the ability of any Loan Party to pay and perform its
indebtedness, liabilities and/or obligations under any of the Loan Documents,
or (d) the value of Collateral available to the Administrative Agent and the
Lenders after giving effect to Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, (a) any Sprint
Agreement and (b) any supply, purchase, service, employment, tax, indemnity,
shareholder or other agreement or contract for which the aggregate amount or
value of services performed or to be performed for or by, or funds or other
Property transferred or to be transferred to or by, any such Person to such
agreement or contract, or by which any such Person or any of its Properties is
otherwise bound, during any fiscal year of the Borrower exceeds $1,000,000 (or
the equivalent amount in any currency) and any and all amendments,
modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the earlier to occur of (a) August 8, 2007 or
(b) the fifth anniversary of the Amortization Commencement Date.
"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate or an amount computed in reference to such rate (as
applicable), if any, that any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the particular Obligations
as to which such rate is to be determined, payable to such Lender pursuant to
this Agreement or any other Loan Document, under laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Monthly Date" means the last day of each month of each year the first
of which shall be March 31, 2000.
CREDIT AGREEMENT - Page 16
<PAGE> 24
"Mortgage" means a mortgage, deed of trust or other appropriate
agreement, document or instrument evidencing or creating a Lien on real
Property (and any related personal Property) as security for the Obligations or
any portion thereof in form and substance satisfactory to the Administrative
Agent executed by any Loan Party in favor of the Administrative Agent for the
benefit of the Administrative Agent and the Lenders, and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Mortgaged Properties" means Properties in which a Lien has been
granted or purported to be granted pursuant to a Mortgage.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from any Loan Party or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by any Loan Party from such Asset Disposition,
minus (b) the amount, if any, of all taxes paid or payable by such Loan Party
directly resulting from such Asset Disposition (including the amount, if any,
estimated by such Loan Party in good faith at the time of such Asset
Disposition for taxes payable by such Loan Party on or measured by net income
or gain resulting from such Asset Disposition), minus (c) the reasonable
out-of-pocket costs and expenses incurred by such Loan Party in connection with
such Asset Disposition (including reasonable brokerage fees paid to a Person
other than an Affiliate of a Loan Party) excluding any fees or expenses paid to
an Affiliate of a Loan Party, minus (d) amounts applied to the repayment of
indebtedness (other than the Obligations) secured by any Permitted Lien (if
any) on the Property subject to the Asset Disposition. "Net Proceeds" with
respect to any Asset Disposition shall also include proceeds (after deducting
any amounts specified in clauses (b), (c) and (d) of the preceding sentence) of
insurance with respect to any actual or constructive loss of Property, an
agreed or compromised loss of Property or the taking of any Property under the
power of eminent domain and condemnation awards and awards in lieu of
condemnation for the taking of Property under the power of eminent domain. "Net
Proceeds" means, with respect to the Holdings Senior Notes and without
duplication, (i) the gross amount of cash or cash equivalents plus the gross
value of all other consideration received by Holdings or any of its
Subsidiaries from the issuance of the Holdings Senior Notes, minus (ii) the
out-of-pocket costs and expenses incurred by Holdings in connection with such
issuance of the Holdings Senior Notes (including any underwriting fees)
excluding any fees or expenses paid to an Affiliate of Holdings which are in
excess of those that would be paid or payable in connection with an arms'
length transaction with a Person who is not an Affiliate of Holdings.
"New Areas" means, as of any date of determination, those portions of
the Service Area not covered by the then-existing Build-out Plan that Sprint
PCS or the Borrower decides should be built- out.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means all hardware, software and equipment
(including fixtures) manufactured, sold or otherwise provided to the Borrower
or any other Subsidiary of the
CREDIT AGREEMENT - Page 17
<PAGE> 25
Borrower by Nortel Networks and/or Nortel Networks Corporation, including,
without limitation, all equipment sold to the Borrower or a Subsidiary of the
Borrower pursuant to the Supply Agreement and all Nortel Networks Software.
"Nortel Networks Goods and Services" means (a) Nortel Networks
Equipment and related software (including Nortel Networks Software), (b) sales,
installation and commissioning of Nortel Networks Equipment and related
software (including Nortel Networks Software), and (c) project management,
system design and services performed by personnel of Nortel Networks and/or
Nortel Networks Corporation.
"Nortel Networks Software" means any and all software sold or licensed
by Nortel Networks and/or Nortel Networks Corporation to the Borrower or any
Subsidiary of the Borrower, including, without limitation, all source code and
object code and all manuals and other documentation relating thereto and each
copy thereof regardless of the media in which they are stored.
"Noteholders" means the holders of the Holdings Senior Notes.
"Notes" means the Tranche A Notes, the Tranche B Notes and the Tranche
C Notes, in the form of Exhibit B-1, Exhibit B-2 and Exhibit B-3, respectively,
hereto, made by the Borrower evidencing the Loans and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof and
all substitutions therefor (including promissory notes issued by the Borrower
pursuant to Section 13.8), and "Note" means any such promissory note.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any,
bankruptcy, insolvency, reorganization or other similar filing) and to pay all
fees, indemnities, costs and expenses (including attorneys' fees) provided for
in the Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the prior written consent of the Administrative Agent and the
Required Lenders.
"Operating Assets" means the "Operating Assets" as such term is
defined or used in any Sprint Management Agreement, which term includes the
assets owned by the Borrower or a Subsidiary of the Borrower constituting a
part of the Service Area Network.
CREDIT AGREEMENT - Page 18
<PAGE> 26
"Operating Lease" means, as to any Person, a lease of (or other
agreement conveying the right to use) real and/or personal Property, provided
that the obligations thereunder are not required to be capitalized on a balance
sheet of such Person under GAAP.
"Operating Subsidiary" means Alamosa Texas or Alamosa Wisconsin, and
"Operating Subsidiaries" means both of such entities.
"Original Administrative Agent" means as specified in Recital A.
"Original Borrower" means as specified in Recital A.
"Original Credit Agreement" means as specified in Recital A.
"Original Lenders" means as specified in Recital A.
"Original Loans" means the "Loans" as such term is defined in the
Original Credit Agreement.
"Original Obligations" means the "Obligations" as such term is defined
in the Original Credit Agreement.
"Original Tranche A Loans" means the "Tranche A Loans" as such term is
defined in the Original Credit Agreement.
"Original Tranche B Loans" means the "Tranche B Loans" as such term is
defined in the Original Credit Agreement.
"Original Tranche C Loans" means the "Tranche C Loans" as such term is
defined in the Original Credit Agreement.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PCS" means a radio communication system authorized under the rules
for broadband personal communications services designated as Subpart E of Part
24 of the FCC's rules, including the network, marketing, distribution, sales,
customer interface and operations functions relating thereto.
"PCS Licenses" means the PCS license(s) issued by the FCC for the BTAs
constituting the Service Area.
"PCS Spectrum" means the range of frequencies that Sprint PCS is
authorized to use under the PCS Licenses held by Sprint PCS.
CREDIT AGREEMENT - Page 19
<PAGE> 27
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the
case of a Multiemployer Plan, at any time since September 2, 1974, by any Loan
Party or any ERISA Affiliate for employees of any Loan Party or any ERISA
Affiliate.
"Permit" means any permit, certificate, approval, order, PCS License,
license, right-of-way (whether an easement, contract or agreement in any form)
or other authorization.
"Permitted Holders" means the shareholders of Holdings identified in
Schedule 1.1(a) hereto.
"Permitted Liens" mean:
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the
Administrative Agent (for the benefit of the Administrative Agent and
the Lenders) pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, rights-of-way,
zoning restrictions or other restrictions on the use of real Property
or imperfections to title that do not (individually or in the
aggregate) materially affect the value of the Property encumbered
thereby or materially impair the ability of any Loan Party to use such
Property in its businesses, and none of which is violated in any
material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental
charges that are not delinquent or which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the Property subject to such
Liens, and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that
are not yet due and are incurred in the ordinary course of business or
which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale
of the Property subject to such Liens, and for which adequate reserves
have been established;
(f) Liens resulting from good faith deposits to secure
payment of worker's compensation or other social security programs or
to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, contracts (other than for payment of Debt) or
leases, all in the ordinary course of business;
(g) Purchase-money Liens on any Property hereafter acquired
or the assumption after the Closing Date of any Lien on Property
existing at the time of such acquisition (and not created in
contemplation of such acquisition), or a Lien incurred after the
Closing Date
CREDIT AGREEMENT - Page 20
<PAGE> 28
in connection with any conditional sale or other title retention
agreement or Capital Lease Obligation; provided that:
(i) any Property subject to the foregoing is
acquired by the applicable Loan Party in the ordinary course
of its respective business and the Lien on the Property
attaches concurrently or within 90 days after the acquisition
thereof;
(ii) the Debt secured by any Lien so created,
assumed or existing shall not exceed the lesser of the cost
or fair market value at the time of acquisition of the
Property covered thereby (inclusive of the cost of
engineering, furnishing and installation services directly
relating to such Property) and shall not be less than 75% of
the amortized value of the Property acquired with the
proceeds of such Debt;
(iii) each such Lien shall attach only to the
Property so acquired and the proceeds thereof; and
(iv) the Debt secured by all such Liens, when
aggregated with the Debt secured by all purchase-money Liens
and all Liens in connection with any conditional sale or
other title retention agreement or Capital Lease Obligation
existing as of the Closing Date or at any other time, shall
not exceed $15,000,000 at any time outstanding in the
aggregate;
(h) Liens attaching to the Capital Stock of Unrestricted
Subsidiaries of Holdings securing Debt of Holdings or its Unrestricted
Subsidiaries; and
(i) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be
extended or spread to cover any additional indebtedness or Property;
provided, however, that (A) none of the Permitted Liens (except those in favor
of the Administrative Agent) may attach or relate to the Capital Stock of or
any other ownership interest in the Borrower or any of its Subsidiaries and (B)
except for the Liens disclosed on Schedule 1.1(b) hereto which are expressly
identified as constituting purchase money Liens, none of the Permitted Liens
referred to in clause (a) preceding may have a priority equal or prior to the
Liens in favor of the Administrative Agent as security for the Obligations.
"Permitted Third-Party Expenses" means (a) amounts paid to vendors of
equipment and services (including sales taxes), including Nortel Networks, for
the construction of the Service Area Network, (b) Service Area Network site
acquisition costs excluding any lease costs, but including civil engineering
work, site preparation and costs of power connection, (c) costs of establishing
physical interconnection with the local public switched telephone network, and
(d) microwave relocation costs associated with construction of the Service Area
Network, whether paid directly or reimbursed to third parties who previously
performed the relocation, provided, however, that such microwave relocation
costs includable as Permitted Third-Party Expenses shall not exceed $8,000,000
in the aggregate.
CREDIT AGREEMENT - Page 21
<PAGE> 29
"Permitted Third-Party Expenses Borrowing Base" means, at any time as
determined by the Administrative Agent in accordance with Section 2.1(f), an
amount equal to 50% of the amount paid to Nortel Networks by the Borrower for
Nortel Networks Goods and Services for the Service Area Network (including any
amounts to be paid with the proceeds of an Advance requested on the date of the
Permitted Third-Party Expenses Borrowing Base Report).
"Permitted Third-Party Expenses Borrowing Base Report" means a report
in substantially the form of Exhibit E attached hereto properly completed and
certified by a Responsible Officer of the Borrower to the satisfaction of the
Administrative Agent which specifies the Permitted Third-Party Expenses
Borrowing Base as calculated as of the date of the report.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any
ERISA Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative
Agent in Richardson, Texas, presently located at 2221 Lakeside Blvd.,
Richardson, Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Property" means property and/or assets of all kinds, real, personal
or mixed, tangible or intangible (including, without limitation, all rights
relating thereto), whether owned or acquired on or after the Closing Date.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be March 31, 2000.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of any Loan
Party in respect of services rendered by any Loan Party.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
CREDIT AGREEMENT - Page 22
<PAGE> 30
"Regulatory Change" means, with respect to any Lender, any change
after the Closing Date in any U.S. federal or state or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of lenders
including such Lender of or under any U.S. federal or state or foreign laws or
regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, discharge, disposal, dispersement,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or in the air, soil,
surface water or ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA other than any such event for which the 30-day notice
requirement has been waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders
holding at least two-thirds (in Dollar amount) of the sum of (a) the aggregate
outstanding principal amount of the Loans, plus (b) the aggregate principal
amount of the outstanding Commitments.
"Required Payment" means as specified in Section 3.4.
"Reorganization Transactions" means as specified in Recital B.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
or the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
CREDIT AGREEMENT - Page 23
<PAGE> 31
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding, except a dividend payable solely in shares of
that class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding; (c) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement or
defeasance of, or payment with respect to, any subordinated debt; (d) any loan,
advance or payment to any officer, director or shareholder of the Borrower or
any of its Subsidiaries (other than a shareholder consisting of the Borrower or
a Wholly- Owned Subsidiary of the Borrower), exclusive of reasonable
compensation paid to officers or directors paid in the ordinary course of
business; and (e) any payment made to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire shares of any
class of Capital Stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding.
"Security Agreements" means security agreements, pledge agreements,
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this
Agreement or any other Loan Document, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements and the Mortgages,
as they may be amended, modified, supplemented, renewed, extended or restated
from time to time, and any and all other agreements, deeds of trust, mortgages,
chattel mortgages, security agreements, pledges, guaranties, assignments of
proceeds, assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Senior Debt" means, as of any date of determination and with respect
to any Person and its Consolidated Subsidiaries, the remainder of (a) Total
Debt minus (b) the aggregate principal amount of all Approved Subordinated Debt
outstanding, determined on a consolidated basis in accordance with GAAP.
CREDIT AGREEMENT - Page 24
<PAGE> 32
"Service Area" means the BTAs described on the Service Area Exhibit to
the Sprint Management Agreements and as identified (by number and otherwise) on
Schedule 1.1(c) hereto, except that the term does not include any BTAs not
disclosed on Schedule 1.1(c) or any New Areas that the Borrower chooses not to
build out.
"Service Area Network" means the network and business activities of
the Borrower and its Operating Subsidiaries managed by the Borrower and/or its
Operating Subsidiaries under the Sprint Management Agreements in the Service
Area under the PCS Licenses.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's Property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which, in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Sprint Agreements" means the Sprint Management Agreements, the Sprint
Services Agreements, the Sprint Trademark and Service Mark License Agreements
and the Sprint Spectrum Trademark and Service Mark License Agreements.
"Sprint Management Agreement (Alamosa Texas)" means that certain
Sprint PCS Management Agreement dated as of December 23, 1999 executed by
Sprint Spectrum, WirelessCo, L.P., Cox Communications PCS, L.P., Cox PCS
License, LLC, SprintCom, Inc., Sprint Communications Company, L.P. and the
Original Borrower, as amended by that certain Addendum I to Sprint PCS
Management Agreement dated as of December 23, 1999, and that certain Addendum
II to Sprint PCS Management Agreement dated as of February 3, 2000, and as
assigned and transferred to and assumed by Alamosa Texas pursuant to that
certain Notice, Consent, Transfer and Assignment dated as of February 3, 2000,
but effective as of February 8, 2000, and any documents incorporated by
reference in said agreement.
"Sprint Management Agreement (Alamosa Wisconsin)" means that certain
Sprint PCS Management Agreement dated as of December 6, 1999 executed by Sprint
Spectrum, WirelessCo, L.P., Sprint Communications Company, L.P. and Alamosa
Wisconsin, as amended by that certain Addendum I to Sprint PCS Management
Agreement dated as of December 6, 1999, and that certain Addendum II to Sprint
PCS Management Agreement dated as of February 3, 2000,
CREDIT AGREEMENT - Page 25
<PAGE> 33
and any documents incorporated by reference in said agreement.
"Sprint Management Agreements" means the Sprint Management Agreement
(Alamosa Texas) and the Sprint Management Agreement (Alamosa Wisconsin).
"Sprint PCS" means any one or more of the following related parties
who are PCS License holders or signatories to any Sprint Agreement: Sprint
Spectrum, SprintCom, Inc., Sprint Communications Company, L.P., WirelessCo,
L.P., Cox Communications PCS, L.P., Cox PCS License, LLC and any affiliate of
any of the foregoing entities.
"Sprint PCS Fees" means any fees payable to Sprint PCS by the Borrower
or any Subsidiary of the Borrower, and any amounts retained by Sprint PCS,
under Section 10 of any Sprint Management Agreement.
"Sprint Services Agreement (Alamosa Texas)" means that certain Sprint
PCS Services Agreement dated as of December 23, 1999 executed by Sprint
Spectrum and the Original Borrower, as assigned and transferred to, and assumed
by, Alamosa Texas pursuant to that certain Notice, Consent, Transfer and
Assignment dated as of February 3, 2000, but effective as of February 8, 2000,
and any documents incorporated by reference in said agreement (pursuant to
which, among other things, Alamosa Texas may delegate the performance of
certain services to Sprint PCS for fees that represent an adjustment of the
fees paid by Sprint PCS to Alamosa Texas under Section 10 of the Sprint
Management Agreement (Alamosa Texas).
"Sprint Services Agreement (Alamosa Wisconsin)" means that certain
Sprint PCS Services Agreement dated as of December 6, 1999 executed by Sprint
Spectrum and Alamosa Wisconsin and any documents incorporated by reference in
said agreement (pursuant to which, among other things, Alamosa Wisconsin may
delegate the performance of certain services to Sprint PCS for fees that
represent an adjustment of the fees paid by Sprint PCS to Alamosa Wisconsin
under Section 10 of the Sprint Management Agreement (Alamosa Wisconsin).
"Sprint Services Agreements" means the Sprint Services Agreement
(Alamosa Texas) and the Sprint Services Agreement (Alamosa Wisconsin).
"Sprint Spectrum" means Sprint Spectrum L.P., a Delaware limited
partnership.
"Sprint Spectrum Trademark and Service Mark License Agreement (Alamosa
Texas)" means that certain Sprint Spectrum Trademark and Service Mark License
Agreement dated as of December 23, 1999 executed by Sprint Spectrum and the
Original Borrower, as assigned and transferred to, and assumed by, Alamosa
Texas pursuant to that certain Notice, Consent, Transfer and Assignment dated
as of February 3, 2000, but effective as of February 8, 2000, and any documents
incorporated by reference in said agreement.
"Sprint Spectrum Trademark and Service Mark License Agreement (Alamosa
Wisconsin)" means that certain Sprint Spectrum Trademark and Service Mark
License Agreement dated as of
CREDIT AGREEMENT - Page 26
<PAGE> 34
December 6, 1999 executed by Sprint Spectrum and Alamosa Wisconsin and any
documents incorporated by reference in said agreement.
"Sprint Spectrum Trademark and Service Mark License Agreements" means
the Sprint Spectrum Trademark and Service Mark License Agreement (Alamosa
Texas) and the Sprint Spectrum Trademark and Service Mark License Agreement
(Alamosa Wisconsin).
"Sprint Trademark and Service Mark License Agreement (Alamosa Texas)"
means that certain Sprint Trademark and Service Mark License Agreement dated as
of December 23, 1999 executed by Sprint Communications Company, L.P. and the
Original Borrower, as assigned and transferred to, and assumed by, Alamosa
Texas pursuant to that certain Notice, Consent, Transfer and Assignment dated
as of February 3, 2000, but effective as of February 8, 2000, and any documents
incorporated by reference in said agreement.
"Sprint Trademark and Service Mark License Agreement (Alamosa
Wisconsin)" means that certain Sprint Trademark and Service Mark License
Agreement dated as of December 6, 1999 executed by Sprint Communications
Company, L.P. and Alamosa Wisconsin and any documents incorporated by reference
in said agreement.
"Sprint Trademark and Service Mark License Agreements" means the
Sprint Trademark and Service Mark License Agreement (Alamosa Texas) and the
Sprint Trademark and Service Mark License Agreement (Alamosa Wisconsin).
"Subordinated Guarantee" means a Guarantee executed by the Borrower or
any Subsidiary of the Borrower by virtue of its execution of the Holdings
Senior Notes Indenture solely for the purpose of being obligated under the
guaranty provisions contained in Article X and Article XI thereof pursuant to
which it, on a subordinated basis, guarantees payment of the Holdings Senior
Notes on terms satisfactory to the Administrative Agent and the Required
Lenders, which terms shall generally include, without limitation, the
following: (a) an agreement that (i) each of the Trustee and the Noteholders
will not, directly or indirectly, make any demand for payment or other amount
or exercise any other right or remedy under such guaranty, and will not take,
accept, receive or retain any such payment or other amount or the benefit of
any such other right or remedy, and (ii) such guarantor will not, directly or
indirectly, make or pay any payment or other amount or provide any other
benefit to or for the benefit of the Trustee or any holder of the Holding
Senior Notes, in each case unless and until each of the following two
conditions has been satisfied: (A) a Holdings Senior Notes Event of Default
shall have occurred and be continuing and the Administrative Agent (with a copy
to its counsel) shall have received at least ten Business Days' prior written
notice of such Holdings Senior Notes Event of Default, and (B) none of (1) an
Event of Default under clause (a) of Section 11.1 shall have occurred (unless
such Event of Default shall have been cured or waived or all Obligations have
been paid in full in cash and all Commitments have terminated or expired), (2)
the maturity of any of the Loans or other Obligations shall have been
accelerated (unless such acceleration has been rescinded), (C) an Event of
Default under clause (e) or clause (f) of Section 11.1 shall have occurred or
(D) a 179 day blockage period shall be in effect (which blockage period may be
commenced by the giving of a blockage notice by the Administrative Agent to the
Trustee after the occurrence of any Event of Default); (b) an agreement of each
of the Trustee and the
CREDIT AGREEMENT - Page 27
<PAGE> 35
Noteholders that, in the event it receives, directly or indirectly, any payment
or other amount from such guarantor that it is not permitted to receive, it
will promptly, upon becoming aware thereof or upon written demand therefor made
by the Administrative Agent or any Lender, deliver such payment or other
amount, in the form received, to the Administrative Agent for and on behalf of
the Lenders; and (c) an agreement that the terms and provisions of such
guaranty relating to the subordination thereof shall inure to the benefit of,
and be enforceable by, the Administrative Agent for and on behalf of the
Lenders and may not be amended without the prior written consent of the
Administrative Agent and the Required Lenders (provided, however, that the
Trustee shall be permitted to rely upon a representation from the
Administrative Agent as to any consent of the Required Lenders).
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.
"Supply Agreement" means the that certain CDMA 1900 Sprintcom
Additional Affiliate Agreement dated as of December 21, 1998, by and between
the Borrower and Nortel Networks, as amended by that certain Amendment No. 1 to
DMS-MTX Cellular Supply Agreement dated as of January 12, 1999, Amendment No. 2
DMS-MTX Cellular Supply Agreement dated as of March 1, 1999, as reaffirmed as
of June 10, 1999, Amendment No. 3 DMS-MTX Cellular Supply Agreement dated as of
August 11, 1999, and Amendment No. 4 dated as of February 8, 2000, and as
further amended, supplemented or restated from time to time.
"Total Capitalization" means, as of any date of determination and with
respect to any Person and its Consolidated Subsidiaries, the sum of (a) Total
Debt of such Person and its Consolidated Subsidiaries as of such date plus (b)
Contributed Capital of such Person as of such date.
"Total Debt" means, as of any date of determination and with respect
to any Person and its Consolidated Subsidiaries, the aggregate principal amount
of all Debt outstanding, determined on a consolidated basis in accordance with
GAAP.
"Tranche A Commitment" means, as to any Tranche A Lender, the
obligation of such Tranche A Lender to make or continue Tranche A Loans
hereunder in an aggregate principal amount up to but not exceeding the amount
set forth opposite the name of such Tranche A Lender on the signature pages
hereto under the heading "Tranche A Commitment" or, if such Tranche A Lender is
a party to an Assignment and Acceptance, the amount of the "Tranche A
Commitment" set forth in the most recent Assignment and Acceptance of such
Tranche A Lender, as the same may be reduced or terminated pursuant to Section
2.13 or 11.2, and "Tranche A Commitments" means such obligations of all Tranche
A Lenders. As of the Closing Date, the aggregate principal amount of the
Tranche A Commitments is $167,000,000.
CREDIT AGREEMENT - Page 28
<PAGE> 36
"Tranche A Commitment Termination Date" means the earlier to occur of
(a) August 8, 2002, (b) the date on which the Tranche A Loans are fully funded,
or (c) February 8, 2001, if less than $100,000,000 in aggregate principal
amount of the Loans has been advanced as of such date (regardless of the
outstanding principal amount of the Loans as of such date).
"Tranche A Lenders" means the Lenders who hold Tranche A Loans or who
have Tranche A Commitments.
"Tranche A Loans" means as specified in Section 2.1(a).
"Tranche A Notes" means the promissory notes evidencing the Tranche A
Loans executed in accordance with Section 2.2.
"Tranche B Commitment" means, as to any Tranche B Lender, the
obligation of such Tranche B Lender to make or continue Tranche B Loans
hereunder in an aggregate principal amount up to but not exceeding the amount
set forth opposite the name of such Tranche B Lender on the signature pages
hereto under the heading "Tranche B Commitment" or, if such Tranche B Lender is
a party to an Assignment and Acceptance, the amount of the "Tranche B
Commitment" set forth in the most recent Assignment and Acceptance of such
Tranche B Lender, as the same may be reduced or terminated pursuant to Section
2.13 or 11.2, and "Tranche B Commitments" means such obligations of all Tranche
B Lenders. As of the Closing Date, the aggregate principal amount of the
Tranche B Commitments is $58,000,000.
"Tranche B Commitment Termination Date" means the earlier to occur of
(a) August 8, 2002, (b) the date on which the Tranche B Loans are fully funded,
or (c) February 8, 2001, if less than $100,000,000 in aggregate principal
amount of the Loans has been advanced as of such date (regardless of the
outstanding principal amount of the Loans as of such date).
"Tranche B Lenders" means the Lenders who hold Tranche B Loans or who
have Tranche B Commitments.
"Tranche B Loans" means as specified in Section 2.1(b).
"Tranche B Notes" means the promissory notes evidencing the Tranche B
Loans executed in accordance with Section 2.2.
"Tranche C Commitment" means, as to any Tranche C Lender, the
obligation of such Tranche C Lender to make or continue Tranche C Loans
hereunder in an aggregate principal amount up to but not exceeding the amount
set forth opposite the name of such Tranche C Lender on the signature pages
hereto under the heading "Tranche C Commitment" or, if such Tranche C Lender is
a party to an Assignment and Acceptance, the amount of the "Tranche C
Commitment" set forth in the most recent Assignment and Acceptance of such
Tranche C Lender, as the same may be reduced or terminated pursuant to Section
2.13 or 11.2, and "Tranche C Commitments" means such obligations of all Tranche
C Lenders. As of the Closing Date, the aggregate principal amount of the
Tranche C Commitments is $25,000,000.
CREDIT AGREEMENT - Page 29
<PAGE> 37
"Tranche C Commitment Termination Date" means the earlier to occur of
(a) February 8, 2002, (b) the date on which the Tranche C Loans are fully
funded, or (c) February 8, 2001, if less than $100,000,000 in aggregate
principal amount of the Loans has been advanced as of such date (regardless of
the outstanding principal amount of the Loans as of such date).
"Tranche C Lenders" means the Lenders who hold Tranche C Loans or who
have Tranche C Commitments.
"Tranche C Loans" means as specified in Section 2.1(c).
"Tranche C Notes" means the promissory notes evidencing the Tranche C
Loans executed in accordance with Section 2.2.
"Trustee" means Norwest Bank Minnesota, N.A. in its capacity as
trustee under the Holdings Senior Notes Indenture and any successor trustee
thereunder.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of
New York and/or any other jurisdiction, the laws of which may be applicable to
or in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"Unrestricted Subsidiary" means a Subsidiary of Holdings, other than
the Borrower or a Subsidiary of the Borrower, designated by Holdings as an
"Unrestricted Subsidiary" (which may not be the Borrower or any of its
Subsidiaries) which is a corporation, trust, limited liability company,
partnership or any other type of entity reasonably acceptable to the Required
Lenders, and which (a) complies with the provisions of the laws of the state of
its formation relating to corporations, limited liability companies,
partnerships or such other entities, as applicable, (b) observes all customary
formalities regarding its existence, including having meetings of its board of
directors or analogous governing body separate from those held by the Loan
Parties, (c) accurately maintains its financial statements, accounting records
and other documents separate from those of its shareholders, members, partners,
Affiliates of its shareholders, members or partners and any other Person, (d)
does not commingle its assets with those of its shareholders, members,
partners, Affiliates of its shareholders, members or partners and any other
Person, (e) accurately maintains its own bank accounts and separate books of
account, (f) pays its own liabilities from its own separate assets, (g)
identifies itself, in all dealings with the public, under its own name or trade
names and as a separate and distinct entity and not as being a division or a
part of any other entity, (h) does not identify its shareholders, members or
partners as being a division or part of the Borrower or Holdings, provided that
each Unrestricted Subsidiary may describe its status vis-a-vis its parent or
ultimate parent entity, (i) is adequately capitalized in light of the nature of
its business, (j) does not assume or guarantee the liabilities of its
shareholders, members or partners, (k) does not acquire obligations or
securities of its shareholders, members or partners (or any predecessor
corporation, partnership or limited liability company), or any Affiliates of
its shareholders, members or partners, (l) does not make loans to its
shareholders, members or partners (or any predecessor), or any Affiliates of
its shareholders, members or partners, and (m) does not enter into or become a
party to
CREDIT AGREEMENT - Page 30
<PAGE> 38
any transaction with its shareholders, members or partners (or any predecessor)
or any Affiliates of its shareholders, members or partners, except on terms
which are no less favorable to such Unrestricted Subsidiary than would be
obtained in a comparable arm's length transaction with an unrelated third
party.
"U.S." means the United States of America.
"U.S. Person" means a citizen or resident of the U.S., a corporation,
partnership or other entity created or organized in or under any laws of the
U.S. or any estate or trust that is subject to U.S. Federal income taxation
regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other
charge or levy imposed by or on behalf of the U.S. or any taxing authority
thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the
Supply Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock (other than
directors' qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries.
"Wireless Subscribers" means, at any time, all customers then
receiving wireless communications services from the Borrower or any Subsidiary
of the Borrower through the Service Area Network in the Service Area.
"Year 2000 Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will
be affected by any dates/times prior to, on, after or spanning January 1, 2000.
The design of the services, products and other item(s) at issue to ensure
compliance with the "year 2000" representations and warranties and covenants
contained in this Agreement includes proper date/time data century recognition
and recognition of 1999 and 2000, calculations that accommodate single century
and multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that
(i) no value for current date/time will cause any error, interruption or
decreased performance in or for such services, products and other item(s), (ii)
all manipulations of date and time related data (including calculating,
comparing, sequencing processing and outputting) will produce correct results
for all valid dates and times when used independently or in combination with
other services, products and/or items, (iii) date/time
CREDIT AGREEMENT - Page 31
<PAGE> 39
elements in interfaces and data storage will specify the century to eliminate
date ambiguity without human intervention, including leap year calculations,
(iv) where any date/time element is represented without a century, the correct
century will be unambiguous for all manipulations involving that element, (v)
authorization codes, passwords and zaps (purge functions) will function
normally and in the same manner during, prior to, on and after January 1, 2000,
including the manner in which they function with respect to expiration dates
and CPU serial numbers, and (vi) the business' supply of the services, products
and other item(s) will not be interrupted, delayed, decreased or otherwise
affected by the advent of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of
the terms defined. The words "hereof", "herein" and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. The term "pro rata" as it relates to the
application of payments to the Tranche A Loans, the Tranche B Loans and/or the
Tranche C Loans means pro rata based upon the relative outstanding principal
amount of such Loans. Unless otherwise specified, all Article and Section
references pertain to this Agreement. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC. All references in this Agreement to any agreement shall be deemed to mean
and refer to such agreement as it may be amended, modified or supplemented from
time to time if (but only if) such amendment, modification or supplement has
been approved by the Administrative Agent and the Required Lenders, is
expressly referred to in such reference or is otherwise expressly permitted by
the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP (subject to year end adjustments, if
applicable) consistent with such accounting principles applied in the
preparation of the audited financial statements referred to in Section 7.2(a).
All financial information delivered to the Administrative Agent pursuant to
Section 8.1 shall be prepared in accordance with GAAP (subject to year end
adjustments, if applicable) applied on a basis consistent with such accounting
principles applied in the preparation of the audited financial statements of
such Person referred to in Section 7.2 or in accordance with Section 8.7.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the immediately preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
Section 1.3(a) preceding and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
CREDIT AGREEMENT - Page 32
<PAGE> 40
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in this Agreement, neither the Borrower nor
Holdings will change the last day of its fiscal year from December 31 or the
last days of its first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date shall be deemed to mean and refer to the
Closing Date after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial
statements and reports required to be delivered pursuant to this Agreement and
the other Loan Documents, and all financial covenants (if any) contained in
this Agreement, shall be prepared or determined (as applicable) in accordance
with GAAP (except as may be expressly provided to the contrary herein) and, if
and to the extent that such statements, reports or covenants are to be prepared
or determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for Holdings and its Consolidated Subsidiaries or the
Borrower and its Consolidated Subsidiaries (as applicable), except as may be
expressly provided to the contrary herein.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Tranche A Loans. Subject to the terms and conditions of this
Agreement (including, without limitation, Section 2.13(a)), each Tranche A
Lender severally agrees to make one or more loans to the Borrower from time to
time from and including the Closing Date to but excluding the Tranche A
Commitment Termination Date up to but not exceeding the amount of such Tranche
A Lender's Tranche A Commitment as then in effect. Notwithstanding anything to
the contrary contained in this Agreement, the Borrower, the Administrative
Agent and the Lenders agree that, as of the Closing Date, the aggregate
outstanding principal amount of the Original Tranche A Loans is $3,114,890.03,
which amount shall be deemed outstanding as Tranche A Loans hereunder. (Such
loans referred to in this Section 2.1(a) now or hereafter made or deemed made
by the Tranche A Lenders to the Borrower, including, without limitation, such
loans which remain outstanding after the Tranche A Commitment Termination Date,
are hereinafter collectively called the "Tranche A Loans".) The Borrower may
not reborrow the Tranche A Loans which have been repaid; provided, however,
that the Borrower may reborrow the Tranche A Loans which have been prepaid in
accordance with Section 2.7(e) in the event that the Borrower elects to
increase the Tranche A Commitments in accordance with Section 2.13(c) by an
amount equal to or greater than the amount of such reborrowed Loan.
(b) Tranche B Loans. Subject to the terms and conditions of this
Agreement (including, without limitation, Section 2.13(a)), each Tranche B
Lender severally agrees to make one or more loans to the Borrower from time to
time from and including the Closing Date to but excluding the Tranche B
Commitment Termination Date up to but not exceeding the amount of such Tranche
B
CREDIT AGREEMENT - Page 33
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Lender's Tranche B Commitment as then in effect; provided, however, that the
aggregate outstanding principal amount of the Tranche B Loans shall not at any
time exceed the Permitted Third-Party Expenses Borrowing Base. Notwithstanding
anything to the contrary contained in this Agreement, the Borrower, the
Administrative Agent and the Lenders agree that, as of the Closing Date, the
aggregate outstanding principal amount of the Original Tranche B Loans is
$1,040,430.75, which amount shall be deemed outstanding as Tranche B Loans
hereunder. (Such loans referred to in this Section 2.1(b) now or hereafter made
or deemed made by the Tranche B Lenders to the Borrower, including, without
limitation, such loans which remain outstanding after the Tranche B Commitment
Termination Date, are hereinafter collectively called the "Tranche B Loans".)
The Borrower may not reborrow the Tranche B Loans which have been repaid;
provided, however, that the Borrower may reborrow the Tranche B Loans which
have been prepaid in accordance with Section 2.7(e) in the event that the
Borrower elects to increase the Tranche B Commitments in accordance with
Section 2.13(c) by an amount equal to or greater than the amount of such
reborrowed Loan.
(c) Tranche C Loans. Subject to the terms and conditions of this
Agreement (including, without limitation, Section 2.13(a)), each Tranche C
Lender severally agrees to make one or more loans to the Borrower from time to
time from and including the Closing Date to but excluding the Tranche C
Commitment Termination Date up to but not exceeding the amount of such Tranche
C Lender's Tranche C Commitment as then in effect. Notwithstanding anything to
the contrary contained in this Agreement, the Borrower, the Administrative
Agent and the Lenders agree that, as of the Closing Date, the aggregate
outstanding principal amount of the Original Tranche C Loans is $368,519.86,
which amount shall be deemed outstanding as Tranche C Loans hereunder. (Such
loans referred to in this Section 2.1(c) now or hereafter made or deemed made
by the Tranche C Lenders to the Borrower, including, without limitation, such
loans which remain outstanding after the Tranche C Commitment Termination Date,
are hereinafter collectively called the "Tranche C Loans".) The Borrower may
not reborrow the Tranche C Loans which have been repaid; provided, however,
that the Borrower may reborrow the Tranche C Loans which have been prepaid in
accordance with Section 2.7(e) in the event that the Borrower elects to
increase the Tranche C Commitments in accordance with Section 2.13(c) by an
amount equal to or greater than the amount of such reborrowed Loan.
(d) Continuation and Conversion of Loans. Subject to the terms and
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the applicable Maturity Date, the Borrower
may Continue Eurodollar Loans or Convert Loans of one Type into Loans of the
other Type.
(e) Lending Offices. Loans of each Type made by each Lender shall be
made and maintained at such Lender's Applicable Lending Office for Loans of
such Type.
(f) Determinations of the Permitted Third-Party Expenses Borrowing
Base. The Permitted Third-Party Expenses Borrowing Base shall be determined in
good faith by the Administrative Agent as of the Closing Date and will be
redetermined in good faith by the Administrative Agent thereafter promptly
after the delivery, or required delivery, of a Permitted Third-Party Expenses
Borrowing Base Report in accordance with Section 8.1(k), in each case as of the
applicable date (i.e., as of the date of the Notice of Borrowing, if
applicable, or as of the last day
CREDIT AGREEMENT - Page 34
<PAGE> 42
of the immediately preceding fiscal quarter). In addition, the Permitted
Third-Party Expenses Borrowing Base shall be determined in good faith by the
Administrative Agent prior to and in connection with each new Tranche B Loan or
Tranche C Loan, as the case may be, and may be redetermined in good faith by
the Administrative Agent at any time and from time to time upon the occurrence
and during the continuation of a Default.
Section 2.2 Notes.
(a) Notes. All of the Tranche A Loans, Tranche B Loans and Tranche C
Loans made by each Lender shall be evidenced by a single promissory note of the
Borrower in substantially the form of Exhibit B-1, Exhibit B-2 and Exhibit B-3,
respectively, hereto dated the Closing Date (or such later date on which such
Lender becomes a party to this Agreement), payable to the order of such Lender
in a principal amount equal to the sum of (i) the aggregate principal amount of
such Loans of such Lender plus (ii) the aggregate principal amount of the
unfunded Commitment of such Lender relating to such Loans as originally in
effect. Each Lender is hereby authorized by the Borrower to endorse on the
schedule (or a continuation thereof) attached to the Notes of such Lender, to
the extent applicable, the date, amount and Type of and the Interest Period for
each applicable Loan made by such Lender to the Borrower and the amount of each
payment or prepayment of principal of such Loan received by such Lender,
provided that any failure by such Lender to make any such endorsement shall not
affect the obligations of the Borrower under any such Note or this Agreement in
respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that
could become completely exempt from withholding of U.S. Taxes in respect of
payment of any Obligations due to such Lender hereunder relating to any of its
Loans if such Loans were in registered form for U.S. Federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees thereupon, to exchange such Lender's Note evidencing its Loans
for a promissory note registered as provided in Section 13.8(h) hereof (a
"Registered Note"). Registered Notes may not be exchanged for Notes that are
not in registered form.
Section 2.3 Repayment of Loans. The Borrower shall pay to the
Administrative Agent for the account of each Lender the principal of the
Tranche A Loans, the Tranche B Loans and the Tranche C Loans outstanding as of
the Tranche A Commitment Termination Date, the Tranche B Commitment Termination
Date and the Tranche C Commitment Termination Date, respectively (and the
principal of each of such Loans outstanding as of such dates shall be due and
payable) in 20 quarterly installments, commencing on the first Quarterly Date
after the Amortization Commencement Date and continuing on each Quarterly Date
thereafter through and including the Maturity Date, each of which installments
shall be in an amount equal to the percentage of the aggregate principal amount
of such Loans outstanding as of such applicable date specified opposite such
installment in the following table:
CREDIT AGREEMENT - Page 35
<PAGE> 43
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C>
Percentage of the Aggregate Principal Amount of
Principal Installment each of the Loans Due and Payable
- -------------------------------------------------------------------------------
1 3.75%
- -------------------------------------------------------------------------------
2 3.75%
- -------------------------------------------------------------------------------
3 5.14%
- -------------------------------------------------------------------------------
4 5.14%
- -------------------------------------------------------------------------------
5 5.14%
- -------------------------------------------------------------------------------
6 5.14%
- -------------------------------------------------------------------------------
7 5.14%
- -------------------------------------------------------------------------------
8 5.14%
- -------------------------------------------------------------------------------
9 5.14%
- -------------------------------------------------------------------------------
10 5.14%
- -------------------------------------------------------------------------------
11 5.14%
- -------------------------------------------------------------------------------
12 5.14%
- -------------------------------------------------------------------------------
13 5.14%
- -------------------------------------------------------------------------------
14 5.14%
- -------------------------------------------------------------------------------
15 5.14%
- -------------------------------------------------------------------------------
16 5.14%
- -------------------------------------------------------------------------------
17 5.14%
- -------------------------------------------------------------------------------
18 5.14%
- -------------------------------------------------------------------------------
19 5.14%
- -------------------------------------------------------------------------------
20 5.12%
- -------------------------------------------------------------------------------
</TABLE>
In addition and notwithstanding anything to the contrary contained in this
Section 2.3 preceding, the Borrower shall pay to the Administrative Agent for
the account of each Lender all outstanding principal of the Loans (and all
outstanding principal of the Loans shall be due and payable) on the Maturity
Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative Agent
for the account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to, but excluding, the date such
Loan shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the
lesser of (A) the Base Rate plus the Applicable Margin or (B) the
Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the
lesser of (A) the Adjusted Eurodollar Rate plus the Applicable Margin
or (B) the Maximum Rate.
CREDIT AGREEMENT - Page 36
<PAGE> 44
(b) Payment Dates. Accrued interest on the Loans shall be due and
payable as follows:
(i) in the case of Base Rate Loans, on each Monthly Date;
(ii) in the case of each Eurodollar Loan, on the last day of
the Interest Period with respect thereto and, in the case of an
Interest Period greater than three months, at three- month intervals
after the first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or
optional) of any Loan or the Conversion of any Loan to a Loan of the
other Type (but only on the principal amount so paid, prepaid or
Converted); and
(iv) with respect to all Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower
shall pay to the Administrative Agent for the account of each Lender interest
at the applicable Default Rate (i) at all times during which any Default has
occurred and is continuing, on any principal of any Loan outstanding, and (ii)
to the fullest extent permitted by law, any other amount payable by the
Borrower under this Agreement or any other Loan Document to or for the account
of such Lender which is not paid in full when due (whether at stated maturity,
by acceleration or otherwise) for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable at
the Default Rate shall be payable from time to time on demand by the
Administrative Agent.
Section 2.5 Borrowing Procedure. The Borrower shall give the
Administrative Agent notice of each borrowing hereunder in accordance with
Section 2.9. Not later than 1:00 p.m. (New York, New York time) on the date
specified for each borrowing hereunder, each Lender will make available the
amount of the Loan to be made by it on such date to the Administrative Agent,
at the Principal Office, in immediately available funds, for the account of the
Borrower. The amount of each borrowing hereunder so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available, for and on behalf of the Borrower, in immediately
available funds by no later than 1:00 p.m. (New York, New York time); provided,
however, that the Administrative Agent may, in its discretion, cause such
amount to be made available directly to or for the benefit of the Person who is
to receive the proceeds of such Loan in accordance with Section 2.10.
Notwithstanding anything to the contrary contained in this Agreement, if and to
the extent that Nortel Networks is a Lender under this Agreement, the Borrower
further hereby irrevocably agrees that each Loan to be advanced by Nortel
Networks to the Borrower in accordance with this Agreement (and only in
accordance with this Agreement and after the Administrative Agent's receipt of
a Notice of Borrowing executed by the Borrower) may (in the discretion of
Nortel Networks and if and to the extent that the proceeds of such Loan are to
be paid to Nortel Networks) be effectively disbursed on the date set forth in
the Notice of Borrowing for such disbursement to the Borrower by virtue of a
credit in the amount of such Loan given to the Borrower under the Supply
Agreement.
CREDIT AGREEMENT - Page 37
<PAGE> 45
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.8, the Borrower shall have the right from time to
time to prepay the Loans in whole or in part, to Convert all or part of a Loan
of one Type into a Loan of another Type or to Continue Eurodollar Loans;
provided that: (a) the Borrower shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9,
(b) Eurodollar Loans may only be Converted on the last day of the Interest
Period and any prepayment of Eurodollar Loans on any day other than the last
day of the Interest Period shall be subject to payment of the additional
compensation specified in Section 4.5, (c) except for Conversions of Eurodollar
Loans into Base Rate Loans, no Conversions or Continuations shall be made while
a Default has occurred and is continuing, and (d) optional prepayments of the
Loans shall be applied pro rata to the principal of the Loans prepaid in the
inverse order of the maturities of the then remaining installments of such
Loans. No amounts prepaid pursuant to this Section 2.6 may be reborrowed.
Section 2.7 Mandatory Prepayments.
(a) Asset Dispositions, etc. The Borrower will, within two Business
Days after any Loan Party receives any Net Proceeds of any Asset Disposition,
proceeds of any Insurance Recovery or proceeds of condemnation awards
aggregating in excess of $250,000 during any period of 12 consecutive months or
less (the amount of such proceeds exceeding $250,000 received during any such
period are herein called the "Excess Proceeds Amount"), pay to the
Administrative Agent, as a prepayment of the Loans, an aggregate amount equal
to the Excess Proceeds Amount; provided, however, that no such prepayment will
be required if and to the extent that the Excess Proceeds Amount is fully
re-invested in productive assets used in the ordinary course of such Loan
Party's business within 60 days of the receipt of such Excess Proceeds Amount
or, if and to the extent that such Excess Proceeds Amount has been, prior to
the expiration of such 60 day period, deposited into a cash collateral account
held by the Administrative Agent pursuant to an agreement in form and substance
satisfactory to the Administrative Agent, within 120 days of the receipt of
such Excess Proceeds Amount; provided, further, however, that the Excess
Proceeds Amount (or portion thereof) not so re-invested within 60 days of the
receipt thereof shall be deposited into a cash collateral account held by the
Administrative Agent pursuant to an agreement in form and substance
satisfactory to the Administrative Agent until such time as such amount is
either re-invested within 120 days of the receipt thereof or applied to the
Loans or other Obligations as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower will, commencing on the first March
31st following the Tranche A Commitment Termination Date and on each March 31st
thereafter, pay (or cause to be paid) to the Administrative Agent, as a
prepayment of the Loans and other Obligations then outstanding, an aggregate
amount equal to 50% of Excess Cash Flow for the fiscal year then most recently
ended.
(c) Borrowing Base. If at any time on or prior to the date that is six
months after the Tranche B Commitment Termination Date, the aggregate
outstanding principal amount of the Tranche B Loans and Tranche C Loans, the
proceeds of which have been used to pay Permitted Third-Party Expenses, exceeds
an amount equal to the lesser of (A) the Permitted Third-Party Expenses
Borrowing Base then in effect (as determined from time to time in accordance
with
CREDIT AGREEMENT - Page 38
<PAGE> 46
Section 2.1(f)) or (B) the aggregate amount of the Tranche B Commitments and
the Tranche C Commitments as of the Tranche B Commitment Termination Date,
then, within one Business Day thereafter, the Borrower shall pay to the
Administrative Agent the amount of such excess as a prepayment of the Tranche B
Loans and/or the Tranche C Loans.
(d) Sale of the Service Area Network. The Borrower shall, concurrently
with any sale, transfer or other disposition of the Service Area Network or any
material portion thereof, prepay in full (i) all outstanding principal amount
of the Loans, (ii) all interest accrued and unpaid with respect to all Loans,
and (iii) all other outstanding Obligations.
(e) Holdings Senior Notes Issuance. The Borrower shall, substantially
concurrently with the date upon which Holdings receives any proceeds of any
issuance of Holdings Senior Notes, pay to the Administrative Agent, as a
prepayment of the Loans, an aggregate amount equal to the lesser of (i)
$75,000,000 or (ii) the aggregate principal amount of the Loans then
outstanding.
(f) Application of Mandatory Prepayments. All prepayments pursuant to
Section 2.7(a) and Section 2.7(b) shall be applied pro rata to the outstanding
principal of the Tranche A Loans, the Tranche B Loans and the Tranche C Loans
(based upon the outstanding principal amounts of such Loans) in the inverse
order of the maturities of the then remaining installments of such Loans and
then to the remaining outstanding Obligations in such order as the
Administrative Agent may determine. All prepayments pursuant to Section 2.7(c)
shall be applied pro rata to the outstanding principal of the Tranche B Loans
and the Tranche C Loans (based upon the outstanding principal amounts of such
Loans) in the inverse order of the maturities of the then remaining
installments of such Loans and then to the remaining outstanding Obligations in
such order as the Administrative Agent may determine. All prepayments pursuant
to Section 2.7(e) shall be applied pro rata to the outstanding principal of the
Tranche A Loans, the Tranche B Loans and the Tranche C Loans (based upon the
outstanding principal amounts of such Loans) and shall be applied pro rata to
the then remaining installments of such Loans.
(h) No Reborrowing. No amounts of the Loans prepaid pursuant to this
Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
optional prepayment of principal of the Loans shall be in an amount at least
equal to $3,000,000 or an integral multiple of $100,000 in excess thereof
(borrowings, prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder shall be deemed separate borrowings, prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the
Administrative Agent of terminations or reductions of Commitments, of
borrowings, Conversions, Continuations and prepayments of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only
if received by the Administrative Agent not later than 11:00 a.m. (New York,
New
CREDIT AGREEMENT - Page 39
<PAGE> 47
York, time) on the Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day
of such Interest Period specified below:
<TABLE>
<CAPTION>
Notice Number of
------ Business Days Prior
-------------------
<S> <C>
Terminations or Reductions of Commitments 1
Borrowings of Loans which are Base Rate Loans 2
Borrowings of Loans which are Eurodollar Loans 3
Prepayments of Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C
hereto, appropriately completed as applicable. Each notice of borrowing (a
"Notice of Borrowing") (a) shall certify that all proceeds of the requested
Loans are, concurrently with the making of such Loans, being used by the
Borrower for the purpose specified in Section 2.10 and (b) shall be accompanied
by such other evidence as to use of the proceeds of such borrowing, as the
Administrative Agent may reasonably request from time to time. Each notice
which includes reference to the duration of an Interest Period shall specify
the Loans to which such Interest Period is to relate. The Administrative Agent
shall promptly notify the Lenders of the contents of each such notice. In the
event the Borrower fails to select the Type of Loan, or the duration of any
Interest Period for any Eurodollar Loan, within the time period and otherwise
as provided in this Section 2.9, such Loan (if outstanding as Eurodollar Loan)
will be automatically Converted into a Base Rate Loan on the last day of
preceding Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
The Borrower may not borrow any Eurodollar Loans, Convert any Loans into
Eurodollar Loans or Continue any Loans as Eurodollar Loans if the interest rate
for such Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Tranche A Loans. The Borrower agrees that all proceeds of the
Tranche A Loans shall be, promptly upon the Borrower's receipt thereof,
contributed as equity to the capital of, or loaned to, the Operating Subsidiary
that is to purchase (or that is to be reimbursed for the prior purchase of)
Nortel Networks Goods and Services with such proceeds and thereupon promptly
used by such Operating Subsidiary to finance (or to reimburse such Operating
Subsidiary for its prior payment of) the purchase price for such Nortel
Networks Goods and Services provided by Nortel Networks for the construction of
the Service Area Network, provided, however, that proceeds of Tranche A Loans
may not be used to finance (or to reimburse the prior payment of) the purchase
CREDIT AGREEMENT - Page 40
<PAGE> 48
price for Nortel Networks Goods and Services initially invoiced more than 12
months prior to the date of the making of such Loans, except that, on or prior
to February 29, 2000, proceeds of Tranche A Loans may be used to reimburse the
prior payment of the purchase price for Nortel Networks Goods and Services
initially invoiced at any time prior thereto.
(b) Tranche B Loans. The Borrower agrees that all proceeds of the
Tranche B Loans shall be, promptly upon the Borrower's receipt thereof,
contributed as equity to the capital of, or loaned to, the Operating Subsidiary
that is to pay (or that is to be reimbursed for the prior payment of) Permitted
Third-Party Expenses with such proceeds and thereupon promptly used by such
Operating Subsidiary to pay (or to reimburse such Operating Subsidiary for its
prior payment of) such Permitted Third-Party Expenses up to an amount equal to
the Permitted Third-Party Expenses Borrowing Base then in effect, provided,
however, that (i) as of any date of determination, the aggregate principal
amount of the Tranche B Loans and the Tranche C Loans at any and all times used
to pay Permitted Third-Party Expenses shall not exceed the Permitted
Third-Party Expenses Borrowing Base then in effect and (ii) proceeds of Tranche
B Loans may not be used to pay (or to reimburse the prior payment of) any
Permitted Third-Party Expenses initially invoiced more than 12 months prior to
the date of the making of such Loans, except that, on or prior to February 29,
2000, proceeds of Tranche B Loans may be used to reimburse the prior payment of
Permitted Third-Party Expenses initially invoiced at any time prior thereto.
(c) Tranche C Loans. The Borrower agrees that all proceeds of the
Tranche C Loans shall be, promptly upon the Borrower's receipt thereof, (i)
used by the Borrower to pay amounts payable under the Administrative Agent's
Letter on the Closing Date if and to the extent expressly permitted in the
Administrative Agent's Letter, (ii) used by the Borrower to pay interest
accrued on the Loans on or before the second anniversary of the Closing Date,
or (iii) contributed as equity to the capital of, or loaned to, the Operating
Subsidiary that is to pay (or that is to be reimbursed for the prior payment
of) Permitted Third-Party Expenses with such proceeds and thereupon promptly
used by such Operating Subsidiary to pay (or to reimburse such Operating
Subsidiary for its prior payment of) such Permitted Third-Party Expenses up to
an amount equal to the Permitted Third-Party Expenses Borrowing Base then in
effect, provided, however, that (A) as of any date of determination, the
aggregate principal amount of the Tranche B Loans and the Tranche C Loans at
any and all times used to pay Permitted Third-Party Expenses shall not exceed
the Permitted Third-Party Expenses Borrowing Base then in effect and (B)
proceeds of Tranche C Loans may not be used to pay (or to reimburse the prior
payment of) any amounts referred to in clauses (i), (ii) and (iii) preceding
initially invoiced more than 12 months prior to the date of the making of such
Loans, except that, on or prior to February 29, 2000, proceeds of Tranche C
Loans may be used to reimburse the prior payment of amounts referred to in
clauses (i), (ii) and (iii) preceding initially invoiced at any time prior
thereto.
(d) Margin Stock. None of the proceeds of any Loan have been or will
be used to acquire any security in any transaction that is subject to Section
13 or 14 of the Exchange Act or to purchase or carry any margin stock (within
the meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System).
CREDIT AGREEMENT - Page 41
<PAGE> 49
Section 2.11 Fees
(a) Subject to Section 13.12, the Borrower shall pay to the
Administrative Agent for the account of each applicable Lender a commitment fee
on the daily average unused or unfunded amount of each of such Lender's
Commitments, for the period from and including the date on which such Lender
(or its predecessor in interest with respect to Commitments assigned to such
Lender as to which a commitment fee has not previously been paid during the
applicable period) became a party hereto to but excluding the Tranche A
Commitment Termination Date, Tranche B Commitment Termination Date or the
Tranche C Commitment Termination Date, as the case may be, at the rate of
three-fourths of one percent (0.75%) per annum based on a 360 day year and the
actual number of days elapsed, which accrued commitment fees shall be payable
in arrears on each Quarterly Date and on the Tranche A Commitment Termination
Date, Tranche B Commitment Termination Date or the Tranche C Commitment
Termination Date, as the case may be; provided, however, that, notwithstanding
the foregoing, the commitment fees referred to in this Section 2.11(a)
preceding shall not commence to accrue until the date that is six months after
the Closing Date.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable unless, in the case of interest, such calculation would
result in a usurious rate, in which case interest shall be calculated on the
basis of a year of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in this
Agreement, each of the Commitments shall automatically terminate upon the
earlier to occur of (i) the occurrence of any Change in Control or (ii) any
sale, transfer or other disposition of the Service Area Network or any material
portion thereof.
(b) Notwithstanding anything to the contrary contained in this
Agreement, on the date Holdings receives any net proceeds of any issuance of
Holdings Senior Notes, the Aggregate Commitments shall be reduced by an
aggregate amount such that, immediately after giving effect to such reduction,
the sum of (i) the aggregate outstanding principal amount of the Loans, plus
(ii) the aggregate outstanding principal amount of the Loans then previously
required to be prepaid or paid in accordance with Section 2.7 or Section 2.3,
respectively, plus (iii) the amount of the Aggregate Commitments does not
exceed $175,000,000. All reductions of the Aggregate Commitments pursuant to
this Section 2.13(b) shall be applied pro rata to reduce the Tranche A
Commitments, the Tranche B Commitments and the Tranche C Commitments (based
upon the outstanding principal amounts of such Commitments).
CREDIT AGREEMENT - Page 42
<PAGE> 50
(c) Notwithstanding anything to the contrary contained in this
Agreement, each of the Tranche A Commitments, the Tranche B Commitments and the
Tranche C Commitments shall automatically be reduced, concurrently with the
making of any Tranche A Loans, Tranche B Loans or Tranche C Loans,
respectively, by an amount equal to the principal amount of such Tranche A
Loans, Tranche B Loans or Tranche C Loans, respectively, advanced; provided,
however, that, at the election of the Borrower and subject to the terms and
provisions of this Agreement, any of the Tranche A Loans, the Tranche B Loans
and/or the Tranche C Loans may be, at the election of the Borrower by its
giving of three Business Days' prior written notice of such election to the
Administrative Agent, increased by an amount not to exceed the amount by which
such Commitment was previously reduced pursuant to Section 2.13(b).
(d) The Borrower shall have the right to terminate or reduce in part
the unused portion of the Tranche A Commitments, the Tranche B Commitments and
the Tranche C Commitments at any time and from time to time prior to the
Tranche A Commitment Termination Date, the Tranche B Commitment Termination
Date and the Tranche C Commitment Termination Date, respectively; provided,
however, that no such termination or reduction shall be effective unless the
Borrower shall have given notice of each such termination or reduction as
provided in Section 2.9, and each partial reduction of the Commitments shall be
in an aggregate amount at least equal to $3,000,000 or an integral multiple of
$100,000 in excess thereof.
(e) Except as provided in Section 2.13(c), the Commitments may not be
reinstated after they have been terminated or increased after they have been
reduced.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal, interest,
fees and other amounts to be made by the Borrower under this Agreement and the
other Loan Documents shall be made to the Administrative Agent at the Principal
Office for the account of each Lender's Applicable Lending Office in Dollars
and in immediately available funds, without setoff, deduction or counterclaim,
not later than 1:00 p.m. (New York, New York time) on the date on which such
payment shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). The
Borrower shall, at the time of making each such payment, specify to the
Administrative Agent the sums payable by the Borrower under this Agreement and
the other Loan Documents to which such payment is to be applied (and in the
event that the Borrower fails to so specify, or if an Event of Default has
occurred and is continuing, the Administrative Agent may apply such payment to
the Obligations in such order and manner as the Administrative Agent may elect,
subject to Section 3.2). Upon the occurrence and during the continuation of an
Event of Default, all proceeds of any Collateral and all other funds of the
Borrower or any Guarantor in the possession of the Administrative Agent or any
Lender, may be applied by the Administrative Agent to the Obligations in such
order and manner as the Administrative Agent may elect, subject to Section 3.2.
Each payment received by the Administrative Agent under this Agreement or any
other Loan Document for the account of a Lender shall be paid promptly to such
Lender, in immediately available funds, for the account of such
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Lender's Applicable Lending Office. Whenever any payment under this Agreement
or any other Loan Document shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of the
payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided in this Agreement: (a) each Loan shall be made by the Lenders under
Section 2.1, each payment of commitment fees under Section 2.11(a) shall be
made for the account of the Lenders, and each termination or reduction of the
Commitments under Section 2.13 shall be applied to the Commitments of the
Lenders, pro rata according to the respective unused Commitments; (b) the
making, Conversion and Continuation of Loans of a particular Type (other than
Conversions provided for by Section 4.4) shall be made pro rata among the
Lenders holding Loans of such Type according to the amounts of their respective
Commitments; (c) each payment and prepayment by the Borrower of principal of or
interest on Loans of a particular Type shall be made to the Administrative
Agent for the account of the Lenders holding Loans of such Type pro rata in
accordance with the respective unpaid principal amounts of such Loans held by
such Lenders; and (d) Interest Periods for Loans of a particular Type shall be
allocated among the Lenders holding Loans of such Type pro rata according to
the respective principal amounts held by such Lenders.
Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain payment
of any principal of or interest on any of the Obligations due to such Lender
hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from
the other Lenders participations in the Obligations held by the other Lenders
in such amounts, and make such adjustments from time to time, as shall be
equitable to the end that all the Lenders shall share pro rata in accordance
with the unpaid principal and interest on the Obligations then due to each of
them. To such end, all of the Lenders shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if all or any
portion of such excess payment is thereafter rescinded or must otherwise be
restored. Each of the Loan Parties agrees, to the fullest extent it may
effectively do so under applicable law, that any Lender so purchasing a
participation in the Obligations by the other Lenders may exercise all rights
of setoff, banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Obligations in
the amount of such participation. Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness, liability or obligation of any of the Loan Parties.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the Borrower
(the "Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or
the Borrower is to make a payment to the Administrative Agent for the account
of one or more of the Lenders, as the case may be (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
that the Payor does not intend to make the Required Payment to the
Administrative Agent, the Administrative Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the
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Payor has not in fact made the Required Payment to the Administrative Agent,
the recipient of such payment shall, on demand, pay to the Administrative Agent
the amount made available to it together with interest thereon in respect of
the period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
Section 3.5 Taxes.
(a) All payments by the Borrower and/or any Guarantor of principal of
and interest on the Loans and of all fees and other amounts payable under the
Loan Documents shall be made free and clear of, and without withholding or
deduction by reason of, any present or future taxes, levies, duties, imposts,
assessments or other charges levied or imposed by any Governmental Authority
(other than franchise taxes and taxes on the overall net income of any Lender).
If any such taxes, levies, duties, imposts, assessments or other charges are so
levied or imposed, the Borrower will (i) make additional payments in such
amounts so that every net payment of principal of and interest on the Loans and
of all other amounts payable by it under the Loan Documents, after withholding
or deduction for or on account of any such present or future taxes, levies,
duties, imposts, assessments or other charges (including any tax imposed on or
measured by net income of a Lender attributable to payments made to or on
behalf of a Lender pursuant to this Section 3.5 and any penalties or interest
attributable to such payments), will not be less than the amount provided for
herein or therein absent such withholding or deduction (provided that the
Borrower shall not have any obligation to pay such additional amounts to any
Lender to the extent that such taxes, levies, duties, imposts, assessments or
other charges are levied or imposed by reason of the failure of such Lender to
comply with the provisions of Section 3.6), (ii) make such withholding or
deduction and (iii) remit the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law. Without limiting the
generality of the foregoing, the Borrower will, upon written request of any
Lender, reimburse each such Lender for the amount of (A) such taxes, levies,
duties, imports, assessments or other charges so levied or imposed by any
Governmental Authority and paid by such Lender as a result of payments made by
the Borrower under or with respect to the Loans other than such taxes, levies,
duties, imports, assessments and other charges previously withheld or deducted
by the Borrower which have previously resulted in the payment of the required
additional amount to such Lender, and (B) such taxes, levies, duties,
assessments and other charges so levied or imposed with respect to any Lender
reimbursement under the foregoing clause (A), so that the net amount received
by such Lender (net of payments made under or with respect to the Loans) after
such reimbursement will not be less than the net amount such Lender would have
received if such taxes, levies, duties, assessments and other charges on such
reimbursement had not been levied or imposed. The Borrower shall furnish
promptly to the Administrative Agent for distribution to each affected Lender,
as the case may be, upon request of such Lender, official receipts evidencing
any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each
Lender (without duplication) against, and reimburse the Administrative Agent
and each Lender for, all present and future taxes, levies, duties, imposts,
assessments or other charges (including interest and penalties) levied or
collected (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on the overall net income of
the Administrative Agent or
CREDIT AGREEMENT - Page 45
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such Lender or any lending office of the Administrative Agent or such Lender by
any jurisdiction in which the Administrative Agent or such Lender or any such
lending office is located, on or in respect of this Agreement, any of the Loan
Documents or the Obligations or any portion thereof (the "reimbursable taxes").
Any such indemnification shall be on an after-tax basis, taking into account
any such reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision
of this Agreement, the obligations of the Borrower and the Guarantors under
this Section 3.5 shall survive the payment of the Loans and the other
Obligations and termination of the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent two duly
completed copies of U.S. Internal Revenue Service Form W-8ECI or W-8BEN or
other equivalent successor form, as appropriate, certifying in any case that
such Lender is entitled to receive payments from the Borrower under any Loan
Document without deduction or withholding of any U.S. federal income taxes.
Each Lender which so delivers a Form W-8ECI or W-8BEN or other equivalent
successor form, as appropriate, further undertakes to deliver to the Borrower
and the Administrative Agent two additional copies of such form (or a successor
form) on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any U.S. federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the
Administrative Agent that it is not capable of receiving such payments without
any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to
the contrary contained in this Agreement or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Loans or
any other amount of the Obligations, or any portion thereof, is rescinded,
voided or must otherwise be refunded by the Administrative Agent or any Lender
upon the insolvency, bankruptcy or reorganization of any Loan Party or
otherwise for any reason whatsoever, then each of (a) the Obligations, (b) the
Loan Documents (including, without limitation, this Agreement, the Notes and
the Security Documents), (c) the indebtedness, liabilities and obligations of
the Borrower and any other Loan Parties and (d) all Liens for the benefit of
the Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
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Section 3.8 No Force Majeure, Disputes. The obligations of the
Borrower and the other Loan Parties (as applicable), or any one or more of
them, to pay all amounts due under the Loans and the other Obligations shall
not be affected by (a) any set-off, counterclaim, recoupment, deduction,
abatement, suspension, diminution, reduction, defense or other right which the
Borrower or any other Loan Party may have against the Vendor for any reason
whatsoever arising under or pursuant to the Supply Agreement or otherwise
relating to the purchase of goods or services from the Vendor, (b) any defect
in the condition, design, operation or fitness for use of, or any damage to or
loss or destruction of, any equipment or material or service provided by the
Vendor, (c) any insolvency, bankruptcy, reorganization or similar proceedings
by or against the Borrower or any other Loan Party or affecting any of its
Properties, (d) any action of any Governmental Authority or any damage to or
destruction of or any taking of the Property of the Borrower or any other Loan
Party or any part thereof, (e) any change, waiver, extension, indulgence or
failure to perform or comply with, or other action or omission herein or in the
other Loan Documents (except for express written modifications to this
Agreement or other Loan Documents as and in the manner permitted under this
Agreement or the other Loan Documents), (f) any dissolution of the Borrower or
any other Loan Party, (g) any inability or illegality with respect to the use
or ownership of the Property of the Borrower or any other Loan Party, (h) any
failure to obtain, or expiration, suspension or other termination of, or
interruption to, any required licenses, permits, consents, authorizations,
approvals or other legal requirements, (i) the invalidity or unenforceability
of any of the Loan Documents or any other infirmity therein or any lack of
power or authority of the Administrative Agent or any Lender or the Borrower or
any other Loan Party, or (j) any other event or circumstance whatsoever,
whether or not similar to any of the foregoing and whether or not the Borrower
or any other Loan Party shall have notice or knowledge of any of the foregoing,
it being the intention of the Administrative Agent and the Lenders and the
Borrower and the other Loan Parties that the Obligations of the Borrower and/or
the other Loan Parties (as applicable) shall be absolute and unconditional and
shall be separate and independent covenants and agreements and shall continue
unaffected unless the requirements to pay or perform the same shall have been
terminated pursuant to an express provision thereof or of any of the other Loan
Documents.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any Eurodollar Loans or its obligation to make any of such Loans, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or its Notes in respect of any of
such Loans (other than taxes imposed on the overall net income of such
Lender or its Applicable Lending Office for any of such Loans
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by the jurisdiction in which such Lender has its principal office or
such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio or similar requirement relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, such Lender (including any of such
Loans or any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.1 hereof, but excluding the Reserve Requirement to
the extent it is included in the calculation of the Adjusted
Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or
the Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after
it obtains knowledge thereof and determines to request such compensation, and
(if so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
obligation to so designate an Applicable Lending Office located in the U.S.
Each Lender will furnish the Borrower with a certificate setting forth the
basis and the amount of each request of such Lender for compensation under this
Section 4.1(a). If any Lender requests compensation from the Borrower under
this Section 4.1(a), the Borrower may, by notice to such Lender (with a copy to
the Administrative Agent), suspend the obligation of such Lender to make or
Continue making, or Convert Base Rate Loans into, Eurodollar Loans until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the
obligation of such Lender to make or Continue making, or Convert Base Rate
Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section 4.4
hereof shall be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
CREDIT AGREEMENT - Page 48
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in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis. Notwithstanding anything to the
contrary contained herein, the Borrower shall not be required to make any
payment of Additional Costs to any Lender pursuant to this Section 4.1 with
respect to Additional Costs relating to any period of time which is more than
180 days prior to such Lender's request for such Additional Costs, provided
that the foregoing provisions of this sentence shall not apply to Additional
Costs attributable to any Regulatory Change which takes effect retroactively.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the relative
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate"
or "Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the
rate of interest for such Loans for such Interest Period is to be determined do
not accurately reflect the cost to the Lenders of making or maintaining such
Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof
and, so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms
of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans
(or, in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on
such earlier date as such Lender may specify to the Borrower with a copy to the
Administrative Agent) and, unless and until such Lender
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gives notice as provided below that the circumstances specified in Section 4.1
or 4.3 hereof which gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made as or Converted into Base Rate Loans
and all Loans of such Lender which would otherwise be Converted into Eurodollar
Loans shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such
Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall
be automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding
Loans pursuant to Section 11.2) on a date other than the last day of an
Interest Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to
be satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for
such borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender
shall have determined that the adoption or implementation of any applicable
law, rule or regulation regarding capital adequacy (including, without
limitation, any law, rule or regulation implementing the Basle Accord), or any
change therein, or any change in the interpretation or administration thereof
by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or compliance by such Lender (or its
parent) with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any central bank or other
Governmental Authority (including, without limitation, any guideline or other
requirement implementing the Basle Accord), has or would have the effect of
reducing the rate of return on such Lender's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions
CREDIT AGREEMENT - Page 50
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contemplated hereby to a level below that which such Lender (or its parent)
could have achieved but for such adoption, implementation, change or compliance
(taking into consideration such Lender's policies with respect to capital
adequacy) by an amount reasonably deemed by such Lender to be material, then
from time to time, within ten Business Days after demand by such Lender (with a
copy to the Administrative Agent), the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender (or its parent) for
such reduction. A certificate of such Lender claiming compensation under this
Section 4.6 and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive absent manifest error, provided that the
determination thereof is made on a reasonable basis. In determining such amount
or amounts, such Lender may use any reasonable averaging and attribution
methods. Notwithstanding anything to the contrary contained herein, the
Borrower shall not be required to make any payment of additional amounts to any
Lender pursuant to this Section 4.6 with respect to additional amounts relating
to any period of time which is more than 180 days prior to such Lender's
request for such additional amounts, provided that the foregoing provisions of
this sentence shall not apply to additional amounts attributable to any
Regulatory Change which takes effect retroactively.
Section 4.7 Additional Interest on Eurodollar Loans. Without
duplication of Section 2.4 or amounts directly included in the definition of
the term "Adjusted Eurodollar Rate", the Borrower shall pay, directly to each
Lender from time to time, additional interest on the unpaid principal amount of
each Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest
rate per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the
Borrower shall not be obligated to make any such payment of additional interest
until the first Business Day after the date when the Borrower has been informed
(i) that such Lender is subject to a Reserve Requirement and (ii) of the amount
of such Reserve Requirement (after which time the Borrower shall be obligated
to make all such payments of additional interest, including, without
limitation, such payment of additional interest that otherwise would have been
payable by the Borrower on or prior to such time had the Borrower been earlier
informed).
Section 4.8 Replacement of Lenders. If at any time a Lender, other
than Nortel Networks, becomes a Gross Up Lender, the Borrower shall have the
right to replace such Lender with another Person; provided that (a) such other
Person shall be an Eligible Assignee and such other Person shall execute an
Assignment and Acceptance, (b) neither the Administrative Agent nor any Lender
shall have any obligation to the Borrower to find such other Person, (c) in the
event of a replacement of a Gross Up Lender, in order for the Borrower to be
entitled to replace such Lender, such replacement must take place no later than
180 days after the date the Gross Up Lender shall notify the Borrower and the
Administrative Agent of its desire to be paid any amounts pursuant to Section
3.5, 4.1 or 4.6, and (d) if the Borrower replaces one Gross Up Lender, it must
replace all Gross Up Lenders or replace all Gross Up Lenders on a pro rata
basis. Each Lender, other than Nortel Networks, agrees to its replacement at
the option of the Borrower pursuant to this Section 4.8 and in accordance with
Section 13.8; provided that the successor Lender shall purchase without
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recourse such Lender's interest in the Obligations of the Borrower to such
Lender for cash in an aggregate amount equal to the aggregate unpaid principal
thereof, all unpaid interest accrued thereon, all unpaid commitment fees
accrued for the account of such Lender, any breakage costs incurred by the
selling Lender because of the prepayment of any Eurodollar Loans, all other
fees (if any) applicable thereto and all other amounts (including any amounts
under this Article 4) then owing to such Lender hereunder or under any other
Loan Document and the Loan Parties shall execute a release addressed to such
Lender releasing such Lender from all claims arising in connection with the
Loan Documents.
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, the Borrower, Holdings and the Operating
Subsidiaries will (as applicable), and will cause each of the Loan Parties (as
applicable) to, grant to the Administrative Agent for the benefit of the
Administrative Agent and the Lenders a perfected, first priority Lien on all of
its right, title and interest in and to the Collateral, whether now owned or
hereafter acquired, pursuant to the Security Documents, including, without
limitation, the following:
(a) all Capital Stock of the Borrower and the Subsidiaries of Holdings
and the Borrower owned by Holdings, the Borrower or any Subsidiary of Holdings
or the Borrower, other than Capital Stock of Unrestricted Subsidiaries of
Holdings;
(b) all of the Property (as such Property is more specifically
described in the Security Documents), including tangible and intangible
property and real and personal property, of Holdings and the Borrower and each
Subsidiary of Holdings or the Borrower, other than Property of the Unrestricted
Subsidiaries of Holdings, including, without limitation, the following:
Investments (including certificates of deposit); accounts; inventory
(including, without limitation, work in process); equipment; deposit accounts
(including cash collateral accounts); brokerage accounts; instruments;
Operating Assets; the Sprint Agreements; contract rights (including, without
limitation, all contracts relating to the construction or operation of the
Service Area Network, including rights of way, easements, leases and all
related contracts, and all consents and waivers necessary or appropriate from
all parties to such contracts, including, without limitation, all consents and
waivers necessary or appropriate to permit the collateral assignment of or
security interest granted in such contracts); customer deposits in connection
with purchase orders; general intangibles; real Property and interests therein
(if and to the extent required pursuant to Section 5.4); instruments; chattel
paper; Permits; Intellectual Property; and intercompany Debt (including,
without limitation, Debt of the Borrower or any of its Subsidiaries owed to or
held by Holdings); provided, however, that Holdings shall not be required to
grant to the Administrative Agent a security interest in (i) any identifiable
cash proceeds of the issuance of the Holdings Public Offering or any
identifiable cash proceeds of the issuance of the Holdings Senior Notes or (ii)
any dividends, distributions or other amounts received by Holdings from its
Unrestricted Subsidiaries, in each case (i.e., as to each of clause (i) and
clause (ii) preceding) if and to the extent (but only if and to the extent)
that such proceeds (A) are not, and are not required to be, contributed or
otherwise paid or transferred to the
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Borrower or any Subsidiary of the Borrower and (B) are held in a segregated
deposit, securities or similar account of Holdings and are not commingled with
other cash, securities or properties of Holdings; and
(c) all cash and non-cash proceeds and products of any of the
foregoing.
Section 5.2 Guaranties. (a) Holdings and each of the Operating
Subsidiaries will Guarantee the payment and performance of the Obligations
pursuant to the Guaranties, and (b) the Borrower, Holdings and the Operating
Subsidiaries will cause (i) Holdings, (ii) each of the Subsidiaries of Holdings
(whether owned as of the Closing Date or thereafter organized or created),
other than Unrestricted Subsidiaries of Holdings, and (iii) each of the
Subsidiaries of the Borrower (whether owned as of the Closing Date or
thereafter organized or created) to Guarantee the payment and performance of
the Obligations pursuant to the Guaranties.
Section 5.3 New Subsidiaries; Additional Capital Stock.
Contemporaneously with the creation or acquisition of any Subsidiary of
Holdings or the Borrower after the Closing Date other than an Unrestricted
Subsidiary of Holdings, the Borrower, Holdings and the Operating Subsidiaries
shall (as applicable):
(a) grant or cause to be granted to the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority security
interest in all Capital Stock of such Subsidiary owned by Holdings or the
Borrower or any Subsidiary of Holdings or the Borrower (to the extent such
Capital Stock was not previously pledged to the Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and
performance of the Obligations by executing and delivering to the
Administrative Agent a Guaranty or a joinder therein acceptable to the
Administrative Agent; and
(c) cause each such Subsidiary to execute and deliver to the
Administrative Agent a Security Agreement and such other Security Documents, in
form and substance acceptable to the Administrative Agent, as the
Administrative Agent may request to grant the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority Lien on all
Property of such Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of the
Borrower or any Subsidiary of Holdings or the Borrower after the Closing Date,
other than Capital Stock of an Unrestricted Subsidiary of Holdings, the
Borrower, Holdings and the Operating Subsidiaries shall, or shall cause
Holdings or the appropriate Subsidiary of Holdings or the Borrower to (as
applicable), grant or cause to be granted to the Administrative Agent, for the
benefit of the Administrative Agent and the Lenders, a perfected, first
priority security interest in all Capital Stock or other ownership interests in
the Borrower or any Subsidiary of Holdings or the Borrower, other than Capital
Stock of an Unrestricted Subsidiary of Holdings, owned by the Borrower or
Holdings or any such Subsidiary of Holdings or the Borrower (to the extent such
Capital Stock or other ownership interests are already not so pledged to the
Administrative Agent). Each of the Borrower, Holdings and the Operating
Subsidiaries covenants that none of the Capital Stock to be pledged in
accordance with
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this Section 5.3 shall be subject to any transfer restriction, shareholders'
agreement or other restriction except for such restrictions under applicable
securities laws, such restrictions existing as of the Closing Date which have
been disclosed to the Administrative Agent in the Security Documents and such
restrictions, if any, as may be reasonably acceptable to the Administrative
Agent. In connection with and in addition to the foregoing, each of the Loan
Parties shall, and shall cause each other appropriate Person (as applicable)
to, execute and/or deliver such further agreements, documents and instruments
(including, without limitation, stock certificates, stock powers and financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Section 5.3.
Section 5.4 Mortgaged Properties; Landlord Subordinations or Waivers.
The Borrower, Holdings and the Operating Subsidiaries shall, and shall cause
each of the other Loan Parties to, on the Closing Date (with respect to any fee
real Property owned on such date) or contemporaneously with the acquisition of
any fee real Property (with respect to any fee real Property acquired after the
Closing Date), execute, acknowledge and deliver to the Administrative Agent a
Mortgage or an amendment or modification to an existing Mortgage covering all
fee real Property owned on the Closing Date or acquired by the Borrower or any
such Loan Party subsequent to the Closing Date, together with evidence
satisfactory to the Administrative Agent and its counsel that the Mortgage
creates a valid, first priority Lien on the fee estate, in favor of the
Administrative Agent for the benefit of the Administrative Agent and the
Lenders, a mortgagee policy of title insurance insuring the Administrative
Agent's first priority Lien status created by each such Mortgage, a current
survey certified to the Administrative Agent and the Lenders, an appraisal
complying with all applicable regulatory requirements, and an environmental
survey acceptable to the Administrative Agent, all of which shall be in form
and substance reasonably satisfactory to the Administrative Agent; provided,
however, that, with respect to any particular parcel of real Property having a
fair market value (inclusive of fixtures) of $250,000 or less, a mortgagee
policy of title insurance and a current survey shall not be required to be
provided if the aggregate fair market value (inclusive of fixtures) of all real
Property as to which the same have not been provided does not exceed
$1,000,000; provided, further, however, that a mortgagee policy of title
insurance shall be required to be provided with respect to each real Property
as to which an owner's policy of title insurance has been or is being obtained
and a current survey shall be required to be provided if available. In
addition, if reasonably requested by the Administrative Agent, the Borrower,
Holdings and the Operating Subsidiaries shall, and shall cause each of the
other Loan Parties with an interest in such Property to, provide the
Administrative Agent with a current environmental assessment of such Property
in form and substance reasonably satisfactory to the Administrative Agent. With
respect to each lease of real Property as to which the Borrower or any other
Loan Party is lessee, the Borrower, Holdings and the Operating Subsidiaries
will, and will cause each of the other Loan Parties to, obtain subordinations
or waivers of landlord's Liens from each lessor and other agreements from such
lessor and its lenders necessary or appropriate to ensure Administrative
Agent's perfected, first priority Lien on the Collateral or Property affected
thereby, the Administrative Agent's access to such Collateral or Property and
the right of the Administrative Agent, the Lenders or their designee to succeed
to the rights of the Borrower or such other Loan Party that is the lessee under
such lease, in each case in form and substance reasonably satisfactory to the
Administrative Agent.
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Section 5.5 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower or any other Loan Party (any such notice being
hereby expressly waived by the Borrower and the other Loan Parties), to set off
and apply any and all deposits (general or special, time or demand, provisional
or final excluding any trust accounts) at any time held and other indebtedness
at any time owing by such Lender to or for the credit or the account of the
Borrower or any Guarantor against any and all of the Obligations of the
Borrower or such Guarantor now or hereafter existing under this Agreement, such
Lender's Note or any other Loan Document, irrespective of whether or not the
Administrative Agent or such Lender shall have made any demand under this
Agreement, such Lender's Note or any such other Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower (with a copy to the Administrative Agent) after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights and remedies of each Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which such Lender may have.
Section 5.6 Further Assurances. In addition to the foregoing, the
Borrower, Holdings and the Operating Subsidiaries will, and will cause each of
the other Loan Parties (as applicable) to, execute and/or deliver such further
agreements, documents and instruments (including, without limitation, Security
Documents and financing statements) as the Administrative Agent may reasonably
request from time to time in order for it to obtain and maintain valid,
perfected first priority Liens required to be granted to secure the payment and
performance of the Obligations in accordance with this Article 5.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Lender
to make its initial Loan under this Agreement is subject to completion of
Lenders' due diligence review of each of the Loan Parties and the receipt by
the Administrative Agent, on or before the Closing Date, of all of the
following in form and substance satisfactory to the Administrative Agent and,
in the case of actions to be taken, the taking of the following required
actions and evidence that such actions have been taken to the satisfaction of
the Administrative Agent:
(a) Resolutions. Resolutions of the Board of Directors or equivalent
governing body (as applicable) certified by the Secretary or an Assistant
Secretary (or equivalent officer or representative) of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the
Loan Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary (or equivalent officer or
representative) of each Loan Party certifying as to the name of each officer or
other representative of such Loan Party (i) who is authorized to sign the Loan
Documents to which it is or is to be a party (including any certificates
contemplated therein), together with specimen signatures of each such officer
or other representative, and (ii) who will, until
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replaced by other officers or representatives duly authorized for that purpose,
act as its representative for the purposes of signing documents and giving
notices and other communications in connection with the Loan Documents and the
transactions contemplated thereby;
(c) Certificate of Incorporation, Etc. The certificate of
incorporation, articles of incorporation, certificate of formation, certificate
of organization, partnership agreement or other analogous constitutional
documents of each Loan Party certified by the Secretary of State or other
applicable Governmental Authority of the state of incorporation, formation or
organization of such entity and dated as of a Current Date;
(d) Bylaws, Etc. The bylaws, partnership agreement, operating
agreement, regulations or other analogous constitutional documents of each Loan
Party certified by its Secretary or an Assistant Secretary (or equivalent
officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials
as to the existence and good standing of each Loan Party in its jurisdiction of
incorporation, formation or organization and in all jurisdictions in which such
Loan Party is qualified or is required to qualify to do business as a foreign
entity, each such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to each of its Commitments);
(g) Mortgages. As required by Section 5.4, each of the Loan Parties
shall execute Mortgages in favor of the Administrative Agent for the benefit of
the Lenders covering all real property owned by such Loan Party, and with
respect to each tract of real property owned by such Loan Party, except as may
not be required pursuant to Section 5.4, shall provide to the Administrative
Agent a mortgagee policy of title insurance insuring the Administrative Agent's
first priority Lien status created by each such Mortgage, a current survey
certified to the Administrative Agent and the Lenders, an appraisal complying
with all applicable regulatory requirements and an environmental survey
acceptable to the Administrative Agent;
(h) Security Agreements and Other Security Documents. Security
Agreements and other Security Documents executed by each of the Loan Parties
pertaining to the Collateral owned by such Loan Party or in which such Loan
Party has rights sufficient to create a Lien (one such Security Agreement
executed by each such Loan Party) together with all related financing
statements and other filings, consents to collateral assignments from all
parties to all Material Contracts included as part of the Collateral in form
and substance acceptable to the Administrative Agent, delivery of all pledged
Capital Stock and instruments constituting Collateral, together with
appropriate stock or unit powers and endorsements thereto and, with respect to
each existing lease of real Property by any Loan Party, waivers of landlord's
Liens from each lessor and other agreements from such lessor and its lenders
necessary or appropriate to ensure Administrative Agent's perfected, first
priority Lien on the Collateral or Property affected thereby, the
Administrative Agent's access to such Collateral or Property and the right of
the Administrative Agent, the Lenders or their designee to succeed to the
rights of such Loan Party that is the lessee under the lease, in each case in
form and substance reasonably satisfactory to the Administrative Agent; and all
Liens in favor of the Administrative
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Agent securing the payment or performance of the Obligations shall have been
created and perfected with respect to all Collateral and shall constitute
valid, perfected first priority Liens (subject only to Permitted Liens which
are expressly permitted to have equal or greater priority in accordance with
this Agreement);
(i) Insurance Certificates and Policies. Certificates evidencing all
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance
policies;
(j) Lien Searches. Lien searches in the name of each Loan Party (and
in all names under which any of them has done business within the last five
years) in each jurisdiction where such Loan Party maintains an office or has
Property, showing no financing statements or other Lien instruments of record
affecting the Collateral except for Permitted Liens;
(k) Supply Agreement. Amendment No. 4 to the Supply Agreement shall
have been executed and delivered by all parties thereto and shall, subject to
the terms and conditions thereof, obligate the Borrower and the Operating
Subsidiaries to purchase at least $167,000,000 worth of Nortel Networks Goods
and Services, and the Administrative Agent shall have received a photocopy of
such amendment the Supply Agreement as so executed and delivered, certified by
a Responsible Officer of the Borrower as being a true and correct copy of such
document as of the Closing Date;
(l) Holdings Public Offering and Holdings Senior Notes Issuance. The
Holdings Public Offering shall have been completed and the Holdings Senior
Notes shall have been issued and, in connection therewith, not less than
$210,000,000 of the net cash proceeds thereof shall have been received by
Holdings and contributed by Holdings as equity to the capital of the Borrower,
all to the reasonable satisfaction of the Administrative Agent, and, as a
result thereof and as a result of any other contributions to the equity capital
of Holdings and the Borrower prior to the Closing Date, the total contributed
equity capital of the Borrower as of the Closing Date shall not be less than
$250,000,000;
(m) Payment of Interest, Fees and Expenses. The Borrower shall have
paid in full to the Administrative Agent (i) all interest accrued and unpaid
with respect to the Original Loans, (ii) all fees accrued and unpaid with
respect to the Original Credit Agreement and/or any commitment thereunder,
(iii) all fees due on or before the Closing Date as specified in this Agreement
or in the Administrative Agent's Letter and (iv) all fees, costs and expenses
of or incurred by the Administrative Agent and/or its counsel to the extent
billed on or before the Closing Date and payable pursuant to the Original
Credit Agreement or this Agreement;
(n) Compliance with Laws. As of the Closing Date, the Borrower and the
other Loan Parties shall have complied in all material respects with all
Governmental Requirements necessary to consummate the transactions contemplated
by this Agreement and the other Loan Documents;
(o) No Prohibitions. No Governmental Requirement shall prohibit the
consummation of the transactions contemplated by this Agreement or any other
Loan Document, and no order, judgment or decree of any Governmental Authority
or arbitrator shall, and no litigation or other
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proceeding shall be pending or, to the any Loan Party's knowledge, threatened
which would, enjoin, prohibit, restrain or otherwise adversely affect in any
material manner the consummation of the transactions contemplated by this
Agreement and the other Loan Documents or otherwise have a Material Adverse
Effect;
(p) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2;
(q) Opinions of Counsel. Favorable legal opinions of counsel for the
Loan Parties, in form and substance and issued by law firms satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents, and a favorable legal opinion of regulatory counsel to the Loan
Parties in form and substance satisfactory to the Administrative Agent;
(r) Legal Matters and Loan Documents. All matters of a legal nature
relating to the Loan Parties and the Loan Documents shall be reasonably
satisfactory to the Administrative Agent and its counsel, and the
Administrative Agent shall have received all such other agreements, documents
and instruments, each in form and substance and executed and delivered by all
parties, as the Administrative Agent may have reasonably requested to receive;
(s) Business Plan. A copy of the Business Plan in form and substance
satisfactory to the Administrative Agent;
(t) Material Contracts. A true and correct and fully-executed copy of
each of the Material Contracts in existence as of the Closing Date, including,
without limitation, the Sprint Agreements and the Consents and Agreements (each
of which must be in existence as of the Closing Date) in form and substance
satisfactory to the Administrative Agent;
(u) Permits. Copies of all PCS Licenses and all other material Permits
affecting each Loan Party or necessary in connection with the construction or
operation of the Service Area Network or in connection with its businesses or
any of the Properties owned or leased by it or its businesses to be conducted
and Properties to be owned or leased as contemplated by the Sprint Agreements
and the Business Plan, and evidence satisfactory to the Administrative Agent
that each Loan Party is able to conduct its businesses conducted and to be
conducted as contemplated by the Sprint Agreements and the Business Plan with
the use of such PCS Licenses and Permits in full force and effect; and the
Administrative Agent shall be satisfied that (i) the Borrower and the Operating
Subsidiaries have the exclusive, unrestricted right to use each of such PCS
Licenses and Permits, as applicable, pursuant to license agreements or other
agreements, documents or instruments in form and substance reasonably
satisfactory to the Administrative Agent and (ii) each of Sprint PCS, the
Borrower and the Operating Subsidiaries has complied with all initial and
on-going conditions of the issuance and use of all such PCS Licenses and
Permits and all other terms and provisions thereof; without limiting the
generality of the foregoing, the Administrative Agent shall have received (A)
copies of all Permits evidencing that the Borrower and the Operating
Subsidiaries hold all Permits necessary to construct and operate the Service
Area Network, other than the PCS Licenses for the Service Area held by Sprint
PCS under which the Borrower and the Operating Subsidiaries
CREDIT AGREEMENT - Page 58
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will operate pursuant to the Sprint Agreements, and (B) evidence satisfactory
to the Administrative Agent that (1) Sprint PCS holds all PCS Licenses for the
Service Area, (2) the Borrower and the Operating Subsidiaries hold all
necessary or appropriate Permits from any state public utility commission, (3)
all such PCS Licenses and Permits referred to in clauses (1) and (2) preceding
have been duly issued by the FCC and the appropriate state public utility
commission, respectively, and (4) the Borrower and the Operating Subsidiaries,
and the Administrative Agent as the collateral assignee from the Borrower and
the Operating Subsidiaries, have the exclusive, unrestricted right to use all
such PCS Licenses and Permits referred to in clauses (1) and (2) preceding
pursuant to the Sprint Agreements and such other agreements as have been
approved by the Administrative Agent;
(v) Waivers and Consents. To the extent not referred to in clause (h)
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by each Loan Party of the Loan Documents to
which it is a party, including, without limitation, any waivers and consents in
connection with the Supply Agreement as the Administrative Agent may require
and the grant of a security interest in each Material Contract of each Loan
Party, which waivers and consents shall be certified by a Responsible Officer
of the Borrower (or other applicable Loan Party) as true and correct copies of
such consents as of the Closing Date;
(w) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the Loan
Documents have been made and obtained, as applicable;
(x) No Material Adverse Change. As of the Closing Date, (i) no
material adverse change shall have occurred with respect to the financial
condition, results of operations, businesses, operations, capitalization,
indebtedness, liabilities, obligations, profitability or prospects or
Properties or of the general affairs or management of the Borrower and its
Subsidiaries, taken as a whole, or of the Borrower, in each case since
September 30, 1999, (ii) no disruption or adverse change in the capital markets
generally or in the market for loan syndications in particular shall have
occurred since September 30, 1999, which disruption or adverse change is deemed
material in the judgment of the Administrative Agent, and (iii) the
Administrative Agent shall be satisfied that the financial performance of the
Borrower and its Subsidiaries and of the Borrower to the Closing Date is not
materially different from the financial projections for such Person(s) through
the Closing Date that were previously submitted to the Administrative Agent;
(y) Form U-1. If requested by the Administrative Agent, a Form U-1
relating to any margin stock which directly or indirectly secures the
Obligations or any part thereof;
(z) Management and Management Agreements. The Borrower shall have
hired and retained as employees an experienced telecom management team
reasonably satisfactory to the Administrative Agent and the Required Lender,
which management team shall include, at a minimum, a chief executive officer,
chief financial officer, chief operating officer and chief technology officer,
each of whom shall have entered into an employment agreement with the Borrower
providing for an employment term of not less than two years and appropriate
non- competition and non-disclosure agreements, each of which employment
agreements shall be in form and substance reasonably satisfactory to the
Administrative Agent;
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(aa) Solvency Certificate. A certificate from Holdings and the
Borrower certifying that each of the Loan Parties is Solvent, together with
contribution agreements between and among each of the Loan Parties other than
the Borrower as the Administrative Agent may reasonably require; and
(bb) Reorganization Transactions. Each of the Reorganization
Transactions shall have been consummated in accordance with the terms and
provisions of the agreements and documents governing such transactions, and
true and correct copies of such agreements and documents shall have been
delivered to the Administrative Agent.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6. 1 to permit the
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions
precedent set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Section 6.1 and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material
Adverse Effect shall have occurred and be continuing, or would result from such
Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Loan Parties contained in this Agreement and in the other
Loan Documents shall be true and correct on and as of the date of such Loan
with the same force and effect as if such representations and warranties had
been made on and as of such date unless they relate solely to an earlier date;
(c) Ratio of Total Debt to Contributed Capital. After giving effect to
the requested Loan, the ratio of Total Debt of the Borrower and its
Consolidated Subsidiaries to Contributed Capital of the Borrower is less than
or equal to 1.50 to 1.00;
(d) Permitted Third-Party Expenses Borrowing Base. After giving effect
to the requested Loan, the aggregate amount of proceeds of the Loans (including
the Original Loans) used to pay Permitted Third-Party Expenses shall not exceed
the Permitted Third-Party Expenses Borrowing Base;
(e) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and the Borrower shall
have delivered to the Administrative Agent such further evidence thereof (if
any) as the Administrative Agent may reasonably request;
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(f) Third-Party Expenses Borrowing Base Report. The Administrative
Agent shall have received a current Permitted Third-Party Expenses Borrowing
Base Report dated as of the date of the Notice of Borrowing;
(g) Supply Agreement. The Supply Agreement shall not have been
terminated by the Borrower or any other Loan Party and shall remain in full
force and effect;
(h) Full Disclosure. Neither the Borrower nor any other Loan Party has
failed to disclose to the Administrative Agent or any Lender any material fact
with respect to the Service Area Network or their respective financial
conditions (including any contingent liabilities) or results of operations, or
has failed to disclose any information the absence of which makes any
information previously disclosed to the Administrative Agent or any Lender
materially misleading; and
(i) Additional Documentation. The Administrative Agent shall have
received such additional approvals, agreements, documents and instruments as
the Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently
with the Closing Date (with respect to the conditions precedent set forth in
Section 6.1), and concurrently with the date of the making of each other Loan,
execute and deliver to the Administrative Agent a certificate in form and
substance satisfactory to the Administrative Agent certifying as to the
satisfaction of each of the conditions precedent set forth in this Article 6
which are required to be satisfied on or before such date (without regard to
whether such matters are, in fact, satisfactory to the Administrative Agent to
the extent that such satisfaction is required hereunder).
ARTICLE 7
Representations and Warranties
Each of the Borrower, Holdings and each Operating Subsidiary hereby
represents and warrants to the Administrative Agent and the Lenders that the
following statements are and, after giving effect to the funding of the initial
Loans on the Closing Date and continuing thereafter as long as the Obligations
or any part thereof are outstanding or any Lender has any Commitment hereunder,
will be true, correct and complete:
Section 7.1 Existence, etc. Each of the Loan Parties (a) is a
corporation, partnership, limited liability company or other entity (as
described in the Loan Documents) duly organized, validly existing and (if and
to the extent that the concept of good standing is applicable to the type of
entity in question) in good standing under the laws of the jurisdiction of its
incorporation, formation or organization, (b) has all requisite power and
authority to own its Properties and carry
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on its business as now conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Each of the Loan Parties has the power and authority and legal right to
execute, deliver and perform its obligations under the Loan Documents and the
Sprint Agreements to which it is or may become a party.
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the
Lenders (i) an unaudited balance sheet of Holdings and its Consolidated
Subsidiaries (including, without limitation, the Borrower), together with
consolidated schedules, as of and for the nine-month period ended September 30,
1999, and (ii) an unaudited pro forma balance sheet of Holdings and its
Consolidated Subsidiaries (including, without limitation, the Borrower),
together with consolidating schedules, dated as of January 31, 2000, which
gives effect to the initial Loans made on the Closing Date and the other
transactions that have occurred on or before the Closing Date (including,
without limitation, the Reorganization Transactions, the Holdings Public
Offering, the issuance of the Holdings Senior Notes, if applicable, and the
capital contributions to Holdings and the Borrower). Such financial statements,
as well as all other financial statements to be delivered to the Administrative
Agent in accordance with this Agreement, are or will be when delivered (as
applicable) true and correct, have been or will be (as applicable) prepared in
accordance with GAAP and fairly and accurately present or will fairly and
accurately present (as applicable), on a consolidated and consolidating basis
(as applicable), the financial condition of Holdings and its Consolidated
Subsidiaries (including without limitation, the Borrower) as of such dates and
the results of operations for the respective periods indicated therein. There
has not been, as of the Closing Date, any material adverse change in the
financial condition, results of operations, businesses, operations or
Properties of Holdings and its Subsidiaries, taken as a whole, the Borrower and
its Subsidiaries, taken as a whole, or of the Borrower on an individual basis,
since September 30, 1999 or December 31, 1999.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith estimate of the Borrower and its senior management concerning the
probable financial condition and performance of the Borrower and its
Subsidiaries for the time period covered thereunder based upon the assumptions
believed to be reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents and the Sprint
Agreements to which it is or may become a party and compliance with the terms
and provisions hereof and thereof have been duly authorized by all requisite
entity action and do not and will not (a) violate or conflict with, or result
in a breach of, or require any consent under (i) the certificate of
incorporation, articles of incorporation, certificate of formation, certificate
of organization, partnership agreement, regulations, bylaws or other
constitutional documents of such Loan Party, (ii) any Governmental Requirement
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any state public utility commission) or
any order, writ, injunction or decree of any Governmental Authority or
arbitrator, or (iii) any material agreement, document or instrument
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to which any Loan Party is a party or by which any Loan Party or any of its
Property is bound or subject, or (b) constitute a default under any such
material agreement, document or instrument, or result in the creation or
imposition of any Lien (except a Lien in favor of the Administrative Agent for
and on behalf of the Lenders under the Security Documents as provided in
Article 5) upon any of the revenues or Property of any Loan Party.
Section 7.4 Operation of Business; Licenses. Each of the Loan Parties
(a) possesses all material Permits, franchises, licenses and authorizations
necessary or appropriate to conduct its businesses substantially as now
conducted and as to be conducted as contemplated by the Business Plan, and (b)
has complied with all initial and on-going conditions to the issuance and use
of all such Permits, franchises, licenses and authorizations, except where
failure to comply could not reasonably be expected to have a Material Adverse
Effect. None of the Loan Parties is in violation of any such material Permits,
franchises, licenses or authorizations which could be expected to result in any
termination or cessation thereof. All of the PCS Licenses and all of the
Permits of the Loan Parties issued by any state public utility commission, and
all other material Permits, franchises, licenses and authorizations required by
any Governmental Requirement (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any rule or regulation of any state
public utility commission) or issued by any Governmental Authority as of the
Closing Date, are summarized by category or type, as relevant to the operation
of the Loan Parties on Schedule 7.4 as to each Loan Party separately. Sprint
PCS holds all PCS Licenses, and the Borrower and the Operating Subsidiaries
hold all Permits of any state public utility commission, necessary to operate a
PCS system in each of the BTAs set forth on Schedule 1.1(c). Such PCS Licenses
and Permits are as set forth on Schedule 7.4, have been duly issued by the FCC
and the appropriate state public utility commission (as applicable) and are in
full force and effect, and all provisions of such PCS Licenses and Permits have
been complied with in all material respects. No PCS License or Permit for any
BTA set forth on Schedule 1.1(c) is subject to any pending or, to the knowledge
of any Loan Party, threatened revocation or termination proceeding or action.
Section 7.5 Intellectual Property. The Intellectual Property owned or
used by each of the Loan Parties in the operation of their respective
businesses are set forth on Schedule 7.5. Each of the Loan Parties owns or
possesses (or will be licensed or have the full right to use) all Intellectual
Property which is necessary or appropriate for the operation of their
respective businesses as presently conducted and as proposed to be conducted,
without any known conflict with the rights of others. The consummation of the
transactions contemplated by this Agreement and the other Loan Documents will
not materially alter or impair, individually or in the aggregate, any of such
rights of the Loan Parties. No product or service of any of the Loan Parties
infringes upon any Intellectual Property of any other Person, and no claim or
litigation is pending or, to the knowledge of any Loan Party, threatened
against any Loan Party contesting its right to sell or otherwise use any
product or material or service which could reasonably be expected to have a
Material Adverse Effect. There is no violation by any Loan Party of any right
of any such other Person with respect to any material Intellectual Property
owned or used by any such other Person.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of any Loan Party, threatened against
or affecting any Loan Party, or that relates to any of the Loan
CREDIT AGREEMENT - Page 63
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Documents as of the Closing Date, is disclosed on Schedule 7.6. None of such
actions, suits, investigations or proceedings could, if adversely determined,
reasonably be expected to have a Material Adverse Effect. Except as may be
disclosed on Schedule 7.6, as of the Closing Date, there are no outstanding
judgments against any Loan Party. No Loan Party has received any opinion or
memorandum or legal advice in writing from legal counsel to the effect that it
is exposed to any liability or disadvantage that could reasonably be expected
to have a Material Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as disclosed on
Schedule 7.7, none of the Loan Parties owns any right, title or interest in any
real Property. Each of the Borrower and its Subsidiaries has good and
marketable title to or, with respect to leasehold interests, valid leasehold
interests in all of its material Properties and assets, real and personal,
including the material Properties, assets and leasehold interests reflected in
the financial statements described in Section 7.2(a), except where failure to
have good and marketable title or valid leasehold interests could not
reasonably be expected to have a Material Adverse Effect, and none of the
Properties or leasehold interests of any of the Loan Parties is subject to any
Lien, except Permitted Liens. The Borrower or an Operating Subsidiary of the
Borrower owns all existing Operating Assets. No Loan Party has granted or
voluntarily allowed or permitted to exist any Lien to or in favor of any Person
(other than the Administrative Agent for and on behalf of the Lenders as
security for the Obligations) which attaches or relates to any of the
Collateral and the Liens on the Collateral in favor of the Administrative Agent
are perfected, first priority Liens subject only to Permitted Liens which are
expressly permitted to be equal or prior to the Liens of the Administrative
Agent in the definition of the term "Permitted Liens".
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto, and such Loan Documents constitute the legal, valid and binding
obligations of such Persons, enforceable against each such Person in accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and
no filing or registration with or notice to, any Governmental Authority
(including the FCC) or other Person is or will be necessary for the execution,
delivery or performance by any Loan Party of any of the Loan Documents or any
of the Sprint Agreements to which it is or will be a party or for the validity
or enforceability thereof, except for such consents, approvals and filings as
have been validly obtained or made and are in full force and effect. The
consummation of the transactions contemplated by the Loan Documents and the
Sprint Agreements does not require the consent or approval of any other Person,
except such consents and approvals (a) as have been validly obtained and are in
full force and effect or (b) as to which the failure to obtain is not,
individually or in the aggregate, material. None of the Loan Parties has failed
to obtain any material consent, approval, license, Permit, franchise or other
authorization of any Governmental Authority (including the FCC) necessary for
the ownership or use of any of its Properties, conduct of its business and
performance of the Business Plan.
Section 7.10 Debt. As of the Closing Date, none of the Loan Parties
has any Debt other than (a) the Obligations, and (b) the Debt disclosed on
Schedule 7.10 hereto.
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Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax
returns (federal, state and local) and reports required to be filed, including,
without limitation, all income, franchise, employment, Property and sales tax
returns, and (b) all other material tax returns and reports required to be
filed except where failure to file could not reasonably be expected to have a
Material Adverse Effect, and has paid all federal and other material taxes
(shown on such returns or reports to be due and payable), assessments, fees and
other governmental charges levied or imposed upon it or its Properties, income
or assets otherwise due and payable before they become delinquent, except those
which are being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided in accordance with GAAP and no
notice of Lien has been filed or recorded. There is no proposed tax assessment
against any Loan Party which could, if the assessment were made, reasonably be
expected to have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock.
Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan
other than the Pension Plans identified on Schedule 7.13. Each Plan of the Loan
Parties is in compliance in all material respects with all applicable
provisions of ERISA and the Code. Neither a Reportable Event nor a Prohibited
Transaction has occurred within the last 60 months with respect to any Plan
that could reasonably be expected have a Material Adverse Effect. No notice of
intent to terminate a Pension Plan has been filed, nor has any Pension Plan
been terminated. No circumstances exist which constitute grounds entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to administer,
a Pension Plan, nor has the PBGC instituted any such proceedings. Neither any
Loan Party nor any ERISA Affiliate has completely or partially withdrawn from a
Multiemployer Plan. Each of the Loan Parties and each ERISA Affiliate have met
their minimum funding requirements under ERISA and the Code or with respect to
all of their Pension Plans subject to such requirements, and, as of the Closing
Date except as specified on Schedule 7.13, the present value of all vested
benefits under each funded Plan (exclusive of any Multiemployer Plan) does not
and will not exceed the fair market value of all such Plan assets allocable to
such benefits, as determined on the most recent valuation date of such Plan and
in accordance with ERISA. Neither any Loan Party nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA. No litigation is pending or, to
any Loan Party's knowledge, threatened concerning or involving any Plan that
could reasonably be expected to have a Material Adverse Effect. There are no
unfunded or unreserved liabilities (on either a going- concern basis or a
wind-up basis) relating to any Plan that could, individually or in the
aggregate, have a Material Adverse Effect if the Borrower were required to fund
or reserve such liability in full. As of the Closing Date, no funding waivers
have been or will have been requested or granted under Section 412 of the Code
with respect to any Plan. No unfunded or unreserved liability for benefits
under any Plan or Plans (exclusive of any Multiemployer Plans) exceeds
$500,000, with respect to any such Plan, or $1,000,000 with respect to all such
Plans, in the aggregate as of the Closing Date, on either a going-concern basis
or a wind-up basis.
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Section 7.14 Disclosure. No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of any Loan
Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading. There is no fact
known to any Loan Party which has had a Material Adverse Effect, and there is
no fact known to any Loan Party which might in the future have a Material
Adverse Effect except as may have been disclosed in writing to the
Administrative Agent.
Section 7.15 Loan Parties; Capitalization. The Borrower is a
Wholly-Owned Subsidiary of Holdings and all issued and outstanding Capital
Stock of the Borrower is owned, beneficially and of record, by Holdings. Except
for the issued and outstanding Capital Stock of Alamosa Texas which is owned,
beneficially and of record, by Alamosa Texas GP as of the Closing Date (as
specified in Schedule 7.15), Alamosa Texas is a Wholly-Owned Subsidiary of the
Borrower and all issued and outstanding Capital Stock of Alamosa Texas is
owned, beneficially and of record, by the Borrower. Except for the issued and
outstanding Capital Stock of Alamosa Wisconsin which is owned, beneficially and
of record, by Alamosa Wisconsin GP and certain Wisconsin telephone companies as
of the Closing Date (as specified in Schedule 7.15), Alamosa Wisconsin is a
Wholly- Owned Subsidiary of the Borrower and all issued and outstanding Capital
Stock of Alamosa Wisconsin is owned, beneficially and of record, by the
Borrower. Each of Alamosa Texas GP and Alamosa Wisconsin GP is a Wholly-Owned
Subsidiary of the Borrower and all issued and outstanding Capital Stock of each
of Alamosa Texas GP and Alamosa Wisconsin GP is owned, beneficially and of
record, by the Borrower. Schedule 7.15 attached hereto contains, as of the
Closing Date, complete and accurate information regarding (a) the identities of
each of the Subsidiaries of Holdings and the Borrower, (b) the number of issued
and outstanding shares (or other units) of each class of Capital Stock issued
by each of the Loan Parties and the identities of, and number and percentage of
each of such shares (or other units) held by, (i) with respect to the Capital
Stock of Holdings, the Former Members and (ii) with respect to the Capital
Stock of each of the other Loan Parties, the owner(s) (both of record and
beneficially) of such Capital Stock, and (c) the jurisdiction of incorporation
or other organization of each of the Loan Parties.
Section 7.16 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any state public utility commission), except for instances of non-compliance
that could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
Section 7.17 Investment Company Act. None of the Loan Parties is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.18 Public Utility Holding Company Act. None of the Loan
Parties is a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
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Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of
the following representations and warranties that could not have, individually
or in the aggregate, a Material Adverse Effect:
(i) Each of the Loan Parties and all of their respective
Properties and operations are in full compliance with all
Environmental Laws. No Loan Party is aware of, and no Loan Party has
received written notice of, any past, present or future conditions,
events, activities, practices or incidents which may interfere with or
prevent the compliance or continued compliance by the Loan Parties
with all Environmental Laws;
(ii) Each of the Loan Parties has obtained all Permits that
are required under applicable Environmental Laws, and all such Permits
are in good standing and all such Persons are in compliance with all
of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or
have been (to the knowledge of any Loan Party) or are being used,
generated, stored, transported, disposed of on or Released from any of
the Properties of any of the Loan Parties except in compliance with
applicable Environmental Laws. The use which each of the Loan Parties
make and intend to make of its Properties will not result in the use,
generation, storage, transportation, accumulation, disposal or Release
of any Hazardous Material on, in or from any of their currently owned
Properties except in compliance with applicable Environmental Laws;
(iv) There are no conditions or circumstances associated with
the currently owned or leased Properties or operations of any of the
Loan Parties that could reasonably be expected to give rise to any
Environmental Liabilities or claims resulting in any Environmental
Liabilities;
(v) None of the Loan Parties and none of its currently or
previously owned or leased Properties or operations is subject to any
outstanding or, to the knowledge of any Loan Party, threatened order
from or agreement with any Governmental Authority or other Person or
subject to any judicial or administrative proceeding with respect to
(A) any failure to comply with Environmental Laws, (B) any Remedial
Action, or (C) any Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received
written notice of any claim from any Person alleging that it is or
will be subject to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the
Clean Water Act or other applicable Environmental Law for temporary
storage of Hazardous Materials generated on-site prior to their
disposal off-site) or disposal facility requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C. ss.
CREDIT AGREEMENT - Page 67
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6901 et seq., regulations thereunder or any comparable provision of
state law. Each of the Loan Parties is in compliance with all
applicable financial responsibility requirements of all Environmental
Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. The Borrower has (a) initiated a
review and assessment of all areas within the businesses and operations
(including those affected by suppliers and vendors) of the Loan Parties that
could reasonably be expected to be relevant to whether the Loan Parties are
Year 2000 Compliant, (b) developed a plan and timeline for ensuring that the
Loan Parties are Year 2000 Compliant on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Based upon the
foregoing, the Borrower believes that each of the Loan Parties is Year 2000
Compliant as of the Closing Date except to the extent as may be described in
Schedule 8.15 and except for instances of noncompliance that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
complete list, as of the Closing Date, of all Material Contracts of each of the
Loan Parties, other than the Loan Documents, which list sets forth each of the
parties to each of the Material Contracts. All of the Material Contracts are in
full force and effect and none of the Loan Parties is in default under any
Material Contract and, to the knowledge of the Loan Parties after due inquiry,
no other Person that is a party thereto is in default under any of the Material
Contracts. Each of the Loan Parties is in compliance with the terms and
provisions of the Sprint Agreements. None of the Material Contracts prohibits
the transactions contemplated under the Loan Documents. Except as may be
provided on Schedule 7.22, (a) each of the Material Contracts has been
transferred or assigned to, or is currently in the name of, a Loan Party and
(b) subject to the provisions of the Sprint Agreements, as the same may be
modified or superseded by the Consents and Agreements, each of the Material
Contracts is assignable to the Administrative Agent as collateral and is
assignable by the Administrative Agent to a transferee if an Event of Default
were to occur. The Borrower has delivered to the Administrative Agent a
complete and current copy of each Material Contract of any Loan Party (other
than purchase orders entered into in the ordinary course of business) existing
on the Closing Date.
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Section 7.23 Bank Accounts. As of the Closing Date, Schedule 7.23 sets
forth the account numbers and location of all bank accounts (including lock box
and special deposit accounts) of each of the Loan Parties.
Section 7.24 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended,
or any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
Section 7.25 Solvency. Each of the Loan Parties, as a separate entity,
is Solvent, both before and after giving effect to the Loans.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26,
as of the Closing Date (a) none of the Loan Parties nor any of their employees
is subject to any collective bargaining agreement, and (b) no petition for
certification or union election is pending with respect to the employees of any
Loan Party, and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any Loan Party.
There are no strikes, slowdowns, work stoppages or controversies pending or, to
the best knowledge of the Loan Parties after due inquiry, threatened against,
any of the Loan Parties or their respective employees which could have, either
individually or in the aggregate, a Material Adverse Effect. Except as set
forth on Schedule 7.26, as of the Closing Date, none of the Loan Parties is
subject to an employment contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and
accurate description of all policies of insurance that will be in effect as of
the Closing Date for the Loan Parties and their Properties. To the extent such
policies have not been replaced, no notice of cancellation has been received
for such policies and each of the Loan Parties which is the owner or holder of
each such policy is in compliance with all of the terms and conditions of such
policy.
Section 7.28 Common Enterprise. Holdings and its Subsidiaries
(including, without limitation, the Borrower) are members of an affiliated
group with each other such Person and are collectively engaged in a common
enterprise with one another. Each of the Loan Parties expects to derive
substantial benefit (and may reasonably be expected to derive substantial
benefit), directly and indirectly, from the Loans contemplated by this
Agreement, both in its separate capacity and as a member of an affiliated and
integrated group.
Section 7.29 Reorganization Transactions. Each of the Reorganization
Transactions has been, on or before the Closing Date, consummated in accordance
with the terms and provisions of the agreements and documents governing such
transactions, and true and correct copies of such agreements and documents have
been delivered to the Administrative Agent.
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ARTICLE 8
Affirmative Covenants
Each of the Borrower, Holdings and each Operating Subsidiary hereby
covenants and agrees that, as long as the Obligations or any part thereof are
outstanding or any Lender has any Commitment hereunder, it will perform and
observe, or cause to be performed and observed, the following covenants :
Section 8.1 Reporting Requirements. The Loan Parties will furnish (or
will cause to be furnished) to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, and in any
event within 90 days after the end of each fiscal year of Holdings, beginning
with the fiscal year ended December 31, 1999, either a copy of the form 10-K
(including all financial statements contained therein) filed by Holdings as of
the end of and for such fiscal year then ended, together with audited
consolidating schedules for each of Holdings and its Consolidated Subsidiaries
(including, without limitation, the Borrower) with respect to the financial
statements contained therein, or a copy of the annual audit report (including
the consolidated balance sheet) of Holdings and its Consolidated Subsidiaries
(including, without limitation, the Borrower) as of the end of such year and
the related audited consolidated statements of income or operations,
shareholders' equity and cash flows for such fiscal year, together with audited
consolidating schedules for Holdings and its Consolidated Subsidiaries,
(including, without limitation, the Borrower) with respect to each of such
financial statements, in each case setting forth in comparative form the
figures for the previous fiscal year, and accompanied by the opinion of
independent certified public accountants of recognized standing reasonably
acceptable to the Administrative Agent, which opinion shall state that such
consolidated financial statements present fairly the financial position and
results of operations for the periods indicated in conformity with GAAP applied
on a basis consistent with prior years and which opinion shall not be qualified
or limited because of a restricted or limited examination by such accountant of
any material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the end of each of the quarters of each fiscal year
of Holdings, beginning with the fiscal quarter ending December 31, 1999, either
a copy of the form 10-Q (including all financial statements contained therein)
filed by Holdings as of the end of and for such fiscal quarter then ended,
together with consolidating schedules for each of Holdings and its Consolidated
Subsidiaries (including, without limitation, the Borrower) with respect to each
of the financial statements contained therein, or a copy of the unaudited
consolidated balance sheet of Holdings and its Consolidated Subsidiaries
(including, without limitation, the Borrower) as of the end of such quarter and
the related consolidated statements of income or operations, shareholders'
equity and cash flows and quarterly operating budgets (or such other
information comparable to operating budgets as Holdings or the Borrower
prepares for its own internal purposes) for the period commencing on the first
day and ending on the last day of such quarter, together with unaudited
consolidating schedules for Holdings and its Consolidated Subsidiaries
(including, without limitation, the Borrower) with respect to each of such
financial statements, in each case setting forth in comparative form the
information or figures
CREDIT AGREEMENT - Page 70
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for the corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of Holdings as fairly presenting, in accordance
with GAAP, the financial position and the results of operations of Holdings and
its Consolidated Subsidiaries (including, without limitation, the Borrower)
(except for year-end adjustments and financial statement footnotes required by
GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Sections 8.1(a) and 8.1(b), a
Compliance Certificate of a Responsible Officer of the Borrower substantially
in the form of Exhibit D hereto, appropriately completed, stating that, to the
best of such officer's knowledge, no Default has occurred and is continuing or,
if a Default has occurred and is continuing, stating the nature thereof and the
action that has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits or Proceedings. Promptly after the
commencement thereof, notice of all actions, suits and proceedings before any
Governmental Authority (including the FCC) or arbitrator affecting any Loan
Party, any Sprint Agreement or any PCS License or material Permit, which, if
determined adversely to any Loan Party, Sprint Spectrum or Sprint PCS, could
reasonably be expected to have a Material Adverse Effect;
(e) Notice of Default, etc.. As soon as possible and in any event
immediately upon any Loan Party's knowledge of the occurrence of any Default, a
written notice setting forth the details of such Default and the action that
any Loan Party has taken and, if and to the extent known, proposes to take with
respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
copies of all reports, including annual reports, and notices which any Loan
Party or any of its respective ERISA Affiliates files with or receives from the
PBGC or the U.S. Department of Labor under ERISA with respect to a Pension Plan
or for which any Loan Party has any potential liability; and as soon as
possible and in any event within five days after any Loan Party knows or has
reason to know that any such Pension Plan is insolvent, or that any Reportable
Event or Prohibited Transaction has occurred with respect to any Plan or
Multiemployer Plan, or that the PBGC, or any Loan Party or any of its
respective ERISA Affiliates has instituted or will institute proceedings under
ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that any Loan Party has taken and proposes to take
with respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if
any) financial statement, report, notice or proxy statement sent by any Loan
Party to its stockholders or other security holders generally, one copy of each
(if any) regular, periodic or special report (including, without limitation,
reports on forms 10-K, 10-Q and 8-K), registration statement or prospectus
filed by any Loan Party with any securities exchange or the Securities and
Exchange Commission or any successor agency and one copy of each press release
or other statement made by any Loan Party to the public containing material
developments relating to its business, operations or prospects;
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(h) Insurance. Within 60 days prior to the end of each fiscal year of
the Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Loan Parties as of the date of such report and all material insurance
coverage planned to be maintained by such Persons in the subsequent fiscal
year;
(i) Plan Information. From time to time, as reasonably requested by
the Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of any Loan Party or any of its ERISA Affiliates, or a
transfer of assets of a Pension Plan covering employees of any Loan Party or
any of its ERISA Affiliates, written notification thereof; promptly upon any
Loan Party's receipt thereof, a copy of any determination letter or advisory
opinion regarding any Pension Plan received from any Governmental Authority and
any amendment or modification thereto as may be necessary as a condition to
obtaining a favorable determination letter or advisory opinion; and promptly
upon the occurrence thereof, written notification of any action requested by
any Governmental Authority to be taken as a condition to any such determination
letter or advisory opinion;
(j) Business Plan, etc. Not later than 15 days prior to the end of
each year, an update of the Business Plan in reasonable detail generally
consistent with the form and substance of the Business Plan provided to the
Administrative Agent on or before the Closing Date, which update shall reflect
the corresponding information for the prior year;
(k) Permitted Third-Party Expenses Borrowing Base Reports. As soon as
available and in any event within 45 days after the end of each fiscal quarter,
and, in any event concurrently with the making of each Loan hereunder and from
time to time upon the request of the Administrative Agent after the occurrence
of a Default, a Permitted Third-Party Expenses Borrowing Base Report duly
completed; provided, however, no Permitted Third-Party Expenses Borrowing Base
Report shall be required to be delivered with respect to the Permitted
Third-Party Expenses Borrowing Base at any time after six months after the
termination of the later to occur of the Tranche B Commitment Termination Date
or the Tranche C Commitment Termination Date;
(l) Management Letters. Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to
such Person by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of any such Person;
(m) Reports to Other Creditors. Promptly after the furnishing thereof,
a copy of any financial or other material statement or report furnished by any
Loan Party to any other party pursuant to the terms of any indenture, loan,
stock purchase or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent and the Lenders pursuant to any other
clause of this Section 8.1;
(n) Notice of Material Adverse Effect. Within three Business Days
after any Loan Party becomes aware thereof, written notice of any matter that
could reasonably be expected to have a Material Adverse Effect;
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(o) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of any Loan Party and
each notice sent by any Governmental Authority relating to any failure or
alleged failure to comply with any Environmental Law or any liability with
respect thereto;
(p) Notices Under Sprint Agreements. Promptly after the receipt by any
Loan Party and promptly after the delivery by any Loan Party, a copy of each
written notice delivered under any Sprint Agreement which notice (i) relates to
an "Event of Termination" as defined in any Sprint Management Agreement, (ii)
relates to the FCC or a PCS License or is delivered in connection with Section
2.2 (Compliance with Regulatory Rules) or Section 16 of any Sprint Management
Agreement (Regulatory Compliance), (iii) relates to a dispute resolution
proceeding under Section 16 of any Sprint Management Agreement (Dispute
Resolution), (iv) relates to performance or status of completion of the
Build-out Plan, or (v) otherwise relates to matter under the Sprint Agreements
which could give rise to Material Adverse Effect;
(q) Quarterly Performance Statistics. As soon as available and in any
event within 45 days after the end of each fiscal quarter, a summary of (i) the
number of cell sites constructed during such fiscal quarter, (ii) the total
number of Wireless Subscribers as of the end of such fiscal quarter, (iii) the
number of Wireless Subscribers acquired and terminated during such fiscal
quarter, (iv) the average monthly charges billed to Wireless Subscribers during
such fiscal quarter, (v) the average number of minutes used by Wireless
Subscribers per month during such fiscal quarter and (vi) such other
performance statistics as the Administrative Agent or any Lender may from time
to time reasonably request;
(r) Operating Subsidiary Equity. As soon as available and in any event
within 45 days after the end of each fiscal quarter, a report identifying the
aggregate amount of all Loan proceeds contributed as equity capital to each
Operating Subsidiary or invested in, advanced to or otherwise used by each
Operating Subsidiary.
(s) Accounts Receivable and Payable. As soon as available and in any
event within 45 days after the end of each fiscal quarter, an aged trial
balance of all then-existing Receivables and all then existing accounts payable
of each Loan Party, provided, however, that, with respect to Receivables of the
Borrower or an Operating Subsidiary collected by Sprint PCS, the Borrower may
promptly deliver to the Administrative Agent a copy of the information relating
thereto delivered by Sprint PCS to the Borrower or such Operating Subsidiary
and such delivery shall satisfy the requirements of this clause (s) relating to
such Receivables;
(t) Accountant's Letter. On or before the Closing Date, a letter from
Holdings and the Borrower authorizing their independent public accountants to
communicate with the Administrative Agent and the Lenders and acknowledging
reliance with the Administrative Agent and the Lenders on past, present and
future financial statements; and
(u) General Information. Promptly, such other business, financial,
corporate affairs and other similar information concerning any Loan Party
and/or any Collateral as the Administrative Agent or any Lender may from time
to time reasonably request.
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Section 8.2 Maintenance of Existence; Conduct of Business. Each of the
Loan Parties will preserve and maintain its entity existence and all of its
leases, privileges, licenses, Permits, franchises, qualifications, Intellectual
Property, intangible Property and rights that are necessary or appropriate in
the ordinary course of its business, except to the extent that failure to
preserve or maintain the same could not reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing, each
of the Borrower and its Operating Subsidiaries (a) has entered into, or will
timely enter into, such long-distance carrier and interconnection agreements
(or agreements with third parties, such as the Sprint Agreements, which provide
such long-distance carrier and interconnection rights indirectly) as are, at
any time of determination, then necessary to the conduct of its business in
accordance with the Business Plan and (b) will conduct its business generally
in accordance with the Business Plan, in each case except to the extent that
the failure to do so could not reasonably be expected to cause a Material
Adverse Effect. Each of the Loan Parties will conduct its business in an
orderly and efficient manner in accordance with good business practices and the
Business Plan.
Section 8.3 Maintenance of Properties and Permits. Each of the Loan
Parties will maintain, keep and preserve all of its Properties and Permits
necessary in the proper conduct of its businesses in good repair, working order
and condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals and replacements and improvements thereof.
Section 8.4 Taxes and Claims. Each of the Loan Parties will pay or
discharge before becoming delinquent (a) all taxes, levies, assessments and
governmental charges imposed on it or its income or profits or any of its
Property and (b) all lawful claims for labor, material and supplies, which, if
unpaid, might become a Lien upon any of its Property; provided, however, that
none of the Loan Parties shall be required to pay or discharge any tax, levy,
assessment or governmental charge, or claim for labor, material or supplies,
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate
reserves have been established under GAAP.
Section 8.5 Insurance.
(a) Each of the Loan Parties will keep insured by financially sound
and reputable insurers all Property of a character usually insured by
responsible entities engaged in the same or a similar business similarly
situated against loss or damage of the kinds and in the amounts customarily
insured against by such corporations or entities and carry such other insurance
as is usually carried by such corporations or entities, provided that in any
event each of the Loan Parties (if and to the extent that it has Properties
that are capable of being covered by the following insurance) will maintain:
(i) Property Insurance. Insurance against loss or damage
covering substantially all of the tangible real and personal Property
(including, without limitation, the Service Area Network and related
equipment) and improvements of such Person by reason of any Peril (as
defined below) in such amounts (subject to any deductibles as shall be
satisfactory to the Administrative Agent) as shall be reasonable and
customary and sufficient to avoid the insured named therein from
becoming a co-insurer of any loss under such policy, but in any
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event in such amounts as are reasonably available as determined by the
Borrower's independent insurance broker reasonably acceptable to the
Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and
Property Damage. Insurance in respect of all vehicles (whether owned,
hired or rented by such Person) at any time located at, or used in
connection with, its Properties or operations against liabilities for
bodily injury and Property damage in such amounts as are then
customary for vehicles used in connection with similar Properties and
businesses, but in any event to the extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance
against claims for bodily injury, death or Property damage occurring
on, in or about the Property (and adjoining streets, sidewalks and
waterways) of such Person, in such amounts as are then customary for
Property similar in use in the jurisdictions where such Properties are
located.
(iv) Worker's Compensation Insurance. Worker's compensation
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower and its
Subsidiaries shall purchase and maintain in effect all-risk, property and
casualty insurance (including casualty insurance covering earthquake and flood
damage) covering all tangible, real and personal Property (including, without
limitation, the Service Area Network and Nortel Networks Equipment and related
equipment) and liability insurance covering the operations of the Borrower and
its Subsidiaries, in each case in such amounts (not to exceed the greater of
original cost or fair market value) and as otherwise reasonably acceptable to
the Administrative Agent and the Required Lenders. Such insurance shall be
written by financially responsible companies selected by the Borrower and
having an A.M. Best Rating of "A-" or better and being in a financial size
category of "VI" or larger, or by other companies reasonably acceptable to the
Administrative Agent. Each policy referred to in this Section 8.5 shall name
the Administrative Agent (for the benefit of itself and the other Lenders) as
loss payee (with respect to casualty insurance policies) and additional insured
(with respect to liability insurance policies) and shall provide that it will
not be canceled, amended or reduced except after not less than 30 days' prior
written notice to the Administrative Agent and shall also provide that the
interests of the Administrative Agent and the Lenders shall not be invalidated
or reduced by any act, omission or negligence of the Borrower or any of its
Subsidiaries. The Borrower will advise the Administrative Agent promptly of any
policy cancellation, reduction or amendment. For purposes hereof, the term
"Peril" shall mean, collectively, fire, lightning, flood, windstorm, hail,
explosion, riot and civil commotion, vandalism and malicious mischief, damage
from aircraft, vehicles and smoke and other perils covered by the "all-risk"
endorsement then in use in the jurisdictions where the Properties of the Loan
Parties are located.
(b) Each of the Loan Parties will cause each Insurance Recovery (other
than any portion of an Insurance Recovery payable to a landlord to repair or
replace Property leased by the Borrower or any of its Subsidiaries) payable by
any insurance company to be deposited promptly with the Administrative Agent as
security for the Obligations if a Default has then occurred and is continuing,
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and will promptly pay all Insurance Recoveries to the Administrative Agent for
application against the Obligations if and to the extent required in accordance
with Section 2.7(a).
(c) If a Default shall have occurred and be continuing, each of the
Loan Parties will cause all proceeds of insurance paid on account of the loss
of or damage to any Property of any Loan Party and all awards of compensation
for any Property of any Loan Party taken by condemnation or eminent domain to
be promptly paid directly to the Administrative Agent to be applied against or
held as security for the Obligations, at the election of the Administrative
Agent and the Required Lenders.
Section 8.6 Inspection Rights. Each of the Loan Parties will permit
representatives and agents of the Administrative Agent and each Lender, during
normal business hours and upon reasonable notice to the Borrower, to examine,
copy and make extracts from its books and records, to visit and inspect its
Properties and to discuss its business, operations and financial condition with
its officers and independent certified public accountants. Each of the Loan
Parties will authorize its accountants in writing (with a copy to the
Administrative Agent) to comply with this Section 8.6. The Administrative Agent
or its representatives may, at any time and from time to time at the Borrower's
expense, conduct field exams to verify the Permitted Third-Party Expenses
Borrowing Base and for such other purposes as the Administrative Agent may
reasonably request, provided, however, that such exams shall be at the
Borrower's expense only if a Default has then occurred and is continuing.
Without limiting the generality of the foregoing, the Administrative Agent may
retain outside auditors to evaluate and monitor Permitted Third-Party Expenses
Borrowing Base Reports, inventory valuations and other matters relevant to the
determination of the Permitted Third-Party Expenses Borrowing Base, all at the
expense of Borrower after the occurrence and during the continuance of a
Default.
Section 8.7 Keeping Books and Records. Each of the Loan Parties will
maintain appropriate books of record and account in accordance with GAAP
consistently applied in which true, full and correct entries will be made of
all their respective dealings and business affairs. If any changes in
accounting principles from those used in the preparation of the financial
statements referenced in Section 8.1 are hereafter required or permitted by
GAAP and are adopted by the Borrower with the concurrence of its independent
certified public accountants and such changes in GAAP result in a change in the
method of calculation or the interpretation of any of the covenants, standards
or terms contained in this Agreement, the Loan Parties and the Required Lenders
agree to amend any such affected terms and provisions so as to reflect such
changes in GAAP with the result that the criteria for evaluating the financial
condition or performance of the Loan Parties shall be the same after such
changes in GAAP as if such changes in GAAP had not been made.
Section 8.8 Compliance with Laws. Each of the Loan Parties will comply
with all Governmental Requirements applicable to the operation of its business
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any state public utility commission),
except for instances of noncompliance that could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
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Section 8.9 Compliance with Agreements. Each of the Loan Parties will
comply with all agreements, documents and instruments binding on it or
affecting its Properties or business, including, without limitation, all
Material Contracts, except for instances of noncompliance that could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
Section 8.10 Further Assurances. Each of the Loan Parties will execute
and deliver such further agreements, documents and instruments (including,
without limitation, financing statements and amendments to financing statements
specifying each item of the Collateral and the serial number therefor) and take
such further action as may be reasonably requested by the Administrative Agent
to carry out the provisions and purposes of this Agreement and the other Loan
Documents, to evidence the Obligations and to create, preserve, maintain and
perfect the Liens of the Administrative Agent for the benefit of itself and the
Lenders in and to the Collateral and the required priority of such Liens. Each
of the Loan Parties will make available to the Administrative Agent appropriate
personnel reasonably necessary to discuss the Business Plan and any updates
thereto and other information to be provided to the Administrative Agent in
accordance with Section 8.1.
Section 8.11 ERISA. Each of the Loan Parties will, and will cause each
of their respective ERISA Affiliates to, comply with all minimum funding
requirements and all other material requirements of ERISA so as not to give
rise to any material liability thereunder.
Section 8.12 Interest Rate Protection. The Borrower will, commencing
on or before the thirtieth (30th) day after the Closing Date, maintain in full
force and effect through the Maturity Date one or more Interest Rate Protection
Agreements reasonably satisfactory to the Administrative Agent with one or more
of the Lenders or Affiliates of the Lenders or with other counterparties
reasonably acceptable to the Administrative Agent, which Lenders or Affiliates
or other counterparties shall in each case be rated in one of the two of the
highest rating categories of Standard & Poors Corporation or Moody's Investors
Services, Inc. and otherwise reasonably acceptable to the Administrative Agent,
that enable the Borrower, for a period of the lesser of three years or six
months after the Maturity Date, to fix or place a limit upon a rate of interest
with respect to not less than an aggregate notational amount (not less than
zero) equal to fifty percent (50%) of the aggregate principal amount of the
Total Debt that does not have a fixed interest rate.
Section 8.13 Sprint Agreements. Each of the Loan Parties will comply
with all provisions of each Sprint Agreement except to the extent that such
noncompliance may have been waived or cured within the applicable grace period
(if any) set forth in such Sprint Agreement.
Section 8.14 Non-Consolidation. Each of the Loan Parties will: (a)
maintain entity records and books of account separate from those of any other
entity which is an Affiliate of such Loan Party; (b) not commingle its funds or
assets with those of any other entity which is an Affiliate of such Loan Party;
and (c) provide that its board of directors or other analogous governing body
will hold all appropriate meetings to authorize and approve such Person's
entity actions, which meetings will be separate from those of other Loan
Parties.
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Section 8.15 Year 2000 Compliance. Except as may be set forth in
Schedule 8.15 and except for instances of noncompliance that the Borrower
believes could not, individually or in the aggregate, reasonably be expected to
cause a Material Adverse Effect, each of the Loan Parties will take
commercially reasonable efforts to determine that all of the material computer
software, computer hardware (whether general or special purpose), and other
similar or related items of automated, computerized or software systems that
are used or relied upon by any Loan Party in the conduct of its business is and
will continue to be Year 2000 Compliant and, without limiting the generality of
the foregoing, will not malfunction, will not cease to function, will not
generate incorrect data and will not produce incorrect results when processing,
providing or receiving (a) date- related data into and between the twentieth
and twenty-first centuries and (b) date-related data in connection with any
valid date in the twentieth and twenty-first centuries. Each of the Loan
Parties will promptly notify the Administrative Agent in the event it discovers
or determines that any computer application (including those of its suppliers
and vendors) that is material to any Loan Party's business and operations will
not be Year 2000 Compliant on a timely basis.
Section 8.16 Trade Accounts Payable. Each of the Loan Parties will pay
all trade accounts payable before the same become more than 90 days past due,
except (a) trade accounts payable contested in good faith or (b) trade accounts
payable in an aggregate amount not to exceed $100,000 at any time outstanding
and with respect to which no proceeding to enforce collection has been
commenced or, to the knowledge of such Loan Party, threatened.
Section 8.17 Delivery of Certain Amendments and Material Contracts.
Each of the Loan Parties will promptly deliver to the Administrative Agent any
amendment, modification, or supplement to (a) the certificate of incorporation,
articles of incorporation, certificate of formation, certificate of
organization, partnership agreement, regulations, bylaws or other
constitutional documents of any Loan Party, (b) the Sprint Agreements, or (c)
any other Material Contract to which it is a party or any Permit which it
possesses; provided, however, that any such amendment, modification or
supplement to be subject to the provisions of Section 9.15 hereof. With respect
to each Material Contract (other than purchase orders entered into in the
ordinary course of business) of any Loan Party entered into after the Closing
Date, the Borrower will deliver to the Administrative Agent a complete and
current copy of such Material Contract in a reasonably prompt fashion after the
creation thereof.
Section 8.18 Ownership of Operating Assets. The Borrower or an
Operating Subsidiary of the Borrower will have, at all times, good legal title
of all the Operating Assets subject to no Lien other than Permitted Liens.
Section 8.19 Observation Rights. Until such time as the earlier to
occur of (a) Nortel Networks no longer holds any Loans or Commitments hereunder
or (b) the Debt Service Coverage Ratio of the Borrower or its Consolidated
Subsidiaries has equaled or exceeded 1.00 to 1.00 (if calculated prior to the
Amortization Commencement Date, determined on a pro forma basis as if the
Amortization Commencement Date had occurred four fiscal quarters prior to such
date of calculation) for a period of four consecutive fiscal quarters, the
Borrower and/or Holdings shall give Nortel Networks notice of each meeting of
the Board of Directors of Holdings and each meeting of any committee of the
Board of Directors of Holdings not less than ten Business Days prior to the
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dates of any such meetings and allow a Person designated by Nortel Networks to
serve as an observer (the "Observer") who may attend all such meetings of the
Board of Directors of Holdings and any committee of the Board of Directors of
Holdings. The Observer will not be a director, nor entitled to vote on any
matter submitted to the Board of Directors of Holdings (or any committee of
such board), and will have no rights, duties, liabilities or obligations of a
director. The Observer may be excused at the request of a majority of the
directors present at any such meetings for discussions involving sensitive
information regarding competitors of Nortel Networks or Nortel Networks itself.
The Observer may share any information gained from presence at such meetings
with the employees, officers, directors, attorneys and advisors of Nortel
Networks who have a need to know such information in the performance of their
duties (collectively, the "Representatives"), but such information shall
otherwise be kept confidential by Nortel Networks and its Representatives to
the same extent that financial information with regard to Holdings is required
to be kept confidential in accordance with the terms of this Agreement.
Section 8.20 Contributions to the Equity Capital of the Borrower. In
the event of the issuance of any Holdings Senior Notes, Holdings shall, and the
Borrower shall cause Holdings to, substantially concurrently with the issuance
of the Holdings Senior Notes, contribute at least $75,000,000 of the Net
Proceeds of the issuance of the Holdings Senior Notes to the Borrower as
additional equity capital in a manner reasonably satisfactory to the
Administrative Agent.
ARTICLE 9
Negative Covenants
Each of the Borrower, Holdings and each Operating Subsidiary hereby
covenants and agrees that, as long as the Obligations or any part thereof are
outstanding or any Lender has any Commitment hereunder, it will perform and
observe, or cause to be performed and observed, the following covenants:
Section 9.1 Debt. The Borrower and the Operating Subsidiaries will
not, and will not permit any Subsidiary of the Borrower to, incur, create,
assume or permit to exist any Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) intercompany Debt between or among the Borrower and any of its
Operating Subsidiaries or Wholly-Owned Subsidiaries incurred in the ordinary
course of business (including, without limitation, Debt owed by the Operating
Subsidiaries or Wholly-Owned Subsidiaries of the Borrower to the Borrower in
connection with loans of proceeds of the Loans made by the Borrower to such
Subsidiaries, the proceeds of which loans are used for the purposes permitted
by Section 2.10), subject to the following requirements: any and all of the
Debt permitted pursuant to this Section 9.1(b) shall be unsecured, shall be
evidenced by instruments satisfactory to the Administrative Agent which will be
pledged to the Administrative Agent for the benefit of the Administrative Agent
and the Lenders and, if payable by the Borrower, shall be subordinated to the
Obligations pursuant to a subordination agreement in form and substance
satisfactory to the Administrative Agent, provided, however, that temporary
advances made from time to time in the
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ordinary course of business not to exceed $100,000 in aggregate principal
amount at any time owing by any Operating Subsidiary or Wholly-Owned Subsidiary
of the Borrower to the Borrower shall not be required to be so evidenced,
pledged or subordinated;
(c) unsecured Debt under the Interest Rate Protection Agreements
required to be maintained by Section 8.12, provided, however, that Debt
thereunder may be secured if such Debt constitutes a part of the Obligations;
(d) (i) existing Debt in the principal amounts and as otherwise
described on Schedule 7.10 hereto and renewals, extensions or refinancings of
such Debt which do not increase the outstanding principal amount of such Debt,
which do not shorten the maturity of any principal of such Debt and the terms
and provisions of which are not materially more onerous than the terms and
conditions of such Debt on the Closing Date, (ii) purchase money Debt
(including Capital Lease Obligations) secured by purchase money Liens, which
Debt and Liens are permitted under and meet all of the requirements of clause
(g) of the definition of Permitted Liens contained in Section 1.1, and (iii)
additional unsecured Debt; provided, however, that the aggregate principal
amount of the Debt referred to in this Section 9.1(d) shall not exceed
$15,000,000 in aggregate amount at any time outstanding;
(e) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default; and
(f) Debt of the Borrower and its Subsidiaries to the Trustee and the
Noteholders under (and evidenced and governed by) the Subordinated Guarantees;
provided, however, that such debt may not be initially incurred (and the
Holdings Senior Notes may not be issued) after August 1, 2000.
Section 9.2 Limitation on Liens. None of the Loan Parties will (a)
incur, create, assume or permit to exist any Lien upon any of its Property or
revenues, whether now owned or hereafter acquired, except Permitted Liens or
(b) enter into any negative pledge or similar arrangement in favor of other
creditors, other than such negative pledge or similar arrangement (i) in favor
of the Administrative Agent and the Lenders under the Loan Documents, (ii)
approved by the Administrative Agent and the Required Lenders and contained in
the Holdings Senior Notes Indenture, (iii) relating to the Capital Stock of
Unrestricted Subsidiaries required by creditors of such Unrestricted
Subsidiaries in connection with Debt incurred by them, or (iv) if and to the
extent that such purchase money Debt and Capital Lease Obligations are
permitted hereunder, in favor of other creditors under purchase money Debt and
Capital Lease Obligations with respect to the assets financed or secured
thereby.
Section 9.3 Mergers, Etc. None of the Loan Parties will (a) become a
party to a merger or consolidation, (b) wind-up, dissolve or liquidate itself,
or (c) purchase or acquire all or a material or substantial part of the
business or Properties of any Person (except for Investments permitted under
Section 9.5); provided, however, that any Subsidiary of the Borrower, other
than an Operating Subsidiary, may merge with and into the Borrower or an
Operating Subsidiary of the Borrower if the
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Borrower or an Operating Subsidiary of the Borrower is the surviving entity,
provided that no consideration is given by the surviving entity in such merger
other than the issuance of any Capital Stock of the surviving entity and such
Capital Stock is pledged to the Administrative Agent, on behalf of the
Administrative Agent and Lenders, as security for the Obligations pursuant to
Section 9.6. The surviving entity in any such merger shall ratify the Security
Documents and other obligations of the non-surviving entity under the Loan
Documents.
Section 9.4 Restricted Payments. The Borrower and the Operating
Subsidiaries will not, and will not permit any Subsidiary of the Borrower to,
make any Restricted Payments, except:
(a) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower, and Subsidiaries of the Borrower may pay pro rata dividends or (in
the case of entities other than corporations) equivalent distributions to the
holders of their Capital Stock on the basis of the respective ownership
interests of such holders in such Subsidiaries;
(b) each of the Subsidiaries of the Borrower that are pass-through
entities for U.S. federal income tax purposes may pay dividends or (in the case
of entities other than corporations) equivalent distributions to the holders of
its Capital Stock in an aggregate amount not to exceed the U.S. federal income
tax liabilities of such holders that is directly attributable to their income
derived from such Subsidiary;
(c) commencing on or after July 15, 2005 (but not prior thereto), if
and to the extent permitted by applicable law, the Borrower may declare and pay
dividends to Holdings during any fiscal year in an aggregate amount not to
exceed the accrued interest on the Holdings Senior Notes required to be paid in
cash in accordance with the Holdings Senior Notes Indenture and actually paid
in cash by Holdings, provided, however, that the entirety of the proceeds of
such dividends must be used, substantially concurrently with the payment of
such dividends by the Borrower, by Holdings to pay the same amount of accrued
interest on the Holdings Senior Notes required to be paid in accordance with
the Holdings Senior Notes Indenture, and actually paid, by Holdings in cash
(and no such dividends may be paid by the Borrower to Holdings more than 30
days prior to the applicable date upon which such accrued interest is required
to be paid and is actually paid by Holdings or in amounts exceeding the amounts
of such accrued interest required to be paid and actually paid by Holdings in
cash);
(d) commencing on or after January 15, 2005 (but not prior thereto),
if and to the extent permitted by applicable law, the Borrower may declare and
pay dividends to Holdings during any fiscal year in an aggregate amount not to
exceed 50% of Excess Cash Flow for the fiscal year then most recently ended
(which annually-determined amounts may be accumulated over a multiple year
period before all or part of the accumulated amounts are paid to Holdings),
provided, however, that the entirety of the proceeds of such dividends must be
used, substantially concurrently with the payment of such dividends by the
Borrower, by Holdings to pay a redemption price of the same amount actually
paid by Holdings in cash in connection with an optional redemption of the
Holdings Senior Notes in accordance with Article III of the Holdings Senior
Notes Indenture (and no such dividends may be paid by the Borrower to Holdings
more than 30 days prior to the applicable date
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upon which such redemption payments are actually paid by Holdings or in amounts
exceeding the amounts of such redemption payments actually paid by Holdings in
cash); and
(e) the Borrower and its Subsidiaries may make temporary loans or
advances to employees, officers and directors of the Loan Parties in the
ordinary course of business that do not exceed $200,000 in aggregate amount at
any time outstanding;
provided, however, that no Restricted Payments may be made pursuant to clause
(a), clause (b) or clause (c) preceding if a Default exists at the time of such
Restricted Payment or would result therefrom.
Section 9.5 Investments. None of the Loan Parties will make or permit
to remain outstanding any advance, loan, extension of credit or capital
contribution to or investment in any Person, or purchase or own any stock,
bonds, notes, debentures or other securities of any Person, or be or become a
joint venturer with or partner of any Person (all such transactions being
herein called "Investments"), except:
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to a Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of
acquisition;
(d) Investments in certificates of deposit and Eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any Lender or with any domestic commercial
bank having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) preceding with
any Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than intercompany Debt referred to in
clause (h) below) by Holdings in its Subsidiaries and by the Borrower in its
Subsidiaries, in each case existing on the Closing Date or required to occur in
accordance with this Agreement, (ii) Investments made by Holdings in the
Borrower, including, without limitation, contributions to the equity capital of
the Borrower required to be made by Holdings pursuant to this Agreement, (iii)
Investments by Holdings in its Unrestricted Subsidiaries, and (iv) additional
Investments by the Borrower in its Subsidiaries
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made after the Closing Date in an aggregate amount not to exceed $1,000,000
with respect to all Subsidiaries other than the Operating Subsidiaries;
(h) intercompany Debt permitted pursuant to Section 9.1(b);
(i) Interest Rate Protection Agreements permitted by Section 9.1; or
(j) temporary loans or advances to employees, officers and directors
of the Loan Parties in the ordinary course of business that do not exceed
$200,000 at any time outstanding in aggregate amount;
provided, however, that no Investments may be made by any Loan Party pursuant
to subclause (iii) or (iv) of clause (g) or clause (h) preceding if a Default
exists at the time of such Investment or would result therefrom. Furthermore,
Holdings and the Borrower agree that Holdings will not own, directly or
indirectly, any Subsidiary of Holdings other than (i) the Borrower and the
Subsidiaries of the Borrower and (ii) Unrestricted Subsidiaries of Holdings.
Section 9.6 Limitation on Issuance of Capital Stock. The Borrower and
the Operating Subsidiaries will not, and will not permit any Subsidiary of the
Borrower to, at any time issue, sell, assign or otherwise dispose of (a) any of
its Capital Stock, (b) any securities exchangeable for or convertible into or
carrying any rights to acquire any of its Capital Stock, or (c) any option,
warrant or other right to acquire any of its Capital Stock, in each case to any
Person other than Holdings (with respect to the Capital Stock of the Borrower)
or the Borrower (with respect to Capital Stock of the Subsidiaries of the
Borrower). All such Capital Stock, securities, options, warrants and other
rights issued, sold, assigned or otherwise disposed of shall be, and shall
continue to be, subject to a perfected, first priority Lien in favor of the
Administrative Agent as security for the payment and performance of the
Obligations.
Section 9.7 Transactions with Affiliates. None of the Loan Parties
will enter into any transaction, including, without limitation, the purchase,
sale or exchange of Property or the rendering of any service, with any
Affiliate of the Borrower or other Loan Party except in the ordinary course of
and pursuant to the reasonable requirements of the Borrower's or such other
Loan Party's (as applicable) business and upon fair and reasonable terms no
less favorable to the Borrower or such other Loan Party (as applicable) than
would be obtained in a comparable arms-length transaction with a Person not an
Affiliate of the Borrower or such other Loan Party (as applicable); provided,
however, that transactions between or among the Borrower and its Affiliates may
be on terms more favorable to the Borrower than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of the
Borrower. In addition to the foregoing, no transactions between or among (a)
Affiliates of the Borrower and (b) the Borrower and its Subsidiaries relating
to the purchases of equipment from any such Affiliate or the provision of
services by any such Affiliate for the Service Area Network shall be permitted
unless the same are purchased or provided at the cost to such Affiliate.
Section 9.8 Disposition of Property. The Borrower and the Operating
Subsidiaries will not, and will not permit any Subsidiary of the Borrower to,
sell, lease, assign, transfer or otherwise
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dispose of any of its Property (including, without limitation, the Nortel
Networks Goods and Services and the Operating Assets) except that the following
are permitted if (but only if) no Event of Default has occurred and is
continuing:
(a) dispositions of Inventory (other than equipment) in the ordinary
course of business, and expenditures of money (including, without limitation,
money held in deposit accounts) (i) made in the ordinary course of business or
(ii) for the purpose of making Restricted Payments expressly permitted in
accordance with this Agreement or Investments expressly permitted in accordance
with this Agreement;
(b) Asset Dispositions of Property, other than accounts and
Receivables, by made in the ordinary course of business if each of the
following conditions has been satisfied: (i)(A) the Net Proceeds from any
single Asset Disposition or series of related Asset Dispositions in any
calendar year do not exceed $500,000 and (B) the Loan Party disposing of such
Property receives fair consideration for such assets (unless the transfers of
such Property and the beneficiary of such bargain Asset Disposition is the
Borrower) and (ii) no Default exists at the time of or will result from such
Asset Disposition;
(c) Asset Dispositions of Property by the Borrower to any Operating
Subsidiary of the Borrower or by any Operating Subsidiary of the Borrower to
the Borrower or another Operating Subsidiary of the Borrower, in each case if
each of the following conditions has been satisfied: (i) the assets sold,
disposed of or otherwise transferred to such Operating Subsidiary or the
Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over the Liens in favor of the Administrative Agent)
in favor of the Administrative Agent and the Lenders, and (ii) no Default
exists at the time of or will result from such Asset Disposition; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment;
provided, however, that, except to the limited extent expressly permitted in
clauses (b) and (d) of this Section 9.8, the Borrower and its Operating
Subsidiaries may not sell, lease, assign, transfer or otherwise dispose of the
Service Area Network (including, without limitation, the Nortel Networks
Equipment and the Nortel Networks Software) or the "Operating Assets" as such
term is defined or used in any Sprint Management Agreement pursuant to the
Sprint Agreements or otherwise unless the Obligations are paid in full and all
Commitments have terminated or expired.
Section 9.9 Sale and Leaseback. None of the Loan Parties will enter
into any arrangement with any Person pursuant to which it leases from such
Person real or personal Property that has been or is to be sold or transferred,
directly or indirectly, by it to such Person; provided, however, that the
Borrower and its Operating Subsidiaries may enter into such sale/leaseback
transactions with respect to towers pursuant to which the aggregate amount of
rent payable during any calendar year does not exceed $3,000,000 if the
agreements evidencing and governing such
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transactions have been approved by the Administrative Agent, which approval
shall not be unreasonably conditioned, withheld or delayed.
Section 9.10 Lines of Business. None of the Borrower or any of its
Subsidiaries will (a) engage in any line or lines of business activity other
than the construction and operation of the Service Area Network, the
performance of the Sprint Agreements and the conduct of related
telecommunications businesses described in and contemplated by the Business
Plan or (b) build-out any area other than the Service Area or engage in
operations outside the Service Area, in each case as contemplated by the
Business Plan; provided, however, that, for all purposes of this Section 9.10,
the term "Service Area," as such term is used in the definition of the term
"Service Area Network" and as such term is used in clause (b) preceding, shall
exclude all New Areas. Holdings and the Borrower agree that Holdings will not
(i) engage in any business other than the ownership of the Capital Stock of the
Borrower and the Unrestricted Subsidiaries and matters incidental thereto,
including the raising of capital, or (ii) own any material Properties or assets
other than the Capital Stock of the Borrower and the Unrestricted Subsidiaries.
The Borrower, the Operating Subsidiaries and Holdings agree that (A) Alamosa
Texas shall, at all times, own all of the "Operating Assets" as such term is
defined in the Sprint Management Agreement (Alamosa Texas) and (B) Alamosa
Wisconsin shall, at all times, own all of the "Operating Assets" as such term
is defined in the Sprint Management Agreement (Alamosa Wisconsin).
Section 9.11 Environmental Protection. None of the Loan Parties will
(a) use (or permit any tenant to use) any of its Properties for the handling,
processing, storage, transportation or disposal of any Hazardous Material
except in compliance with applicable Environmental Laws, (b) generate any
Hazardous Material except in compliance with applicable Environmental Laws, (c)
conduct any activity that is likely to cause a Release or threatened Release of
any Hazardous Material in violation of any Environmental Law, or (d) otherwise
conduct any activity or use any of its Properties in any manner, that violates
or is likely to violate any Environmental Law or create any Environmental
Liabilities for which any Loan Party would be responsible, except for
circumstances or events described in clauses (a) through (d) preceding that
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents and except as may be contained in
the Holdings Senior Notes Indenture as approved by the Administrative Agent and
the Required Lenders, none of the Loan Parties will create or otherwise cause
or permit to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of Holdings or the
Borrower to (a) pay dividends or make any other distribution to Holdings or the
Borrower or any of their Subsidiaries in respect of such Subsidiary's Capital
Stock or with respect to any other interest or participation in, or measured
by, its profits, (b) pay any indebtedness owed to Holdings or the Borrower or
any of their Subsidiaries, (c) make any loan or advance to Holdings or the
Borrower or any of their Subsidiaries, or (d) sell, lease or transfer any of
its Property to Holdings or the Borrower or any of their Subsidiaries.
Section 9.13 Management Fees. None of the Loan Parties will pay any
management fees (other than the Sprint PCS Fees permitted to be paid in
accordance with Section 9.17).
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Section 9.14 Supply Agreement. None of the Loan Parties will terminate
the Supply Agreement prior to the later to occur of the Amortization
Commencement Date or the satisfaction in full of the Borrower's purchase
commitments under the Supply Agreement.
Section 9.15 Modification of Certain Agreements. None of the Loan
Parties will consent to or implement any termination, amendment, modification,
supplement or waiver of (a) the certificate of incorporation, articles of
incorporation, certificate of formation, certificate of organization,
partnership agreement, regulations, bylaws or other constitutional documents of
any Loan Party, (b) the Sprint Agreements, (c) the Business Plan, (d) the
Holdings Senior Notes Indenture or the other Holdings Senior Notes Documents,
or (e) any other Material Contract to which it is a party or any Permit which
it possesses; provided, however, that the Loan Parties may amend or modify (i)
the documents referred to in clause (a) and clause (d) preceding if and to the
extent that such amendment or modification is not substantive or material and
could not reasonably be expected to be adverse to the Administrative Agent or
the Lenders, provided, however, that none of such documents referred to in
clause (a) preceding may be amended or modified as they relate to, in any way,
any capital contribution to Holdings or the Borrower or any obligation or
agreement relating thereto and (ii) the Sprint Agreements and the Material
Contracts referred to in clauses (b) and (e) preceding, respectively, if and to
the extent that such amendment or modification could not reasonably be expected
to be materially adverse to any Loan Party or the Administrative Agent or any
of the Lenders.
Section 9.16 ERISA. None of the Loan Parties will:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $200,000 with respect to any such Plan or $500,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit
any ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to
be created, either individually as to any such Plan or in the aggregate as to
all such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.17 Sprint PCS Fees. None of the Loan Parties will make any
prepayment of any Sprint PCS Fees prior to the regularly scheduled due date for
the payment of such fees.
Section 9.18 No Prepayment of Debt, Etc. None of the Loan Parties will
make any optional prepayment or distribution on account of, or voluntarily
purchase, acquire, redeem or retire, any Debt prior to 30 days before its
originally stated maturity (or its stated maturity as of the Closing Date in
the case of Debt outstanding on the Closing Date), or in the case of interest,
its stated due date, or directly or indirectly become obligated to do any of
the foregoing by amending the terms thereof or otherwise, except for:
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(a) prepayments of the Loans or other Obligations pursuant to or as
permitted by the Loan Documents;
(b) prepayments of intercompany Debt referred to in clause (b) of
Section 9.1 if the obligor with respect to such Debt is a Subsidiary of the
Borrower and if the payee of such Debt is the Borrower or a parent entity of
such obligor;
(c) prepayments of the Debt referred to in clauses (ii) and (iii) of
clause (d) of Section 9.1;
(d) prepayments made with the proceeds of new Debt incurred for the
purpose of refinancing the Debt being prepaid, provided that (i) no portion of
such new Debt matures or is required to be prepaid, purchased or otherwise
retired earlier than the corresponding portion of the Debt being prepaid
(including as a result of any prepayment or redemption upon the occurrence of a
condition), (ii) such new Debt (A) is subordinated to the Obligations to at
least the same extent as the Debt being refinanced if such Debt is subordinated
debt or (B) is permitted in accordance with this Agreement, and (iii) no
Default then exists or would result from such prepayment or refinancing;
(e) prepayments of trade payables incurred in the ordinary course of
any Loan Party's business (other than Sprint PCS Fees) and not overdue by more
than 120 days;
(f) commencing on or after February 15, 2005 (but not prior thereto),
optional redemptions of the Holdings Senior Notes by Holdings in accordance
with Article III of the Holdings Senior Notes Indenture, other than optional
redemptions with the proceeds of public equity offerings by Holdings referred
to in clause (g) succeeding; and
(g) commencing on or after February 15, 2003 (but not prior thereto),
optional redemptions of the Holdings Senior Notes by Holdings with the proceeds
of public equity offerings by Holdings, other than the Holdings Public
Offering, in accordance with Article III of the Holdings Senior Notes
Indenture.
In addition, none of the Loan Parties will prepay any rent or other obligations
under any operating lease or any other Material Contract prior to 90 days
before the originally stated due date therefor (or the due date therefor as of
the Closing Date in the case of operating leases or Material Contracts in
existence on the Closing Date).
ARTICLE 10
Financial Covenants
Section 10.1 Total Debt to Total Capitalization.
(a) Borrower. The Borrower and the Operating Subsidiaries will not
permit the ratio of (i) the Total Debt of the Borrower and its Consolidated
Subsidiaries (exclusive of the Debt to the Trustee and the Noteholders under,
and evidenced and governed by, the Subordinated Guarantees)
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outstanding at the end of any of the calendar quarters set forth on Schedule
10.1 to (ii) the Total Capitalization of the Borrower on such date, to exceed
the ratio set forth opposite such date on such Schedule.
(b) Holdings. The Loan Parties will not permit the ratio of (i) the
Total Debt of Holdings and its Consolidated Subsidiaries outstanding at the end
of any calendar quarter to (ii) the Total Capitalization of Holdings on such
date, to exceed (A) 0.75 to 1.00 at all times during which the Senior Debt of
Holdings and its Consolidated Subsidiaries is equal to or greater than 40% of
the Total Capitalization of Holdings and its Consolidated Subsidiaries and (B)
0.80 to 1.00 at all times during which the Senior Debt of Holdings and its
Consolidated Subsidiaries is less than 40% of the Total Capitalization of
Holdings and its Consolidated Subsidiaries.
Section 10.2 Total Debt to Annualized EBITDA. The Borrower and the
Operating Subsidiaries will not permit the ratio of (a) the Total Debt of the
Borrower and its Consolidated Subsidiaries (exclusive of the Debt to the
Trustee and the Noteholders under, and evidenced and governed by, the
Subordinated Guarantees) outstanding at the end of any of the calendar quarters
set forth on Schedule 10.2 to (b) Annualized EBITDA for the calendar quarter
ending on such date, to exceed the ratio set forth opposite such date on such
Schedule.
Section 10.3 Annualized EBITDA. The Borrower and the Operating
Subsidiaries will not permit Annualized EBITDA at the end of any of the
calendar quarters set forth on Schedule 10.3 to be less than the amount set
forth opposite such date on such Schedule.
Section 10.4 Fixed Charge Coverage. The Borrower and the Operating
Subsidiaries will not permit the ratio of (a) EBITDA for any of the calendar
quarters ending on any of the dates set forth on Schedule 10.4 plus cash
balances and Availability on such date to (b) Consolidated Fixed Charges for
the immediately succeeding calendar quarter, to be less than the ratio set
forth opposite such date on such Schedule.
Section 10.5 Capital Expenditures. The Borrower and the Operating
Subsidiaries will not permit cumulative Capital Expenditures for the period
beginning on January 1, 1999 and ending on any of the dates set forth on
Schedule 10.5 to exceed the amount set forth opposite such date on such
Schedule.
Section 10.6 Quarterly Minimum Revenue Levels. The Borrower and the
Operating Subsidiaries will not permit Gross Revenues for any calendar quarter
ending on any of the dates set forth on Schedule 10.6 to be less than the
amount set forth opposite such date on such Schedule.
Section 10.7 Wireless Subscribers. The Borrower and the Operating
Subsidiaries will not permit Wireless Subscribers at the end of any calendar
quarter ending on any of the dates set forth in Schedule 10.7 to be less than
the amount set forth opposite such date on such Schedule.
Section 10.8 Operating Leases. The Borrower and the Operating
Subsidiaries will not, and will not permit its Subsidiaries to, enter into or
become party to Operating Leases, other than tower leases and transport
facility leases, that in the aggregate provide for payments during any calendar
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year in excess of $3,000,000. The Borrower and the Operating Subsidiaries will
not, and will not permit its Subsidiaries to, enter into or become party to
Operating Leases which are tower leases that in the aggregate provide for
payments during any calendar year in excess of $13,000,000.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal or interest owing to the Administrative Agent or any Lender
pursuant to this Agreement or any other Loan Document, or (ii) the Borrower
shall fail to pay, within two Business Days after the due date thereof, any
fee, expense or other amount or other Obligation owing to the Administrative
Agent or any Lender pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf
of any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.1(e), 8.2, Article 9 or
Article 10; any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Article 5 or Section 8.1, 8.3, 8.5,
8.6, 8.7, 8.8, 8.9, 8.10, 8.13, 8.14 and 8.19, and such failure is not remedied
or waived within ten days after such failure commenced; or any Loan Party shall
fail to perform, observe or comply with any other covenant, agreement or term
contained in this Agreement or any other Loan Document (other than covenants to
pay the Obligations) and such failure is not remedied or waived within the
earlier to occur of 30 days after such failure commenced or, if a different
grace period is expressly made applicable in such other Loan Documents, such
applicable grace period.
(d) Any Loan Party or any Sprint PCS signatory to any Sprint
Management Agreement ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become
due.
(e) Any Loan Party or any Sprint PCS signatory to any Sprint
Management Agreement shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect,
the "Bankruptcy Code"), (v) file a petition or take any other action seeking to
take advantage of any other law providing for the relief of debtors, the
marshaling of assets or relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding up, or
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composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it
in an involuntary case under the Bankruptcy Code or other applicable
Governmental Requirement, (vii) dissolve, or (viii) take any entity action for
the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application
or consent of any Loan Party or any Sprint PCS signatory to any Sprint
Management Agreement, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or
of all or any substantial part of its Property, or (iii) similar relief in
respect of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement
or winding up, or composition or readjustment of debts, and such proceeding or
case shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be
entered in an involuntary case under the Bankruptcy Code against any Loan Party
and shall continue unstayed and in effect for any period of 60 consecutive
days.
(g) Any Loan Party shall fail to discharge within a period of 30 days
after the commencement thereof any attachment, sequestration, forfeiture or
similar proceeding or proceedings involving an aggregate amount in excess of
$500,000 against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess
of $500,000 in the aggregate shall be rendered by a court or courts against any
Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and such Loan Party shall not, within
said period of 30 days, or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the execution thereof
to be stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or
interest on any Debt of such Loan Party (other than the Obligations) having
(either individually or in the aggregate) a principal amount of at least
$500,000 or the maturity of any such Debt shall have been accelerated, or any
such Debt shall have been required to be prepaid prior to the stated maturity
thereof, or any event shall have occurred (and shall not have been waived or
otherwise cured) that permits (or, with the giving of notice or lapse of time
or both, would permit) any holder or holders of such Debt or any Person acting
on behalf of such holder or holders to accelerate the maturity thereof or
require any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in
full force and effect or shall be declared null and void, or the validity or
enforceability thereof shall be successfully contested or challenged by any
Loan Party and the effect thereof shall be materially adverse to the
Administrative Agent and/or the Lenders; or any Lien created or purported to be
created by the Loan Documents shall for any reason cease to be or fail to be a
valid, first priority perfected Lien upon any of the Collateral purported to be
covered thereby.
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(k) Any of the following events shall occur or exist with respect to
any Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any
Pension Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204
of ERISA from a Multiemployer Plan or the reorganization, insolvency or
termination of any Pension Plan; and in each case above, such event or
condition, together with all other events or conditions, if any, have subjected
or could in the reasonable opinion of Required Lenders subject any Loan Party
or any ERISA Affiliate to any tax, penalty or other liability to a Plan, a
Multiemployer Plan, the PBGC or otherwise (or any combination thereof) which in
the aggregate exceed or could reasonably be expected to exceed $500,000.
(l) The occurrence of any breach or default by the Borrower or any
other Loan Party under the Supply Agreement (after giving effect to any grace
or cure period specified therein) which breach or default entitles Nortel
Networks to exercise a right or remedy under or in connection with the Supply
Agreement.
(m) The termination of any Sprint Agreement, or the occurrence of (i)
any "Event of Termination" as defined in any Sprint Agreement, or (ii) any
breach or default under any Consent and Agreement (other than a breach or
default by the Administrative Agent) which breach or default entitles the
Administrative Agent to exercise a right or remedy under or in connection with
such Consent and Agreement.
(n) Any termination, revocation or non-renewal by the FCC of one or
more of the PCS Licenses or by Sprint PCS of any right of any Loan Party to use
any PCS Licenses, or any termination, revocation or non-renewal by any state
public utility commission of any other material Permit of any Loan Party.
(o) The occurrence of any Material Adverse Effect.
(p) The occurrence of any Change in Control.
(q) The breach by any Loan Party of, or the termination, invalidity or
unenforceability of, any Consent and Agreement.
(r) Any sale, transfer or other disposition of the Service Area
Network or any material portion thereof.
(s) If, at any time, the subordination provisions of any of the
Approved Subordinated Debt Documents shall be invalidated or shall otherwise
cease to be in full force and effect.
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(t) If, at any time, any event or circumstance shall occur that gives
(i) any holder of any Approved Subordinated Debt the right to request or
require Holdings or the Borrower or any other Loan Party to redeem, purchase,
repurchase or prepay any Approved Subordinated Debt or (ii) any holder of any
of the Holdings Senior Notes the right to require Holdings to redeem, purchase,
repurchase or prepay any of the Holdings Senior Notes.
(u) The occurrence of (i) a default under (including, without
limitation, a "Default" as such term is used or defined in) any Approved
Subordinated Debt Document, unless (A) such default has been waived, cured or
consented to in accordance with such documents, (B) such default is not a
payment default, (C) the maturity of the Debt affected thereby has not been
accelerated, (D) a blockage under such Approved Subordinated Debt Document has
not been invoked, and (E) such waiver or consent is not made in connection with
any amendment or modification of any such Approved Subordinated Debt Documents
or in connection with any payment to the holders of any Approved Subordinated
Debt, (ii) a payment default under (including, without limitation, a payment
"Default" as such term is used or defined in) any Approved Subordinated Debt
Document, (iii) an event of default under (including, without limitation, an
"Event of Default" as such term is used or defined in) any Approved
Subordinated Debt Document, or (iv) any acceleration of the maturity of any
Approved Subordinated Debt.
(v) The occurrence of any Holdings Senior Notes Event of Default or
any "Change of Control" as such term is defined in the Holdings Senior Notes
Indenture.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower or
any other Loan Party under the Loan Documents immediately due and payable, and
the same shall thereupon become immediately due and payable, without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, protest or other formalities of any kind, all of which
are hereby expressly waived by the Borrower and the other Loan Parties;
(b) Termination of Commitments. Terminate each of the Commitments
without notice to the Borrower or any other Loan Party;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to
the Administrative Agent for the benefit of the Administrative Agent and the
Lenders to secure payment and performance of the Obligations in accordance with
the terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the
laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
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provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower or any other Loan Party under the Loan Documents shall thereupon
become immediately and automatically due and payable, without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower and the other Loan Parties.
Section 11.3 Performance by the Administrative Agent, etc.. If the
Borrower or any other Loan Party shall fail to perform any covenant or
agreement in accordance with the terms of the Loan Documents, the
Administrative Agent may perform or attempt to perform, or may cause any Lender
(with the consent of such Lender) to perform or attempt to perform, such
covenant or agreement on behalf of the Borrower or such other Loan Party (as
applicable). In such event, the Borrower shall, at the request of the
Administrative Agent, promptly pay any amount expended by the Administrative
Agent or the Lenders in connection with such performance or attempted
performance to the Administrative Agent at its Principal Office, together with
interest thereon at the applicable Default Rate from and including the date of
such expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither the
Administrative Agent nor any Lender shall have any liability or responsibility
for the performance of any obligation of the Borrower or any other Loan Party
or any other Person under this Agreement or any of the other Loan Documents.
ARTICLE 12
The Administrative Agent
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its
agent hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender,
(c) shall not be required to initiate any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by
the Required Lenders, (d) shall not be responsible to the Lenders for any
recitals, statements, representations or warranties contained in this Agreement
or any other Loan Document, or any certificate or other document referred to or
provided for in, or received by any of them under, this
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Agreement or any other Loan Document, or for the value, validity,
effectiveness, enforceability or sufficiency of this Agreement or any other
Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder, (e) may consult with legal counsel (including counsel
for any Loan Party), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts, and (f) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing reasonably believed by it to be genuine and signed or sent by the
proper party or parties. As to any matters not expressly provided for by this
Agreement, the Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Required Lenders, and such instructions of the Required Lenders
and any action taken or failure to act pursuant thereto shall be binding on all
of the Lenders; provided, however, that the Administrative Agent shall not be
required to take any action which exposes the Administrative Agent to liability
or which is contrary to this Agreement or any other Loan Document or applicable
law. The Administrative Agent shall not be deemed to have any fiduciary
relationship with any Lender or any Loan Party, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent"
in this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect
to its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as
a Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, any Loan Party or any of its Affiliates and any other Person who
may do business with or own securities of any Loan Party or any of its
Affiliates, all as if it were not acting as the Administrative Agent and
without any duty to account therefor to the Lenders. Without limiting the
generality of the foregoing, it is contemplated that (a) Nortel Networks will
be the holder of the warrants issued by Holdings and (b) Nortel Networks and/or
an Affiliate of Nortel Networks may purchase equity securities of Holdings.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender
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prompt notice of each such non-payment). The Administrative Agent shall
(subject to Section 12.1) take such action with respect to such Default as
shall be directed by the Required Lenders, provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall seem advisable and
in the best interest of the Lenders.
SECTION 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS
AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT
LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY
IN ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS
COMMITMENT PERCENTAGE OF THE AGGREGATE COMMITMENTS), ANY AND ALL LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS,
EXPENSES (INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE
WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE
ADMINISTRATIVE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE ADMINISTRATIVE
AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, THAT NO
LENDER SHALL BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY
THE ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF THE LENDERS THAT
THE ADMINISTRATIVE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS
AGAINST ALL OF SUCH LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL
LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) AND
DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE ADMINISTRATIVE AGENT
(EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY OTHER PROVISION OF THIS
SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT PROMPTLY
UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT
PERCENTAGE OF THE AGGREGATE COMMITMENTS) OF ANY AND ALL OUT-OF-POCKET EXPENSES
(INCLUDING ATTORNEYS' FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION
WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION,
AMENDMENT OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR
OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER,
THE
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LOAN DOCUMENTS, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT IS NOT PROMPTLY
REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it
has independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and the other Loan
Parties and its own decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by any Loan Party of this
Agreement or any other Loan Document or to inspect the Properties or books of
any Loan Party (or any other Person). Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Administrative Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other
obligations of the Lenders under this Agreement are several. The default by any
Lender in making a Loan in accordance with any of its Commitments shall not
relieve the other Lenders of their obligations under this Agreement. In the
event of any default by any Lender in making any Loan, each nondefaulting
Lender shall be obligated to make its Loan but shall not be obligated to
advance the amount which the defaulting Lender was required to advance
hereunder. In no event shall any Lender be required to advance an amount or
amounts with respect to any of the Loans which would in the aggregate exceed
such Lender's Commitment with respect to such Loans. No Lender shall be
responsible for any act or omission of any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrower. Upon any such resignation, the Required
Lenders will have the right to appoint another Lender as a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be a commercial
bank organized under the laws of the U.S. or any state thereof or of a foreign
country if acting through its U.S. branch and having combined capital and
surplus of at least $100,000,000. Upon the acceptance of its appointment as
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities and duties of the resigning Administrative Agent, and the resigning
Administrative Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any Administrative Agent's
resignation as Administrative Agent, the provisions of this Article 12 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was the
CREDIT AGREEMENT - Page 96
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Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. The Borrower hereby agrees, on demand, to pay
or reimburse the Administrative Agent and each of the Lenders for paying: (a)
all reasonable out-of-pocket costs and expenses of the Administrative Agent
accrued in connection with the drafting, preparation, negotiation, execution
and/or delivery of this Agreement and the other Loan Documents, and any and all
waivers, amendments, modifications, renewals, extensions and supplements of or
to the Loan Documents, and the syndication of the Commitments and the Loans,
including, without limitation, the reasonable fees and expenses of legal
counsel (including all local counsel) for the Administrative Agent, (b) all
out-of-pocket costs and expenses of the Administrative Agent and the Lenders in
connection with any Default, the exercise of any right or remedy and the
enforcement of this Agreement or any other Loan Document or any term or
provision hereof or thereof, including, without limitation, the fees and
expenses of all legal counsel for the Administrative Agent and/or any Lender,
(c) all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any Governmental Authority in respect of this Agreement or
any of the other Loan Documents, (d) all costs, expenses, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any Lien contemplated by this Agreement or any other Loan
Document, and (e) all reasonable out-of-pocket costs and expenses incurred by
the Administrative Agent in connection with due diligence, computer services,
copying, appraisals, environmental audits, collateral audits, field exams,
insurance, consultants and search reports. Notwithstanding the foregoing
provisions of this Section 13.1, the legal fees and related expenses of counsel
to the Administrative Agent shall be subject to the limitations therefor
specified in the Administrative Agent's Letter.
SECTION 13.2 INDEMNIFICATION. EACH OF THE LOAN PARTIES HEREBY JOINTLY
AND SEVERALLY AGREES TO INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER AND
EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES),
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' AND CONSULTANTS' FEES) TO WHICH ANY OF THEM
MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE
NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF
ANY OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY
FORECLOSURE RIGHT OR OTHER RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN
COMPLIANCE WITH LAWS AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO
OTHER PERSONS, (B)
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ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY
ANY LOAN PARTY OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER
AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE
OF ANY LOAN, (E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL
OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY
OF THE PROPERTIES OF ANY LOAN PARTY OR ANY OF THEIR AFFILIATES, EXCEPT TO THE
EXTENT THAT THE LOSS, DAMAGE OR CLAIM IS THE DIRECT RESULT OF GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED, OR (F) ANY
INVESTIGATION, LITIGATION OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY THREATENED INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING; BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT
LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS
THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED
UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL
LIABILITIES), CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING
FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. WITHOUT PREJUDICE TO
THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS
OF THE LOAN PARTIES UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE
LOANS AND OTHER OBLIGATIONS AND TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Administrative
Agent, any Lender or any Affiliate, officer, director, employee, attorney or
agent thereof shall be liable for any error of judgment or act done in good
faith, or be otherwise liable or responsible under any circumstances whatsoever
(including such Person's negligence), except for such Person's gross negligence
or willful misconduct. None of the Administrative Agent, any Lender or any
Affiliate, officer, director, employee, attorney or agent thereof shall have
any liability with respect to, and each of the Borrower and the other Loan
Parties hereby waives, releases and agrees not to sue any of them upon, any
claim for any special, indirect, incidental or consequential damages suffered
or incurred by any Loan Party or any of its Affiliates in connection with,
arising out of or in any way related to this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents. Each of the Loan Parties hereby waives, releases and
agrees not to sue the Administrative Agent or any Lender or any of their
respective Affiliates, officers, directors, employees, attorneys or agents for
exemplary or punitive damages in respect of any claim in connection with,
arising out of or in any way related to this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents.
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Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to any Loan Party or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between each
Loan Party and each Lender is solely that of debtor and creditor, and neither
the Administrative Agent nor any Lender has any fiduciary or other special
relationship with any Loan Party or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between any Loan Party and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among any Loan
Party or any of its Affiliates and the Lenders.
Section 13.6 Equitable Relief. Each of the Loan Parties recognizes
that, in the event it fails to pay, perform, observe or discharge any or all of
the Obligations, any remedy at law may prove to be inadequate relief to the
Administrative Agent and the Lenders. Each of the Loan Parties therefore agrees
that the Administrative Agent and the Lenders, if the Administrative Agent or
the Lenders so request, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any other Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement and the other Loan Documents
are cumulative and not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. Neither the
Borrower nor any other Loan Party may assign or transfer any of its rights or
obligations under this Agreement or any other Loan Document without the prior
written consent of the Administrative Agent and the Lenders. Any Lender may
sell participations in all or a portion of its rights and obligations under
this Agreement and the other Loan Documents (including, without limitation, all
or a portion of its Commitments and the Loans owing to it); provided, however,
that (i) such Lender's obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitments) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the Borrower for
the performance of such obligations, (iii) such Lender shall remain the holder
of its Notes for all purposes of this Agreement, (iv) the Borrower shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Loan
Documents, and (v) the Lenders shall not grant any participation under which
the participant shall have the right to approve
CREDIT AGREEMENT - Page 99
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(or under which the consent of the participant must be obtained prior to the
Lenders' being able to approve) any amendment or waiver of this Agreement or
the other Loan Documents, except to the extent that such amendment or waiver
(A) increases any Commitment, (B) reduces the interest rate or the amount of
principal or fees applicable to the Loans or Commitments in which such
participant is participating, (C) extends any Maturity Date, (D) releases any
of the Collateral (except as provided for herein or in any other Loan Document)
or any guaranty of the Obligations, or (E) releases any Loan Party from its
monetary Obligations under any of the Loan Documents.
(b) The Loan Parties and each of the Lenders agree that any Lender
(the "Assigning Lender") may at any time assign to one or more Eligible
Assignees all or any part of its rights and/or obligations under this Agreement
and the other Loan Documents (including, without limitation, its Commitments
and/or Loans) (each an "Assignee"); provided, however, that (i) each such
assignment may be of a varying percentage of the Assigning Lender's rights
and/or obligations under this Agreement and the other Loan Documents and may
relate to some but not all of such rights and/or obligations, (ii) except in
the case of (A) an assignment of all of a Lender's rights and obligations under
this Agreement and the other Loan Documents or (B) an assignment by a Lender to
an Affiliate of such Lender, to another Lender or to an Approved Fund, the
amount of the Commitment(s) and/or Loans of the Assigning Lender being assigned
pursuant to each assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000 calculated based upon the aggregate amount of the Commitment(s)
and/or Loans assigned and (iii) the parties to each such assignment shall
execute and deliver to the Administrative Agent for its acceptance and
recording in the Register (as defined below), an Assignment and Acceptance,
together with the Note subject to such assignment, and a processing and
recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and,
to the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of
a Lender hereunder and under the other Loan Documents, and (2) the Assigning
Lender thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement and the
other Loan Documents (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of a Lender's rights and obligations under the
Loan Documents, such Lender shall cease to be a party thereto, provided that
such Lender's rights under Article 4, Section 13.1 and Section 13.2 accrued
through the date of assignment shall continue). Holdings and the Borrower will
provide full and prompt assistance to each Lender as it may reasonably request
from time to time in connection with such Lender's efforts to assign its
Commitments and/or Loans or sell any participation interest therein. Such
assistance shall include, without limitation, making senior officers of
Holdings and the Borrower available for meetings with prospective Lenders and
participants and providing (in a timely manner) such assistance as may be
reasonably requested by such Lender and/or its advisors, including, without
limitation, providing information to and responding to inquiries from such
prospective Lenders and participants with respect to the businesses,
operations, business plan, financial condition and results of operations of the
Loan Parties.
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(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other instrument
or document furnished pursuant thereto; (ii) such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition or results of operations of any Loan Party or any of its
Affiliates or the performance or observance by any Loan Party or any of its
Affiliates of its obligations under the Loan Documents; (iii) such Assignee
confirms that it has received a copy of the Loan Documents, together with
copies of the financial statements referred to in Section 7.2 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (iv) such
Assignee will, independently and without reliance upon the Administrative Agent
or such Assigning Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents; (v) such Assignee confirms that it is an Eligible Assignee; (vi)
such Assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and exercise such powers under the Loan Documents
as are delegated to the Administrative Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; and (vii) such Assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Loan Parties, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each
surrendered Note evidencing the Loans assigned, a new Note evidencing such
Loans payable to the order of such Eligible Assignee in an amount equal to such
Loans assigned to it and, if the Assigning Lender has retained any Loans, a new
Note evidencing each such Loans payable to the order of the Assigning Lender in
the amount of such Loans retained by it (each such promissory note shall
constitute a
CREDIT AGREEMENT - Page 101
<PAGE> 109
"Note" for purposes of the Loan Documents). Such new Notes shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 13.8, disclose
to the Assignee or participant or proposed Assignee or participant any
information relating to any Loan Party or any of its Affiliates furnished to
such Lender by or on behalf of the any Loan Party or any of its Affiliates;
provided that each such actual or proposed Assignee or participant shall agree
to be bound by the provisions of Section 13.20.
(g) Any Lender may assign and pledge any Note held by it to any
Federal Reserve Bank or the U.S. Treasury as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve System and/or Federal Reserve
Bank; provided, however, that any payment made by the Borrower for the benefit
of such assigning and/or pledging Lender in accordance with the terms of the
Loan Documents shall satisfy the Borrower's obligations under the Loan
Documents in respect thereof to the extent of such payment. No such assignment
and/or pledge shall release the assigning and/or pledging Lender from its
obligations hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of
each of the Loans which is evidenced by a Registered Note. Notwithstanding
anything to the contrary contained in this Section 13.8, a Registered Note and
the Loans evidenced thereby may be assigned or otherwise transferred in whole
or in part only by registration of such assignment or transfer of such
Registered Note and the Loans evidenced thereby on the Registered Note Register
(and each Registered Note shall expressly so provide). Any assignment or
transfer of all or part of such Loans and the Registered Note evidencing the
same shall be registered on the Registered Note Register only upon surrender
for registration of assignment or transfer of the Registered Note evidencing
such Loans, duly endorsed by (or accompanied by a written instrument of
assignment or transfer duly executed by) the registered noteholder thereof, and
thereupon one or more new Registered Notes in the same aggregate principal
amount shall be issued to the designated assignee(s) or transferee(s). Prior to
the due presentment for registration of transfer of any Registered Note, the
Borrower and the Administrative Agent shall treat the Person in whose name such
Loans and the Registered Note(s) evidencing the same are registered as the
owner thereof for the purpose of receiving all payments thereon and for all
other purposes, notwithstanding any notice to the contrary. The Registered Note
Register shall be available for inspection by the Borrower and any Lender at
any reasonable time upon reasonable prior notice.
(i) The Loan Parties will not become a party to any loan agreement,
credit agreement or similar agreement which restricts or prohibits the right or
ability of any lender which is a party thereto to become a Lender under this
Agreement.
CREDIT AGREEMENT - Page 102
<PAGE> 110
(j) Holdings and the Borrower shall provide prompt assistance to the
Administrative Agent and the Lenders in connection with their respective
efforts in syndicating the Loans and Commitments. Such assistance shall include
making senior officers and other representatives of Holdings and the Borrower
and their Affiliates available for meetings with prospective Lenders and
providing, in a timely manner, such assistance as may be reasonably requested
by the Administrative Agent or its advisors, including, without limitation,
providing information to and responding to inquiries from prospective Lenders
with respect to the business, operations, Business Plan, results and other
matters relating to the business of Holdings, the Borrower and the other Loan
Parties.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by the
Administrative Agent or any Lender or any closing shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them. Without prejudice to the survival of any other
obligation of any of the Loan Parties hereunder or under the other Loan
Documents, the obligations of the Borrower and the other Loan Parties under
Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans and
the Reimbursement Obligations and the other Obligations.
SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, TERM
SHEETS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN OR AMONG (A) ANY ONE OR MORE OF THE LOAN PARTIES AND (B) ANY ONE OR
MORE OF THE ADMINISTRATIVE AGENT AND/OR THE LENDERS.
Section 13.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Document to which any Loan Party is
a party, nor any consent to any departure by any Loan Party therefrom, shall in
any event be effective unless the same shall be agreed or consented to by the
Required Lenders and such Loan Party in writing, and each such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or
consent shall, unless in writing and signed by all of the Lenders and the
Borrower, do any of the following: (a) increase the Commitments of the Lenders
(or any Lender) or subject the Lenders to any additional obligations; (b)
reduce the principal of, or interest on, the Loans or any fees or other amounts
payable hereunder; (c) postpone any date fixed for any payment (including,
without limitation, any mandatory prepayment) of principal of, or interest on,
the Loans or any fees or other amounts payable hereunder; (d) change the
Commitment Percentages or the aggregate unpaid principal amount of the Loans or
the number or interests of the Lenders which shall be required for the Lenders
or any of them to take any action under this Agreement; (e) change any
provision contained in Section 3.2, 3.3
CREDIT AGREEMENT - Page 103
<PAGE> 111
or 5.1 or this Section 13.11 or modify the definition of "Required Lenders," or
"Permitted Third- Party Expenses Borrowing Base" contained in Section 1.1; or
(f) except as expressly authorized by this Agreement, release any Collateral
from any of the Liens created by the Security Documents; and provided further,
however, that no amendment, waiver or consent relating to Sections 12.1, 12.2,
12.3, 12.4 or 12.5 shall require the agreement of the Borrower or any other
Loan Party. Notwithstanding anything to the contrary contained in this Section
13.11, no amendment, waiver or consent shall be made with respect to (i)
Article 12 hereof without the prior written consent of the Administrative
Agent, (ii) the definitions of "Nortel Networks Equipment", "Nortel Networks
Goods and Services", "Nortel Networks Software", "Permitted Third-Party
Expenses", "Permitted Third-Party Expenses Borrowing Base", "Supply Agreement"
or Section 2.5, 2.9 or 2.10 hereof without the prior written consent of Nortel
Networks (whether or not Nortel Networks is then a Lender hereunder), or (iii)
any condition precedent set forth in Article 6 with respect to the making of
any Tranche A Loans, Tranche B Loans or Tranche C Loans without the prior
written consent of the Lenders that hold, at the time of such amendment, waiver
or consent, at least a majority (in Dollar amount) of the Tranche A
Commitments, Tranche B Commitments or Tranche C Commitments, respectively.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions of this
Agreement or the other Loan Documents shall ever be construed to create a
contract or obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Administrative Agent nor any Lender shall ever charge, receive,
take, collect, reserve or apply, as interest on the Obligations, any amount in
excess of the Maximum Rate. The parties hereto agree that any interest, charge,
fee, expense or other obligation provided for in this Agreement or in the other
Loan Documents which constitutes interest under applicable law shall be, ipso
facto and under any and all circumstances, limited or reduced to an amount
equal to the lesser of (i) the amount of such interest, charge, fee, expense or
other obligation that would be payable in the absence of this Section 13.12(b)
or (ii) an amount, which when added to all other interest payable under this
Agreement and the other Loan Documents, equals the Maximum Rate. If,
notwithstanding the foregoing, the Administrative Agent or any Lender ever
contracts for, charges, receives, takes, collects, reserves or applies as
interest any amount in excess of the Maximum Rate, such amount which would be
deemed excessive interest shall be deemed a partial payment or prepayment of
principal of the Obligations and treated hereunder as such; and if the
Obligations, or applicable portions thereof, are paid in full, any remaining
excess shall promptly be paid to the Borrower. In determining whether the
interest paid or payable, under any specific
CREDIT AGREEMENT - Page 104
<PAGE> 112
contingency, exceeds the Maximum Rate, the Borrower and the other Loan Parties,
the Administrative Agent and the Lenders shall, to the maximum extent permitted
by applicable law, (i) characterize any nonprincipal payment as an expense, fee
or premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate and spread in equal or
unequal parts the total amount of interest throughout the entire contemplated
term of the Obligations, or applicable portions thereof, so that the interest
rate does not exceed the Maximum Rate at any time during the term of the
Obligations; provided that, if the unpaid principal balance is paid and
performed in full prior to the end of the full contemplated term thereof, and
if the interest received for the actual period of existence thereof exceeds the
Maximum Rate, the Administrative Agent and/or the Lenders, as appropriate,
shall refund to the Borrower the amount of such excess and, in such event, the
Administrative Agent and the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging, receiving, taking,
collecting, reserving or applying interest in excess of the Maximum Rate.
Section 13.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower,
Holdings or any Operating Subsidiary is a party shall be given or made by
telecopy or in writing and telecopied, mailed by certified mail return receipt
requested or delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof (or, with respect to a
Lender that becomes a party to this Agreement pursuant to an assignment made in
accordance with Section 13.8, in the Assignment and Acceptance executed by it);
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party given in accordance with this Section 13.13.
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given when transmitted by telecopy or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid; provided, however, that notices to the
Administrative Agent shall be deemed given when received by the Administrative
Agent.
SECTION 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES
HERETO CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT
PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE
LAWS OF THE U.S. EACH OF THE LOAN PARTIES HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3)
THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS
STATE COURT SITTING IN DALLAS COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE LOAN
PARTIES HEREBY IRREVOCABLY CONSENTS TO
CREDIT AGREEMENT - Page 105
<PAGE> 113
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS FOR NOTICES SET
FORTH UNDERNEATH ITS SIGNATURE HERETO OR SET FORTH IN ANY OTHER LOAN DOCUMENT.
EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Construction. Each of the Loan Parties, the
Administrative Agent and the Lenders acknowledges that it has had the benefit
of legal counsel of its own choice and has been afforded an opportunity to
review this Agreement and the other Loan Documents with its legal counsel and
that this Agreement and the other Loan Documents shall be construed as if
jointly drafted by the parties hereto and thereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality.
(a) Lenders' Obligations. Each Lender agrees to exercise its best
efforts to keep any information delivered or made available by the Borrower to
it which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided, however, that nothing herein shall prevent
any Lender from disclosing such information (a) to any other Lender, (b) to any
Person if reasonably incidental to the administration of the Loans, (c) upon
the order of any court or administrative agency, (d) upon the request or demand
of any regulatory agency or authority having jurisdiction over such Lender, (e)
which has been publicly disclosed, (f) in connection with any litigation to
which the Administrative Agent, any Lender or their respective Affiliates may
be a party, (g) to the extent
CREDIT AGREEMENT - Page 106
<PAGE> 114
reasonably required in connection with the exercise of any right or remedy
under the Loan Documents, (h) to such Lender's legal counsel, independent
auditors and affiliates, and (i) to any actual or proposed participant or
Assignee of all or part of its rights hereunder, so long as such actual or
proposed participant or Assignee agrees to be bound by the provisions of this
Section 13.20; provided, further, however, that each Lender shall not disclose
any "Confidential Information" (as such term is defined in any Sprint
Management Agreement) except as permitted by Section 12.2 of any Sprint
Management Agreement (as amended) and as modified by Section 14 of any Consent
and Agreement.
(b) Loan Parties' and Affiliates' Obligations. Each of the Loan
Parties will, and will cause its Affiliates to, keep the terms and provisions
of this Agreement and the other Loan Documents confidential from anyone other
than individuals employed or retained by the Loan Parties who are or are
expected to become engaged in financial matters or matters relating to
compliance with the Loan Documents, provided that nothing herein shall prevent
any such Person from disclosing such information (i) to any other Loan Party,
(ii) upon the order of any court or administrative agency, (iii) upon the
request or demand of any Governmental Authority having jurisdiction over any
Loan Party, (iv) which has been publicly disclosed, and (v) to a Loan Party's
legal counsel and independent auditors; provided, however, that the Borrower
and the other Loan Parties will deliver to the Administrative Agent written
notice of any intention or obligation of any Loan Party to deliver or provide a
copy of this Agreement or any other Loan Document or any term or provision
hereof or thereof to any Governmental Authority at least ten Business Days
prior to the initial date upon which any such delivery or provision occurs and
each of the Loan Parties shall use all reasonable efforts to redact or delete
from such copy or such term or provision such terms or provisions or language
relating to rates of interest, fees, financial covenants, availability and
other terms or provisions of a sensitive nature as may be requested by the
Administrative Agent to be so redacted or deleted before the same is so
delivered or provided. Without limiting the generality of the foregoing, each
of the Loan Parties agrees that it will not, and will not permit any of its
Affiliates to, without the prior written consent of the Administrative Agent,
issue or publish a press release, tombstone or other similar announcement or
publication relating to this Agreement or any other Loan Document or the
transactions contemplated hereby unless it is required to do so by the order of
any court or administrative agency or in accordance with applicable law.
SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE LOAN PARTIES, THE ADMINISTRATIVE AGENT AND THE
LENDERS HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF ANY LOAN PARTY, THE
ADMINISTRATIVE AGENT OR ANY LENDER IN THE NEGOTIATION, ADMINISTRATION OR
ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the
CREDIT AGREEMENT - Page 107
<PAGE> 115
Administrative Agent or any Lender is requested or required, (a) the granting
or denial of such approval or consent and the exercise of such judgment shall
be within the sole discretion of the Administrative Agent or such Lender,
respectively, and the Administrative Agent and such Lender shall not, for any
reason or to any extent, be required to grant such approval or consent or to
exercise such judgment in any particular manner, regardless of the
reasonableness of the request or the action or judgment of the Administrative
Agent or such Lender, and (b) no approval or consent of the Administrative
Agent or any Lender shall in any event be effective unless the same shall be in
writing and the same shall be effective only in the specific instance and for
the specific purpose for which given.
Section 13.23 Service of Process. Each of the Loan Parties irrevocably
consents to the service of process by the mailing thereof by the Administrative
Agent or the Required Lenders by registered or certified mail, postage prepaid,
to such Loan Party at its address listed on the signature pages hereof. Nothing
in this Section 13.23 shall affect the right of the Administrative Agent or the
Lenders to serve legal process in any other manner permitted by law or affect
the right of the Administrative Agent or any Lender to bring any action or
proceeding against such Loan Party or its Property in the court of any
jurisdiction.
Section 13.24 Reaffirmation of Supply Agreement. Each of the Borrower,
the Operating Subsidiaries and Nortel Networks hereby reaffirms, ratifies and
confirms all of its indebtedness, liabilities and obligations under the Supply
Agreement as if the Supply Agreement were executed and delivered by the
Borrower, the Operating Subsidiaries and Nortel Networks as of the Closing
Date.
Section 13.25 Amendment and Restatement of the Original Credit
Agreement. Effective as of the Closing Date, this Agreement shall constitute an
amendment and restatement of all, but not an extinguishment, discharge,
satisfaction or novation of any, indebtedness liabilities and/or obligations
(including, without limitation, the Obligations) of the Loan Parties under the
Original Credit Agreement.
Section 13.26 Assignments of Original Loans. The Lenders hereby agree
among themselves (and the Borrower and each of the other Loan Parties hereby
consents to such agreement) that, immediately prior to but substantially
concurrently with the Closing Date, there shall be deemed to have occurred
assignments with respect to the outstanding Original Tranche A Loans, Original
Tranche B Loans and Original Tranche C Loans such that, after giving effect to
such assignments, the outstanding Tranche A Loans, Tranche B Loans and Tranche
C Loans is as stated in Section 2.1 and that, as of the Closing Date, each of
the Lenders is the holder of such Tranche A Loans, Tranche B Loans and Tranche
C Loans in an amount equal to the product of its Commitment Percentage of the
Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments,
respectively, multiplied by the principal amount of the Tranche A Loans,
Tranche B Loans and Tranche C Loans, respectively, outstanding as of the
Closing Date.
Section 13.27 No Requirement of Assumption or Payment of Another
Person's Debt. Each of the Loan Parties acknowledges and agrees that neither
the Administrative Agent nor any Lender
CREDIT AGREEMENT - Page 108
<PAGE> 116
has required, as a condition to the Loans made or to be made under this
Agreement, that the Borrower or any other Loan Party assume or agree to pay any
Debt of another Person.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
CREDIT AGREEMENT - Page 109
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ALAMOSA PCS, INC.
By: /S/ DAVID E. SHARBUTT
------------------------------
Name: David E. Sharbutt
Title: President
Address for Notices:
-------------------
200 West Ninth Street Plaza, Suite 102
Wilmington, Delaware 19801
Attention: President
Telecopy No.: (302) 658-0468
Telephone No.: (302) 573-3899
CREDIT AGREEMENT - Page 110
<PAGE> 118
ALAMOSA PCS HOLDINGS, INC.
By: /S/ DAVID E. SHARBUTT
------------------------------
Name: David E. Sharbutt
Title: Chairman of the Board
Address for Notices:
-------------------
4403 Brownfield Highway
Lubbock, Texas 79407
Attention: Chairman of the Board
Telecopy No.: (806) 722-1120
Telephone No.: (806) 722-1111
CREDIT AGREEMENT - Page 111
<PAGE> 119
TEXAS TELECOMMUNICATIONS, LP
By: Alamosa Delaware GP, LLC
Title: General Partner
By: /S/ DAVID E. SHARBUTT
---------------------------
Name: David E. Sharbutt
Title: Manager and President
Address for Notices:
-------------------
4403 Brownfield Highway
Lubbock, Texas 79407
Attention: President
Telecopy No.: (806) 722-1120
Telephone No.: (806) 722-1111
CREDIT AGREEMENT - Page 112
<PAGE> 120
ALAMOSA WISCONSIN LIMITED PARTNERSHIP
By: Alamosa Wisconsin GP, LLC
Title: General Partner
By: /S/ DAVID E. SHARBUTT
---------------------------
Name: David E. Sharbutt
Title: Manager and President
Address for Notices:
-------------------
4403 Brownfield Highway
Lubbock, Texas 79407
Attention: President
Telecopy No.: (806) 722-1120
Telephone No.: (806) 722-1111
CREDIT AGREEMENT - Page 113
<PAGE> 121
ADMINISTRATIVE AGENT:
NORTEL NETWORKS INC.,
as Administrative Agent
By: /S/ ROBERT D. BEITER
---------------------------------------
Name: Robert D. Beiter
Title: Director, Customer Finance North America
Address for Notices:
-------------------
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Robert D. Beiter
Director, Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 685-1525
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
2100 Lakeside Blvd.
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 685-3255
Telephone No.: (972) 684-7687
CREDIT AGREEMENT - Page 114
<PAGE> 122
LENDERS:
NORTEL NETWORKS INC.
Tranche A Commitment: $167,000,000
Tranche B Commitment: $ 58,000,000 By: /S/ ROBERT D. BEITER
--------------------------
Name: Robert D. Beiter
Tranche C Commitment: $ 25,000,000 Title: Director, Customer Finance
------------- North America
Address for Notices:
Total Commitments: $ 250,000,000 Nortel Networks Inc.
============= GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Robert D. Beiter
Director, Customer
Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 685-1525
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 468/05/B40
2100 Lakeside Blvd.
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 685-3255
Telephone No.: (972) 684-7687
Lending Office for Base Rate Loans:
----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
-----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
CREDIT AGREEMENT - Page 115
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 4
TO
DMS-MTX CELLULAR SUPPLY AGREEMENT
BETWEEN
ALAMOSA PCS LLC
AND
NORTEL NETWORKS INC.
This Amendment No. 4 is made effective as of the 8th day of February,
2000, by and between Nortel Networks Inc. (successor in interest to Northern
Telecom Inc.) ("Seller") and Alamosa PCS LLC ("Buyer").
WHEREAS, Buyer and Seller entered into a Supply Agreement dated December
21, 1998, as amended, for the sale and purchase of Seller's Equipment and
Services ("Agreement"); and
WHEREAS, Buyer and Seller now wish to, among other things, amend the
Agreement to extend the Term and adjust Buyer's Volume Commitment; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, Buyer and Seller hereby agree to amend the Agreement as follows:
1. Amend Article 1 (Definitions), Section 1.46 by deleting the phrase
"three years therefrom" and replacing it with "on July 1, 2002."
2. Amend Section 5.3 by deleting the reference to "eighty-two million
dollars ($82,000,000) and replacing it with "one hundred sixty-seven
million dollars ($167,000,000)."
3. Amend Section 5.4 by deleting the section in its entirety and
replacing it with the following:
"5.4 Until Buyer's total purchases under this Agreement exceed
eighty-two million dollars ($82,000,000) net Price in
Equipment and Services, such Equipment and Services purchased
and financed by Seller shall be subject to an additional three
percent (3%) financing premium ("Financing Premium") over the
Additional Affiliate pricing as set forth in Annex 1. For
subsequent purchases (i.e., purchases of Equipment and
Services in excess of eighty-two million dollars [$82,000,000]
net Price), such Financing Premium shall no longer apply."
4. Except as specifically modified herein, the Agreement in all other
respects shall continue in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4
to be executed by their representatives being thereunto duly authorized.
ALAMOSA PCS LLC NORTEL NETWORKS INC.
By: /s/ DAVID SHARBUTT By: /s/ ROBERT D. BEITER
-------------------------------- --------------------------------
Name: David Sharbutt
------------------------------ Name: Robert D. Beiter
(Type/Print) ------------------------------
(Type/Print)
Title: Chief Executive Officer
----------------------------- Title: Director, Customer Finance
Date: February 8, 2000 -----------------------------
------------------------------ Date: February 8, 2000
------------------------------
<PAGE> 1
EXHIBIT 10.23
AMENDED AND RESTATED MASTER DESIGN BUILD AGREEMENT
THIS AMENDED AND RESTATED MASTER DESIGN BUILD AGREEMENT ("AGREEMENT"),
dated as of the 21st day of March, 2000 is made by and between Texas
Telecommunications, L.P., a Texas limited partnership and Alamosa Wisconsin
Limited Partnership, a Wisconsin limited partnership (collectively, "CARRIER")
and SBA Towers, Inc., a Florida corporation ("BTS COMPANY").
WHEREAS, Carrier and BTS Company entered into a Master Design Build
Agreement, dated as of February 22, 2000 (the "EXISTING MASTER DESIGN BUILD
AGREEMENT"); and
WHEREAS, Carrier and BTS Company have agreed to amend and restate the
Existing Master Design Build Agreement to make certain changes, including the
addition of confidentiality provisions, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual promises set forth herein,
the parties hereto agree that on the date set forth above, the Existing Master
Design Build Agreement shall be amended and restated in its entirety as follows:
I. RELATIONSHIP OF PARTIES
1.1 INDEPENDENT CONTRACTOR RELATIONSHIP. The parties intend by this
Agreement to establish an independent contractor relationship. Neither party
nor their employees shall be agents or legal representatives of the other party
for any purpose. Neither party shall have the authority to act for, bind, or
commit the other party. BTS Company and Carrier agree that this Agreement does
not establish or create a relationship of employer-employee, principal-agent, or
a franchise, joint venture, or partnership for any purpose whatsoever.
1.2 CONTRACTS WITH AFFILIATES. BTS Company may contract with any Affiliate
(as hereinafter defined) of BTS Company to provide goods or services beyond
those which its employees would perform, if it deems the same to be necessary or
advisable for development and/or construction of the Sites (as hereinafter
defined).
1.3 LANDLORD AND TENANT RELATIONSHIP. BTS Company and Carrier have executed
the Master Site Agreement ("MSA"), dated as of February 22, 2000, which governs
the relationship of BTS Company, as landlord, and Carrier, as tenant, on those
BTS Sites (as hereinafter defined) which are accepted by Carrier pursuant to
SECTION 2.7(b) of this Agreement. A copy of the MSA is attached hereto as
EXHIBIT A. BTS Company and Carrier shall execute a Site Lease Agreement ("SLA")
with respect to each BTS Site in accordance with SECTION 2.7. The parties agree
to cooperate and act reasonably while performing under this Agreement, the MSA
and all SLAs.
1.4 EXCLUSIVITY. During the term of this Agreement, BTS Company shall be
the exclusive build-to-suit service provider, site acquisition service provider,
line and antenna installation provider (except as to structural collocations
that are installed on a structure that is not a tower or in an instance where a
collocation tower owner requires the use of a designated contractor for
installation of Carrier's equipment on
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<PAGE> 2
such tower), and construction company for wireless telecommunications tower
sites for Carrier and its Affiliates in the BTAs listed on SCHEDULE A attached
hereto and those BTAs agreed upon by the parties made subject to this Agreement
by amendment (the "APPLICABLE GEOGRAPHIC AREA"). For purposes of this Agreement,
"AFFILIATES" with respect to either party, shall mean companies which control,
are controlled by, or under common control with that party. For purposes of this
Agreement, the word "control" shall mean the ownership, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
an entity, or the power to veto major policy decisions of any such entity,
whether through the ownership of voting securities, by contract or otherwise.
During the term of this Agreement, Carrier shall not engage any third party or
Affiliate directly or indirectly to perform build-to-suit, site acquisition,
construction, or equipment installation services in the Applicable Geographic
Area and will not enter into any discussions with any third party or Affiliate
concerning, or furnish any information relating to such services to any third
party or Affiliate, for the purpose of considering, soliciting or inducing any
offer by such third party.
1.5 RESTRICTIONS ON SERVICES TO OTHERS. During the term of this Agreement,
BTS Company will not provide build-to-suit or site acquisition services for any
other person or entity in the BTAs that are subject to the exclusivity
restrictions set forth in SECTION 1.4, with the exception of (a) any of such
services being provided prior to the date of this Agreement and disclosed to
Carrier in SCHEDULE A attached hereto, and (b) any of such services commenced
after the date of this Agreement for which BTS Company has obtained the prior
approval of Carrier, such approval not to be unreasonably withheld.
II. SITE ACQUISITION SERVICES.
2.1 SITE ACQUISITION SERVICES.
(a) Carrier shall establish small geographic areas within the Applicable
Geographic Area within which a cell site or transmission tower shall be located,
based on the network grid's RF design (a "SEARCH RING"). For each Search Ring,
Carrier shall provide (i) minimum tower specifications, (ii) desired mounting
height, (iii) a description of the equipment that Carrier intends to put on the
tower, including any expansion plans, and (iv) any other technical data
reasonably necessary to permit SBA to effectively identify the candidate sites
that meet Carrier's needs. Carrier will provide to BTS Company its system
network grid, with the established Search Rings overlaid thereon. Carrier will
from time to time, assign Search Rings to BTS Company. BTS Company shall provide
the personnel and facilities which are necessary to locate and lease or license
existing towers, buildings or other structures by Carrier to be used for the
installation of Carrier's equipment ("COLLOCATION SITES") or locate and lease,
license or purchase unimproved real property suitable for the construction and
installation of a communications tower and related facilities by BTS Company
("BTS SITE") and the installation of Carrier's equipment. As used herein,
"SITES" shall refer to both Collocation Sites and BTS Sites. BTS Company shall
perform site acquisition services with respect to each Search Ring in accordance
with the scope of work attached hereto as SCHEDULE B ("SITE ACQUISITION
SERVICES"). BTS Company shall be entitled to compensation from Carrier for the
Site Acquisition Services performed on Collocation Sites as set forth on
SCHEDULE D attached hereto. BTS Company shall be entitled to compensation from
Carrier for the Site Acquisition Services performed on BTS Sites under SECTIONS
2.2, 2.3, 2.4(c), 2.4(f) AND 2.7(c) as set forth on SCHEDULE D attached hereto.
BTS Company hereby acknowledges that Carrier maintains a preference to fulfill
its needs for wireless communications installations via suitable Collocation
Sites that may be available within the respective Search Rings designated
hereunder. In the performance of the Site Acquisition Services, BTS Company
shall use diligent and good faith efforts to maximize collocation opportunities
as a primary responsibility, with BTS Sites to be a secondary fulfillment of
Carrier's needs.
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<PAGE> 3
(b) Upon receipt of a Search Ring designated hereunder by Carrier, BTS
Company shall promptly, diligently and professionally perform the Site
Acquisition Services with respect to such Search Ring in accordance with this
Agreement, including, without limitation, the objectives and procedures set
forth in SCHEDULE B attached hereto ("OBJECTIVES AND PROCEDURES").
(c) Except as expressly authorized in this Agreement or otherwise expressly
authorized by Carrier in writing, BTS Company shall provide all labor,
equipment, material and supplies necessary or appropriate to perform Site
Acquisition Services.
(d) During the performance of Site Acquisition Services with respect to any
designated Search Ring, BTS Company shall at all times apprise Carrier of any
expressed opposition, protest, litigation or other efforts, whether by an
individual, group, neighborhood association or other organization, to restrict,
alter or prohibit the construction, installation or operation of any structure,
structures or other facilities that Carrier or BTS Company proposes to construct
or operate on any Site within such Search Ring.
2.2 WITHDRAWAL OF SITE. In the event Carrier elects to withdraw a
Collocation Site at any time or a BTS Site pursuant to the terms of this
Agreement, Carrier shall give BTS Company notice of such withdrawal. In the
event that the withdrawn Site is a Collocation Site, Carrier shall pay BTS
Company 50% of the milestone installment that would be due if the work currently
in progress was completed, 100% of the reimbursable costs which were incurred
prior to the date on which BTS Company receives notice of the withdrawn Site,
and 100% of all other amounts due hereunder for work completed on the Site as of
the date BTS Company receives Carrier's withdrawal notice and shall substitute
the withdrawn Site with an alternative Site or Search Ring within sixty (60)
days ("ALTERNATIVE SITE"), if available. In the event that a withdrawn Site is a
BTS Site, Carrier shall pay BTS Company for the Services (as hereinafter
defined), except where BTS Company otherwise so chooses to develop such BTS Site
for its own purposes, including, without limitation, Site Acquisition Services,
in connection with such Site in the same percentage as though such site was a
Collocation Site using the milestones and amounts set forth in SECTION B(1)(b)
of SCHEDULE D attached hereto. Notwithstanding anything to the contrary
contained in this Agreement, in the event that Carrier rejects or withdraws a
Site due to the Carrier's reasonable conclusion based upon the Carrier's due
diligence pursuant to Section 2.7(b)(v), that there is a material defect
existing with respect to the Site that will materially adversely affect
Carrier's use of the Site as contemplated under this Agreement, then Carrier
shall only be obligated to reimburse BTS Company for third party services in
connection with the withdrawn or rejected Site.
2.3 SEARCH RINGS DESIGN. Carrier shall have the right at any time in its
sole and absolute discretion to expand or reconfigure a previously designated
Search Ring. In the event that Carrier redesigns a Search Ring for a Collocation
Site beyond 0.5 miles of an urban or suburban Site or 1.5 miles of a rural Site
for which BTS Company has begun but not yet completed all Site Acquisition
Services, then Carrier shall pay BTS Company 100% for all Site Acquisition
Services completed at the time that the notice of redesign is received by BTS
Company, 100% of the reimbursable costs which were incurred prior to the date on
which BTS Company receives notice of such reconfigured Search Ring, and 50% of
the milestone installment that would be due if the work currently in progress
was completed. In the event that such Search Ring was a BTS Site, Carrier shall
pay BTS Company for such Site Acquisition Services in connection with the
original Search Ring in the same percentage as though such site was a
Collocation Site using the milestones and amounts set forth in SECTION B(1)(b)
of SCHEDULE D attached hereto. For all Site Acquisition Services rendered for
the redesigned search ring, in the event that the Site in the redesigned Search
Ring is a Collocation Site, Carrier shall pay BTS Company 100% for all
milestones performed and 100% of the reimbursable costs which are incurred.
Carrier agrees not to develop any site within any withdrawn Search
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<PAGE> 4
Rings or an original Search Ring which has been subsequently redesigned as a
tower site and each party hereto further agrees not to transfer the associated
Work Product to any third party, including Affiliates
2.4 TERM OF SITE ACQUISITION SERVICES AGREEMENT; DEFAULT.
(a) The term of this Agreement (the "Site Acquisition Term") commenced as
of February 22, 2000 and shall expire on December 31, 2001.
(b) A party shall be in default under this Agreement with respect to a Site
or a Search Ring if such party breaches an obligation or covenant under this
Agreement to be performed with respect to that Search Ring or Site, which breach
is not cured within thirty (30) days after the breaching party's receipt of
written notice; provided, however, that so long as the defaulting party
commenced appropriate curative action within such thirty (30) day period, and
thereafter diligently prosecutes such cure to completion as promptly as
possible, the cure period will be extended until the cure is completed.
(c) If BTS Company is in default under this Agreement with respect to a
Site or Search Ring, Carrier shall have the right to terminate this Agreement as
to the applicable Site or Search Ring only. In the event of such a termination,
Carrier shall have the right to terminate BTS Company's right to complete the
Services with respect to the Site or Search Ring subject to the default, and
Carrier shall have the right to complete or engage a third party to complete
such Services.
(d) If Carrier is in default under this Agreement with respect to a Site or
Search Ring, BTS Company shall have the right to terminate this Agreement as to
the applicable Site or Search Ring only.
(e) Neither a termination as to any particular Search Ring or Site, nor the
expiration of this Agreement shall affect:
(i) the terms of the MSA or any SLA as such agreements affect any
Site or Search Ring not subject to a default, which has been entered
into by the parties prior to the date of termination of this Agreement
as to any particular Search Ring or Site, which shall continue in
accordance with its terms and conditions;
(ii) the terms of this Agreement that apply to any SLA which has
been entered into by the parties prior to the date of termination of
this Agreement and is not subject to a default;
(iii) any duties or obligations for payment or performance that
are or become owing hereunder prior to the effective date of such
termination;
(iv) the terms of this Agreement that apply to any Search Ring
which was issued prior to the date of termination of this Agreement
that is not the subject of a default; or
(v) any other duties or obligations that expressly survive the
termination or expiration hereof.
(f) A default regarding one Search Ring or Site shall not constitute a
default under this Agreement or with respect to any other Search Ring or Site.
Notwithstanding the previous sentence, in the event that BTS Company is in
default with respect to the greater of (i) fifteen (15) Search Rings in a BTA,
or (ii) twenty percent (20%) or more of the Search Rings issued in such BTA, BTS
Company's right to provide exclusive services under SECTION 1.4 shall terminate
with respect to the BTA subject to such defaults. Upon
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<PAGE> 5
such termination, BTS Company's obligation to provide exclusive Services under
SECTION 1.5 in such BTA shall terminate. BTS Company's and Carrier's rights and
obligations with respect to the Sites and Search Rings subject to the default
shall be governed by SECTION 2.4(c). With respect to Search Rings issued in the
BTA subject to the default after BTS Company's exclusivity rights have
terminated, Carrier shall have the right to perform the Services or to engage a
third party to perform the Services with the exception of the construction
services described in the next sentence. Notwithstanding the termination of BTS
Company's rights of exclusivity under SECTION 1.4 with respect to a BTA subject
to a default described in the second sentence of this section and provided that
BTS Company is not in default with respect to the Construction Management
Services or construction scope of work or deliverable work product, BTS Company
shall have the right to construct the Tower Facilities (as hereinafter defined)
and perform the Construction Management Services with respect to BTS Sites, and
may perform Carrier Installation Services with respect to such BTS Sites upon
Carrier's request on a Site resulting from Search Rings issued in the BTA
subject to the default after BTS Company's rights of exclusivity under SECTION
1.4 are terminated. BTS Company shall be paid for those Services pursuant to the
terms of this Agreement. With respect to all Search Rings issued in a BTA
subject to a default described in the second sentence of this section after the
termination of BTS Company's rights of exclusivity under SECTION 1.4, Provided
that the Services that were not performed by BTS Company with respect to such a
BTS Site are performed to the satisfaction of BTS Company, Carrier shall convey
the Tower Facilities and any site development material not subject to
confidentiality requirements, including, without limitation, ground leases,
title reports, environmental reports and geotechnical reports to BTS Company
upon completion of the Services with respect to such Search Ring lien free
pursuant to assignment documentation reasonably acceptable to both parties, and
BTS Company shall reimburse Carrier for the reasonable costs of completing the
Services, provided that Carrier provides BTS Company with reasonable
substantiation for such costs. BTS Company and Carrier shall execute an SLA for
the applicable Site simultaneously with the conveyance of the site development
material and such Site shall be subject to the terms of the MSA as though BTS
Company had completed all of the Services for such Site.
2.5 GROUND LEASES. The acquisition of BTS Sites by BTS Company pursuant to
this Agreement shall be accomplished by BTS Company purchasing the BTS Site or
leasing the BTS Site using a lease agreement between BTS Company and the lessor
(hereafter the "GROUND LEASE") as approved by Carrier or Carrier's authorized
representatives in accordance with SECTION 2.7(b)(v). The acquisition of
Collocation Sites by BTS Company pursuant to this Agreement shall be
accomplished using a lease agreement between Carrier and the lessor, which
Carrier shall provide to BTS Company or on such other form which Carrier may, in
its sole discretion, approve.
2.6. ACCEPTANCE AND REJECTION OF COLLOCATION SITES. Carrier may at any time
in its sole and absolute discretion accept or reject any proposed Collocation
Site. Without limiting the foregoing, Carrier may withdraw its prior acceptance
of a Collocation Site and thereby reject such Collocation Site. A withdrawal or
any rejection by Carrier of a Collocation Site shall not affect its obligation
for fees earned through the date of termination for Site Acquisition Services as
more particularly described in SECTION 2.2.
2.7 ACCEPTANCE AND REJECTION OF BTS SITES; EXECUTION AND DELIVERY OF SLAS
(a) A BTS Site shall be deemed to be an accepted BTS Site from and after
the date that the Candidate Site which corresponds to the BTS Site has been
approved by Carrier pursuant to SECTION 2(a) of SCHEDULE B attached hereto and
shall continue to be deemed an accepted BTS Site unless and until Carrier
rejects the BTS Site pursuant to SECTION 2.7(b) hereof or Carrier terminates the
applicable SLA pursuant to the terms of the MSA.
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(b) Carrier may at any time prior to the parties' execution and delivery of
an SLA corresponding thereto, and in Carrier's sole and absolute discretion,
reject any BTS Site. In the case of a BTS Site that is accepted by Carrier, the
following shall apply:
(i) BTS Company shall continue the diligent, thorough and
professional prosecution of Site Acquisition Services (including the
completion of Ground Lease negotiations and required zoning, land use
and permitting matters) necessary for the construction of a
communications tower and related facilities consistent with the
criteria theretofore identified by Carrier;
(ii) Subject to SECTION 2.7(b)(iii) below, BTS Company and
Carrier shall prepare and finalize the SLA (and exhibits thereto)
applicable to such BTS Site;
(iii) Within ten (10) days following Carrier's notice from BTS
Company that BTS Company has received all necessary zoning or other
land use permits or approvals applicable to the improvements to be
constructed by BTS Company on the BTS Site and the completion of Site
Acquisition Services in accordance with the Objectives and Procedures,
but subject to SECTION 2.7(b)(iv) below, BTS Company shall prepare an
SLA for such BTS Site, Carrier shall provide to BTS Company all
information reasonably requested by BTS Company to enable BTS Company
to prepare the SLA and Carrier and BTS Company shall execute and
deliver the SLA applicable thereto. Upon the full execution of an SLA,
BTS Company shall thereafter perform its obligations thereunder in
accordance with the SLA and this Agreement. Notwithstanding any
provision of this Agreement to the contrary, in the event that Carrier
neither accepts nor rejects the BTS Site within ten (10) days as
provided herein, but subject to SECTIONS 2.7(b)(iv) AND 2.7(b)(v)
below, BTS Company may, at BTS Company's sole option either (A) deem
the BTS Site approved (in which event BTS Company shall be entitled to
compel Carrier to execute a SLA with respect to the BTS Site or
execute the SLA on behalf of Carrier) or (B) deem the BTS Site to be
rejected and make demand on Carrier for payment of the fees earned for
Site Acquisition Services.
(iv) Carrier may in its sole and absolute discretion withdraw its
prior acceptance of a BTS Site, and thereby reject said BTS Site, at
any time prior to the BTS Company parties' execution and delivery of
the SLA for such BTS Site, subject to Carrier's right to terminate an
SLA pursuant to the MSA.
(v) Notwithstanding anything to the contrary contained in this
Agreement, in the event that Carrier's due diligence investigation or
review of BTS Company's due diligence investigation with respect to a
Site causes Carrier to reasonably believe that Carrier's use and
occupancy of the Site would be adversely affected as a result of such
review, Carrier shall have the right through its legal counsel to
reject such Site by providing BTS Company with notice prior to BTS
Company's commencement of construction at the Site, but no later than
within thirty (30) days of Carrier's receipt of notice from BTS
Company that BTS Company has provided Carrier with all documentation
required pursuant to this Agreement. It further being agreed and
acknowledged that no SLA shall be executed or construction commenced
until such time as BTS Company has received Carrier's approval as
required under this paragraph, provided, however, that Carrier and
Carrier's counsel's failure to respond within such thirty (30) day
period shall be deemed an approval.
(c) In the event of a rejection by Carrier of a BTS Site, including a
rejection after a prior acceptance thereof (except as specified in the last
sentence of Section 2.2) as described above in SECTION 2.7(b) hereof, Carrier
shall be obligated for the payment to BTS Company for Site Acquisition Services
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incurred prior to such rejection with respect to the Search Ring containing such
BTS Site in accordance with SECTION 2.2. In the event of such a rejection,
Carrier agrees not to develop the rejected BTS Site as a tower site and further
agrees not to transfer the associated Work Product to any third party, including
Affiliates.
(d) In the event of a rejection by Carrier of a BTS Site, BTS Company may
elect to forego the compensation set forth in SECTION 2.2 and retain the Work
Product.
(e) In the event that BTS Company's due diligence investigation of a BTS
Site reveals any defect in such site which BTS Company reasonably believes would
materially adversely affect BTS Company's use or ownership of such BTS Site, or
would limit BTS Company's ability to lease space on the applicable Tower to one
broad band tenant, BTS Company shall be entitled to reject such Site upon notice
to Carrier. In such event, Carrier shall have the right to designate another
candidate site as the preferred candidate. BTS Company shall bear all costs
associated with Site Acquisition Activities and all costs associated with the
due diligence investigation, zoning, and permitting of such Site.
2.8 CONTINUED PERFORMANCE OF SITE ACQUISITION SERVICES FOLLOWING SITE
ACCEPTANCE OR REJECTION. Unless otherwise notified by Carrier, BTS Company
shall:
(a) Following Carrier's acceptance of any Site, continue to perform Site
Acquisition Services with respect to such accepted Site in accordance with this
Agreement, including, without limitation, the Objectives and Procedures; and
(b) Following Carrier's rejection of any Site (including a rejection after
Carrier's prior acceptance thereof), continue to perform Site Acquisition
Services with respect to the Search Ring pertaining thereto (including a
modified Search Ring as described above in SECTION 2.3 hereof) in accordance
with the terms and conditions of this Agreement, including, without limitation,
the Objectives and Procedures.
2.9 COMPLIANCE WITH LAWS. BTS Company represents and warrants that it
shall: (a) comply with all federal, state and local laws, regulations and
ordinances with respect to its performance of the Site Acquisition Services; (b)
file all reports relating to the Site Acquisition Services and required under
applicable law (including, without limitation, tax returns); (c) pay all filing
fees and federal, state and local taxes applicable to BTS Company's business as
the same shall become due; and (d) pay all amounts required under local, state
and federal workers' compensation, disability benefit, unemployment insurance,
and other employee benefit laws and regulations when due. BTS Company shall
provide Carrier with such documents and other supporting materials as Carrier
may reasonably request to evidence BTS Company's continuing compliance with this
SECTION 2.9.
2.10 INSURANCE. BTS Company and Carrier shall each maintain in effect,
without interruption, on an annual basis, during the term of this Agreement, the
following insurance policies:
(a) Commercial General Liability (Bodily Injury and Property Damage).
Insurance coverage with endorsement evidencing coverage for contractual
liability. The limits of this insurance shall not be less than:
(i) Each Occurrence Limit $1,000,000
(ii) General Aggregate Limit $2,000,000
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(b) Comprehensive Automobile Liability insurance covering the
ownership, operation and maintenance of allowed, non-owed, and hired motor
vehicles, in limits not less than $1,000,000 for bodily injury and property
damage per occurrence.
(c) Worker's Compensation Insurance with statutory limits and
Employer's Liability Insurance with limits of not less than $1,000,00 for
each accident.
(d) Professional Liability (errors and omissions) insurance of not
less than $1,000,000 for each occurrence, with endorsement evidencing
coverage for contractual liability.
(e) All foregoing insurance shall provide for an effective date no
later than February 22, 2000. Carrier and BTS Company agrees to maintain
such coverage in effect without interruption on an annual basis for so long
as this Agreement is in effect. Carrier shall be included as an additional
insured on BTS Company's Commercial General Liability insurance, and BTS
Company shall be included as an additional insured on Carrier's Commercial
General Liability insurance. Carrier and BTS Company agree to obtain such
insurance from nationally recognized carriers at commercially reasonable
rates. Carrier's and BTS Company's obligations under this Agreement,
including its indemnification obligations under SECTION 2.11, will not be
affected by obtaining or the failure to obtain any insurance coverage
required under this SECTION 2.10.
(f) Carrier and BTS Company shall each provide the other with
Certificates of Insurance from its insurance agent or broker or insurance
company evidencing the above coverage and limits.
(g) All insurance policies required to be maintained hereunder shall
be issued by companies that hold a current rating of not less than "A",
according to Best Key Rating Guide, unless this requirement is expressly
waived in writing by the other party.
2.11 INDEMNIFICATION. The following indemnities shall survive the
expiration or termination of this Agreement:
(a) By Carrier. Carrier shall indemnify, defend and hold harmless BTS
Company, its Affiliates, directors, officers, shareholders, agents, and
employees thereof from and against any fine, penalty, loss, cost, damage,
injury, claim, expense (including reasonable attorney and other professional
fees and costs and all reasonable fees and costs associated with enforcing this
indemnification), or liability incurred by BTS Company as the result of (i) any
breach of Carrier's obligations under this Agreement, or (ii) the negligence or
intentional misconduct of Carrier arising directly out of the performance of
this Agreement, including any election by Carrier to pursue certain rights under
this Agreement.
(b) By BTS Company. BTS Company shall indemnify, defend and hold harmless
Carrier, its Affiliates, directors, officers, shareholders, agents, and
employees thereof from and against any fine, penalty, loss, cost, damage,
injury, claim, expense (including reasonable attorney and other professional
fees and costs and all reasonable fees and costs associated with enforcing this
indemnification), or liability incurred by Carrier as the result of (i) any
breach of BTS Company's obligations under this Agreement, or (ii) the negligence
or intentional misconduct of BTS Company arising directly out of the performance
of this Agreement, including any election by BTS Company to pursue certain
rights under this Agreement.
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION
2.11, THE INDEMNITY OBLIGATIONS OF EITHER PARTY HERETO WILL NOT APPLY
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TO ANY INJURY, LOSS, DAMAGE, LIABILITY, PENALTY OR OBLIGATION (OR ANY CLAIM IN
RESPECT OF THE FOREGOING) RESULTING FROM THE NEGLIGENCE OR INTENTIONAL
MISCONDUCT OF THE OTHER PARTY HERETO OR OF SUCH OTHER PARTY'S AGENTS, EMPLOYEES
OR CONTRACTORS. TO THE FULLEST EXTENT PERMITTED BY LAW, ALL CLAIMS AGAINST THE
OTHER PARTY FOR LOST PROFITS OR EARNINGS OR OTHER INDIRECT OR CONSEQUENTIAL
DAMAGES OTHERWISE RECOVERABLE UNDER APPLICABLE LAW AS A RESULT OF THE BREACH OF
THIS AGREEMENT OR OTHERWISE PURSUANT TO THE FOREGOING INDEMNITY PROVISIONS ARE
HEREBY WAIVED BY THE AGGRIEVED PARTY.
(d) Notwithstanding anything to the contrary contained in this Agreement,
the terms and conditions of this SECTION 2.11 shall survive the termination or
expiration of this Agreement for a one (1) year period.
2.12 ASSIGNMENT. The rights of the parties under this Agreement are
personal and may not be assigned without the prior written consent of the other
party, except that either party (a) may delegate any of its obligations
hereunder to any Affiliates thereof and assign any rights relating thereto to
such Affiliates without the prior written consent of the other, provided that
such delegation or assignment shall not relieve or release the delegating party
from any obligations hereunder, (b) may assign this Agreement without the prior
written consent of the other to any entity by way of merger, consolidation or
other reorganization, (c) may assign this Agreement without the prior written
consent of the other party to any entity acquiring all or substantially all of
the other party's assets, so long as the acquiring party is reputable entity in
the same business as the party being whose assets are being acquired and agrees
to assume the obligations of the party whose assets are being acquired, and (d)
as collateral in connection with financing. The prohibition against assignment
contained in this SECTION 2.12 shall not prohibit BTS Company from
subcontracting portions of its work under this Agreement.
III. DESIGN AND CONSTRUCTION OF WIRELESS COMMUNICATIONS FACILITIES
3.1 CONSTRUCTION OBLIGATIONS.
(a) At each Collocation Site, except for those structural Collocation Sites
noted in SECTION 1.4, BTS Company shall perform the construction management
services set forth in SECTION 1 of SCHEDULE C attached hereto ("CONSTRUCTION
MANAGEMENT SERVICES") and the Carrier Equipment (as hereinafter defined)
installation services set forth in SECTION 2 of SCHEDULE C attached hereto
("CARRIER EQUIPMENT INSTALLATION SERVICES"). As part of the Carrier Equipment
Installation Services, BTS Company will install Carrier's Equipment to agreed
upon specifications, perform sweep tests and document results meeting or
exceeding Carrier's standards and set Carrier's BTS equipment and connect to
grounding system. As part of the Carrier Equipment Installation Services, BTS
Company shall also provide conduit for electrical and telephone connections from
the central demarcation point to Carrier's BTS Equipment location and will pull
coaxial cables into the "doghouse" and install jumpers. Carrier shall be
responsible for connecting power, telephone and coaxial cable jumpers to
Carrier's BTS equipment.
(b) At each BTS Site, BTS Company shall perform the Construction Management
Services and the Carrier Equipment Installation Services. At each BTS Site, BTS
Company shall also be responsible for constructing the towers, fencing,
grounding systems, power and telephone connections to a central demarcation
point within the tower compound, and a concrete equipment pad as specified by
site diagrams
9
<PAGE> 10
for Carrier's Equipment (the "TOWER FACILITIES"; the Site Acquisition Services,
the Construction Management Services, the Carrier Equipment Installation
Services and the construction of the Tower Facilities shall be referred to
collectively as the "SERVICES"). BTS Company shall act with due diligence to
construct the Tower Facilities at minimum in accordance with Carrier's minimum
specifications provided to BTS Company in the applicable Search Ring. BTS
Company shall use due diligence to obtain all necessary permits and approval of
the plans and specifications from all applicable governmental agencies.
3.2 CHANGE ORDERS. Carrier shall have the right to issue reasonable change
orders to BTS Company on any given Site provided that such changes are tendered
to BTS Company in writing and that Carrier pays the increase in the cost of
construction of the Tower Facilities attributable to such change orders, and
further that BTS Company shall credit Carrier with any decrease in cost due to
such change order, but in no event shall any change order have the effect of
limiting the intended use of such Site by either party.
3.3 CONSTRUCTION COSTS AND PAYMENTS.
(a) Except as otherwise expressly authorized in this Agreement, BTS Company
shall be responsible for the payment of all costs associated with the
Construction Management Services, the Carrier Equipment Installation Services
and the costs of constructing the Tower Facilities. Notwithstanding anything to
the contrary contained in this Agreement, BTS Company shall not be responsible
for the cost of Carrier's Equipment. Carrier shall be responsible for the cost
of purchasing, insurance and delivery of the Carrier's Equipment to each Site by
the date required by BTS Company, and all associated costs. As used herein,
"CARRIER'S EQUIPMENT" shall mean all antennas, microwave antennas, icebridge,
GPS antennas, miscellaneous hardware, coaxial cable, jumpers, connectors,
waterproof kits, hoisting grips, mounting brackets, generators, battery backup
kits, BTS equipment and BTS mounting platforms or equipment, or any costs
associated with the delivery or installation thereof.
(b) Carrier shall pay BTS Company for the Construction Management Services
and Carrier Equipment Installation Services performed at Collocation Sites in
accordance with SECTIONS B(2) and (3) of SCHEDULE D attached hereto.
(c) Carrier shall pay BTS Company for the Construction Management Services
and Carrier Equipment Installation Services performed at BTS Sites in accordance
with SECTIONS B(2) and (3) of SCHEDULE D attached hereto. BTS Company shall be
solely responsible for the costs associated with the construction of the Tower
Facilities on each BTS Site. Notwithstanding the previous sentence, Carrier
shall pay for all costs incurred exceeding $40,000 in connection with the
provision of appropriate utilities and/or access to a BTS Site in the form of a
lump sum payment or as an increase in Rent (as defined in the MSA) in the amount
of $18 for each $1,000 (or portion thereof) increment exceeding $40,000. In the
event that BTS Company determines that the cost to provide the appropriate
utilities and access to a BTS Site will exceed $40,000, BTS Company shall notify
Carrier of the estimated cost. Carrier will have ten (10) days from receipt of
BTS Company's notice to notify BTS Company which payment option Carrier elects.
If Carrier fails to give BTS Company such notice within the ten (10) day period,
Carrier will be deemed to have chosen to make the payment in a lump sum. Upon
completion of access and utilities at a BTS Site, BTS Company shall notify
Carrier of the amount by which the provision of access and utilities to the
applicable BTS Site exceeded $40,000. In the event that Carrier had previously
given notice, or is deemed to have given notice, that Carrier will pay the
excess in a lump sum, Carrier shall make the payment requested within 30 days of
receipt of the notice. In the event Carrier had previously given notice that
Carrier will pay the excess with an increase in Rent, the parties will amend the
applicable SLA within ten (10) days of Carrier's receipt of the notice to
provide for the Rent increase.
10
<PAGE> 11
3.4 COMMENCEMENT OF CONSTRUCTION.
(a) BTS Company shall make reasonable and diligent efforts to complete the
construction of an individual Tower Facility within thirty (30) days after
Carrier executes an SLA for the Site upon which the Tower Facilities are to be
constructed, subject to Excusable Delays. For purposes of this Agreement,
"EXCUSABLE DELAYS" shall mean any circumstances beyond BTS Company's reasonable
control to the extent they delay BTS Company in the performance of BTS Company's
duties and obligations under this Agreement in respect of a Site, including,
without limitation, (a) condemnation or other exercise of the power of eminent
domain, (b) changes in applicable government requirements, the orders of any
governmental authority having jurisdiction over a party, (c) acts of God,
including, without limitation, tornadoes, hurricanes, floods, sinkholes,
landslides, earthquakes, epidemics, quarantine and pestilence; (d) fire and
other casualties, such as explosions and accidents, (e) acts of a public enemy,
acts of war, terrorism, effects of nuclear radiation, blockades, insurrections,
riots, civil disturbances or national or international calamities; (f) adverse
weather conditions, (g) delays in obtaining utility services, so long as BTS
Company is using commercially reasonable efforts to obtain such utility
services, (h) strikes, walkouts, labor disputes or other third party events or
conditions which materially and adversely affect BTS Company's ability to
complete the Site, (i) delays caused by Carrier, and (j) governmental action or
inaction not caused by the action or inaction of BTS Company. BTS Company shall
have no obligation to commence construction of the Tower Facility at a BTS Site
unless and until an SLA has been properly executed by Carrier for that Site.
(b) In the event that BTS Company fails to complete construction of the
Tower Facilities within fifteen (15) days of the date which is thirty (30) days
after execution of an SLA, as extended for each day that completion is delayed
as a result of an Excusable Delay, BTS Company shall pay to Carrier as
liquidated damages the sum of One Thousand and No/100 Dollars ($1,000) per week
for each week that the Tower Facility has not been completed after such date.
These liquidated damages shall be Carrier's sole remedy in the event that BTS
Company fails to meet a construction deadline in connection with the Tower
Facilities.
3.5 MANNER OF CONSTRUCTION. BTS Company represents, warrants and agrees
that the Tower Facilities shall be constructed in a good and workmanlike manner
and at a minimum in accordance with Carrier's minimum specifications and all
applicable federal, state and local laws, ordinances, rules and regulations. BTS
Company warrants to Carrier that all materials furnished in connection with the
construction of the Tower Facilities will be new unless otherwise specified, and
that such construction will be of good quality in accordance with industry
standards, free from faults and patent defects. The warranties contained in this
SECTION 3.5 shall run for a period of twelve (12) months from the SLA
Commencement Date, as defined in the MSA.
3.6 NO LIENS. BTS Company shall keep the Tower Facilities free of all liens
and claims arising out of or related to the performance of the construction, all
liens and claims of any contractor, subcontractor, laborer, mechanic or
materialman for labor performed or material furnished in connection with the
performance of the construction. In the event any such lien is recorded against
the Site, the BTS Company shall, within forty-five (45) days after its receipt
of notice that such a lien has been recorded, either (a) have such lien released
of record, or (b) deliver to Carrier a bond, in form, content and amount, and
issued by a surety, reasonably satisfactory to Carrier, indemnifying Carrier
against all costs and liabilities resulting from such lien.
3.7 PROGRAM MANAGEMENT SERVICES. In connection its provision of the
Services pursuant to this Agreement, BTS Company shall:
11
<PAGE> 12
(a) Develop and implement a quality assurance program, which ensures that
all activities are performed to industry standard quality standards.
(b) Hold weekly progress meetings with Carrier for planning purposes and
monitoring compliance with this Agreement. BTS Company will provide Carrier with
a weekly tracking report.
(b) Manage and coordinate interaction among site acquisition, construction,
management, and the A&E firm.
(c) Manage and coordinate interactions between the infrastructure
development staff (site acquisition and construction management) and other
disciplines involved in the system deployment (e.g., RF engineering, network
engineering, marketing).
3.8 NOTIFICATION OF COMPLETION OF A BTS SITE. BTS Company shall notify
Carrier of: the date when the Tower Facilities have been substantially completed
on a BTS Site ("NOTICE OF COMPLETION"). Within ten (10) business days after the
Notice of Completion, Carrier shall deliver to BTS Company a list of items
("PUNCH LIST") that Carrier deems necessary that BTS Company complete or correct
in order for the Tower Facilities to be completed in accordance with Carrier's
minimum specifications for the applicable Search Ring. The Tower Facilities
shall be deemed accepted by Carrier if a Punch List is not received by BTS
Company within ten (10) business days of the date of Notice of Completion. In
the event that Carrier delivers a Punch List to BTS Company, the notification
process set forth in this section shall be iterated until the Tower Facilities
have been completed in accordance with Carrier's minimum specifications for the
applicable Search Ring and any approved Change Orders.
3.9 BTS COMPANY PERSONNEL. Carrier reserves the right to require from BTS
Company the immediate removal from or to exclude any person or entity employed
by or working for BTS Company from any Site, in Carrier's reasonable judgment,
but only if the exercise thereof if a commercially reasonable procedure under
the circumstances, who in Carrier's reasonable opinion (i) engages in any
misconduct, (ii) is incompetent, or (iii) is negligent in the performance of
his, her or its duties.
IV. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 MUTUAL REPRESENTATIONS, WARRANTIES AND COVENANTS. Each party represents
and warrants to the other party, which representations and warranties shall
continue for the term of the Agreement and the consummation of the transactions
herein contemplated, that:
(a) it has full power and authority to execute and perform under this
Agreement;
(b) the execution, delivery and performance of the Agreement have been duly
authorized by all necessary action on the part of such party and the
Agreement is binding and enforceable against such party in accordance with
its terms;
The parties covenant and agree to use their best efforts to cooperate with
each other in the performance of their respective obligations under the
Agreement, and to take no action that will interfere with the performance by the
other party of such obligations.
4.2 BTS COMPANY'S REPRESENTATIONS, WARRANTIES, AND COVENANTS.
12
<PAGE> 13
(a) BTS Company represents and warrants that BTS Company is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Florida and that, as of February 22, 2000, it was qualified to do
business in and was in good standing under the laws of the following states:
Arizona, California, Colorado, New Mexico, Texas and Wisconsin.
(b) BTS Company represents and warrants that BTS Company shall perform the
Services in accordance with the current standards of care and diligence normally
practiced by recognized firms performing services of a similar nature.
(c) BTS Company shall comply with all local, municipal, state, federal, and
governmental laws, orders, codes, and regulations applicable to BTS Company's
provision of the Services. BTS Company has all necessary licenses to perform the
Services.
4.3 CARRIER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Carrier represents and warrants that all information which it shall
provide to BTS Company in connection with BTS Company's performance of its
obligations hereunder shall be true and complete in all material respects.
(b) Carrier covenants that, in a timely fashion, it shall provide all
information which BTS Company reasonably requests, is not otherwise freely
available to BTS Company and is deemed necessary or desirable by BTS Company in
the course of its provision of its obligations hereunder, including, but not
limited to, information to be supplied in connection with the zoning, permitting
or construction process.
(c) Carrier represents and warrants that Carrier is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Texas and as of February 22, 2000, was qualified to do business in and
was in good standing under the laws of the following states: Arizona,
California, Colorado, New Mexico, Texas and Wisconsin.
4.4 CONFIDENTIAL INFORMATION. BTS Company and Carrier agree that the
subject matter and the terms of the Existing Master Design Build Agreement, the
MSA and this Agreement shall be confidential and shall not be disclosed except:
(a) with the other party's prior written consent;
(b) to a party's attorneys and other third party consultants, provided that
such third parties shall be subject to the terms of this SECTION 4.4;
(c) in defense of a legal action;
(d) to the extent required by law or as necessary in connection with
government filings, provided, however that the financial terms of the agreements
shall be redacted or given confidentiality treatment;
(e) to the extent lawfully received from another source free of restriction
and without breach of this Agreement;
(f) that becomes generally available to the public without breach of this
Agreement;
13
<PAGE> 14
(g) is obligated to be produced by order of a court of competent
jurisdiction, provided that the party subject to such order shall make
reasonable efforts not to disclose the financial terms of the agreements;
(h.) known to the receiving party at the time of disclosure;
(i.) independently developed by the receiving party without resort to
confidential information; and
(j.) by BTS Company in connection with the performance of the Services.
The terms of this Agreement will not prohibit BTS Company from marketing
the BTS Sites to third parties.
V. OWNERSHIP OF WORK PRODUCT AND INTELLECTUAL PROPERTY
5.1 OWNERSHIP OF WORK PRODUCT. To the extent that Carrier pays BTS Company
for any of the written work product generated in the course of performing the
Services (the "WORK PRODUCT"), BTS Company hereby assigns to Carrier all of BTS
Company's right title and interest in the Work Product, including without
limitation all engineering or architectural drawings and specifications
developed by BTS Company in connection with the Site Acquisition Services and
all intellectual property rights embodied therein.
Except as provided elsewhere in this Agreement, no rights or licenses to
the Work Product or Carrier's Confidential Information or to trademarks,
inventions, copyrights, or patents embodied therein are implied or granted under
this Agreement.
5.2 OWNER'S RIGHT TO COMPLETE WORK. If BTS Company defaults or neglects to
carry out any of its obligations, or takes any action, or omits to do anything
which endangers safety, or risks damage or injury to persons or property and
fails to remedy the default within the applicable cure period, Carrier may
correct all such work, omissions, or deficiencies, and Carrier shall be entitled
to recover its reasonable costs and expenses, including reasonable attorneys'
fees, pertaining thereto from BTS Company. This remedy provided for in this
SECTION 5.2 shall be in addition to, and not in lieu of any other right or
remedy which may be afforded to Carrier herein or under applicable law.
VI. MISCELLANEOUS
6.1 PERMITS. BTS Company shall (without additional compensation) keep
current all governmental permits, certificates, and licenses (including
professional licenses) required by law to be in BTS Company's name necessary to
perform the services hereunder.
6.2 PUBLICITY. Neither party shall make news releases or issue other
advertising pertaining to the Services or this Agreement without prior written
approval of the other party; provided however, that both parties agree to either
approve or deny such news release or advertising within five (5) business days
of the request for approval from the other party. In the event a party fails to
either approve or deny such news release or advertisement within five (5)
business days, such news release or advertisement shall be deemed approved.
14
<PAGE> 15
6.3 NOTICES. All notices, approvals, consents or other communications
hereunder shall be in writing and shall be deemed to have been duly delivered
and effective upon receipt if personally delivered, or on receipt if mailed by
prepaid overnight express service, addressed to the following (or other
addresses as the parties hereto may designate):
<TABLE>
<S> <C>
If to Carrier, to: If to BTS Company, to:
Texas Telecommunications, LP SBA Towers,
Alamosa Wisconsin Limited
Partnership
4403 Brownfield Hwy One Town Center Road, 3rd Floor
Lubbock, Texas 79407 Boca Raton, FL 33486
Attn: General Counsel
With a copy to:
Steven A. Portonoy, Esq.
Attorney at Law
14800 Quorum Drive
Suite 200
Dallas, Texas 75240
</TABLE>
6.4 BINDING EFFECT. The Agreement shall be binding upon and enforceable by,
and inure to the benefit of, successors, assigns, and transferees of the
parties.
6.5 FURTHER ASSURANCES. The parties shall execute and deliver such further
instruments and perform such further acts as may reasonably be required to carry
out the intent and purposes of this Agreement.
6.6 CHOICE OF LAW; JURISDICTION AND VENUE. The Agreement shall be governed
by and construed in accordance with the laws of the state where the applicable
Site or Search Ring are located. If the issue in dispute does not relate to a
specific Site or Search Ring, the Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, excluding the conflict of law
provisions thereof. Each of the parties acknowledge that a substantial portion
of negotiations and execution of this Agreement occurred or shall occur in
Dallas, Texas, and that, therefore, without limiting the jurisdiction or venue
of any other federal or state courts, each of the parties irrevocable and
unconditionally: (a) agrees that any suit, action or legal proceeding arising
out of or relating to this Agreement shall be brought in the courts of record of
the State of Texas, Dallas or the District Court of the United States in the
Dallas area; (b) consents to the jurisdiction of each such court in any such
suit, (c.) waives any objection which it may have to the laying of venue of any
such suit, action or proceeding in any of such courts; and (d) agrees that
service of any court paper may be effected on such party by mail, as provided in
this Agreement, or in such other manner as may be provided under applicable laws
or court rules in said State.
6.7 WAIVER. The failure of either party to insist upon strict performance
of any obligation hereunder, irrespective of the length of time for which such
failure continue, shall not be a waiver of such party's right to demand strict
compliance in the future. No consent or waiver, express or implied, to or of any
breach or default in the performance of any obligation hereunder shall
constitute a consent or waiver to or of any other breach or default in the
performance of the same or any other obligation hereunder.
15
<PAGE> 16
6.8 SEVERABILITY. In case any term of this Agreement shall be held invalid,
illegal, or unenforceable in whole or in part, neither the validity of the
remaining part of such term nor the validity of the remaining terms of this
Agreement shall in any way be affected thereby.
6.9 HEADINGS. All section and paragraph titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the text
of this Agreement.
6.10 PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular, or plural as the context may
require.
6.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be considered an original and all of which
taken together shall constitute one and the same instrument.
6.12 MODIFICATION; AMENDMENT; ADDITIONAL SERVICES. This Agreement may be
amended only by a written instrument executed by an officer or authorized
representative of each of the parties. In the event that the parties, at any
time, desire BTS Company to provide services other than the types of those
provided for in this Agreement, then, at such time, the parties shall execute an
amendment to SECTION III of this Agreement, describing such services and the
payment to be made therefor in a manner substantially similar to the manner in
which services and payment for services are presently described therein. In the
event that the parties so amend this Agreement, this Agreement, as amended,
shall continue in full force and effect thereafter.
6.13 CONSTRUCTION OF AGREEMENT. This Agreement shall be interpreted
according to its plain meaning and shall not be strictly construed against
either party.
6.14 EFFECT OF AMENDMENT AND RESTATEMENT OF THE EXISTING MASTER DESIGN
BUILD AGREEMENT. On the date of this Agreement, the Existing Master Design Build
Agreement shall be amended, restated and superseded in its entirety. The parties
hereto acknowledge and agree that this Agreement does not constitute a
termination of any of the obligations under the Existing Master Design Build
Agreement and such obligations are in all respects continuing, as amended and
restated hereby. All references in the MSA to the "BTS Agreement" shall be
deemed references to this Agreement, and to the extent necessary to effect the
foregoing, the MSA is hereby deemed amended accordingly. This Agreement and the
MSA contain the entire understanding between and among the parties and supersede
any prior understandings and agreements among them respecting the subject matter
of this Agreement.
6.15 NO BROKERS; INDEMNIFICATION FROM BROKER'S FEES. Carrier and BTS
Company hereby represent, agree and acknowledge that no broker or other person
is entitled to claim or to be paid a commission as a result of the execution and
delivery of the Existing Master Design Build Agreement or this Agreement. Each
of the parties shall indemnify, defend and hold the other party harmless for all
claims, damages, liabilities and expenses (including attorney's fees) arising
from a misrepresentation arising from the first sentence of this paragraph.
6.16 EXHIBITS AND SCHEDULES. Each and every exhibit and schedule referred
to or otherwise mentioned in this Agreement is attached to this Agreement and is
and shall be construed to be made a part of this Agreement by such reference or
other mention at each point at which such reference or other mention occurs, in
the same manner and with the same effect as if each annex and exhibit were set
forth in full and at length every time it is referred to or otherwise mentioned.
16
<PAGE> 17
6.17 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
Anywhere a day Certain is stated for payment or performance of any obligation,
the day certain so stated enters into and becomes a part of the consideration
for this Agreement. The parties recognize and agree that the time limits and
time periods provided herein are of the essence of this Agreement.
6.18 DISPUTE RESOLUTION. In the event of a dispute under this Agreement
between the parties, each of the parties will appoint a designated employee to
meet to endeavor to resolve such dispute. The designated representatives will
use reasonable efforts to resolve the dispute within thirty (30) days from the
date that both parties have notified the other party of the name, phone number
and address of the designated employee. The designated representatives shall
meet as often as necessary during the thirty (30) day period to gather and
furnish to the other all information with respect to the matter in issue that is
appropriate for its resolution. If the dispute cannot be resolved by the
designated representatives within the thirty (30) day period, the parties may
then initiate formal proceedings. The parties agree that they will not initiate
formal proceedings until the expiration of the thirty (30) day period, unless
the statute of limitations governing any cause of action relating to the dispute
would expire prior to the expiration of the thirty (30) day period.
6.19 REASONABLENESS. Notwithstanding anything to the contrary contained in
this Agreement, wherever consent or approval is required by a party hereto, such
consent or approval shall not be unreasonably withheld, conditioned or delayed,
except as otherwise specifically noted herein.
6.20 LIEN WAIVER. Notwithstanding anything to the contrary contained in
this Agreement, BTS Company does hereby waive any security interest or lien,
inclusive of any landlord's lien, whether arising under contract, common law,
statute or otherwise, in and to Carrier's Equipment. BTS Company further
recognizes and acknowledges that Carrier has entered into certain financial
arrangements with Nortel Networks, Inc. as administrative agent for itself and
various other lenders ("LENDERS") and in connection therewith, Nortel Networks,
Inc. and the Lenders shall take a security interest in Carrier's Equipment and
the products and proceeds thereof. BTS Company further represents that such
waiver and representations noted herein shall inure to the benefit of Carrier,
Nortel Networks, Inc., the Lenders and their successors and assigns.
17
<PAGE> 18
IN WITNESS WHEREOF, BTS Company and Carrier have duly executed and
delivered this Agreement. The party last executing this Agreement shall insert
the date of such execution on the first page hereof, which date shall be the
effective date of this Agreement.
BTS COMPANY:
SBA TOWERS, INC.
By: /s/ JEFFREY LANGDON
--------------------------------------
Name: Jeffrey Langdon
Title: V.P., Sales and Marketing
CARRIER:
TEXAS TELECOMMUNICATIONS, L.P.,
a Texas limited partnership
By: Alamosa Delaware GP, LLC, its general
partner
By: /s/ DAVID SHARBUTT
--------------------------------------
Name: David Sharbutt
Title: Chief Executive Officer
ALAMOSA WISCONSIN LIMITED PARTNERSHIP
BY: ALAMOSA WISCONSIN GP, LLC, ITS
GENERAL PARTNER
By: /s/ DAVID SHARBUTT
--------------------------------------
Name: David Sharbutt
Title: Chief Executive Officer
18
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-31036) of Alamosa PCS Holdings Inc. of our
reports dated February 28, 2000 relating to the financial statements and
financial statement schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001097722
<NAME> ALAMOSA PCS HOLDINGS INC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,655,711
<SECURITIES> 0
<RECEIVABLES> 1,837,340
<ALLOWANCES> 161,704
<INVENTORY> 5,777,375
<CURRENT-ASSETS> 13,991,238
<PP&E> 87,772,710
<DEPRECIATION> 3,058,986
<TOTAL-ASSETS> 104,492,199
<CURRENT-LIABILITIES> 20,298,931
<BONDS> 72,753,438
0
0
<COMMON> 485,000
<OTHER-SE> 10,954,830
<TOTAL-LIABILITY-AND-EQUITY> 104,492,199
<SALES> 2,450,090
<TOTAL-REVENUES> 8,983,713
<CGS> 2,403,306
<TOTAL-COSTS> 9,843,782
<OTHER-EXPENSES> 29,811,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,641,293)
<INCOME-PRETAX> (32,835,859)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,835,859)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,835,859)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
</TABLE>
