<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UBIQUITEL INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S><C>
DELAWARE 4812 23-3017909
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
---------------
DONALD A. HARRIS
CHIEF EXECUTIVE OFFICER AND PRESIDENT
UBIQUITEL OPERATING COMPANY
1 BALA PLAZA, SUITE 402 1 BALA PLAZA, SUITE 402
BALA CYNWYD, PENNSYLVANIA 19004 BALA CYNWYD, PENNSYLVANIA 19004
(610) 660-9510 (610) 660-9510
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Including Area Code, of Registrant's Telephone Number, Including Area Code,
Principal Executive Offices) of Agent for Service)
</TABLE>
---------------
COPIES OF COMMUNICATIONS TO:
ANDREW E. BALOG, ESQ.
GREENBERG TRAURIG, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
TELEPHONE NO.: (305) 579-0500
FACSIMILE NO.: (305) 579-0717
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
================================================= =============== ================== ================ ================
PROPOSED
MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(2)
------------------------------------------------- --------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Warrants to purchase Common Stock............ 300,000 $135.64(4) $40,692,000 $10,743
------------------------------------------------- --------------- ------------------ ---------------- ----------------
Warrants to purchase Common Stock............ 86,183 $8.00(4) $689,464 $182
------------------------------------------------- --------------- ------------------ ---------------- ----------------
Common Stock, par value $.0005 per share..... 3,665,183(3) -- (5) -- (5) -- (5)
------------------------------------------------- --------------- ------------------ ---------------- ----------------
Total...................................... $10,925
------------------------------------------------- --------------- ------------------ ---------------- ----------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933.
(2) Calculated pursuant to Rule 457(g) of the Securities Act of 1933.
(3) 3,665,183 shares of Common Stock of the Registrant are issuable upon
exercise of the warrants being registered hereunder, plus a presently
indeterminable number of shares of common stock, if any, as shall be
issuable from time to time as required pursuant to adjustments under the
warrants which are being registered pursuant to Rule 416 of the Securities
Act.
(4) Based on the exercise price of the warrants.
(5) No registration fee is required pursuant to Rule 457(g) of the Securities
Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION - DATED JUNE __, 2000
================================================================================
--------------------------------------------------------------------------------
PROSPECTUS
[UBIQUITEL INC. LOGO]
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
--------------------------------------------------------------------------------
THE OFFERING:
- This prospectus relates to the resale of up to 386,183 warrants to
purchase shares of our common stock by the holders named under the
heading "Warrantholders" in this prospectus or in an accompanying
supplement to this prospectus.
- This prospectus also relates to the issuance and sale of 3,665,183
shares of our common stock which are initially issuable upon the
exercise of the warrants, plus a presently indeterminable number of
shares of our common stock, if any, as shall be issuable from time
to time as required pursuant to adjustments under the warrants.
- All of the warrants and shares of our common stock being registered
may be offered and sold from time to time by the named holders.
USE OF PROCEEDS:
- We will not receive any proceeds from the sale of warrants or the
shares of our common stock by the selling holders, other than
payment of the exercise prices of the warrants.
TRADING MARKET:
- There is no public market for the warrants. We do not intend to apply
(and are not obligated to apply) for listing of the warrants on any
securities exchange or any automated quotation system.
- Our common stock is listed and quoted on the Nasdaq National Market
under the symbol "UPCS"
OFFERING EXPENSES:
- We have agreed to bear specific expenses in connection with the
registration and sale of the warrants and underlying shares of common
stock being offered by the selling holders.
RISK FACTORS:
- See "Risk Factors" on page 8 of this prospectus for a discussion of
risks that you should consider before purchasing the warrants and/or
shares of common stock.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL
THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE
SECURITIES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS DATE OF THIS PROSPECTUS IS __________, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements.............................................................................1
Prospectus Summary.....................................................................................2
Risk Factors...........................................................................................8
Use of Proceeds.......................................................................................20
Dividend Policy.......................................................................................20
Capitalization........................................................................................21
Unaudited Pro Forma Condensed Consolidated Financial Data.............................................22
Selected Historical Consolidated Financial and Operating Data.........................................30
Management's Discussion and Analysis of Financial Condition and Results of Operations.................32
Business..............................................................................................41
The Sprint PCS Agreements.............................................................................62
Description of Certain Indebtedness...................................................................74
Management............................................................................................79
Principal Stockholders................................................................................88
Certain Transactions..................................................................................90
Warrantholders........................................................................................94
Regulation of the Wireless Telecommunications Industry................................................95
Description of the Warrants...........................................................................99
Description of Capital Stock.........................................................................108
Certain U.S. Federal Tax Considerations..............................................................112
Plan of Distribution.................................................................................118
Where You Can Find More Information..................................................................119
Legal Matters........................................................................................119
Experts..............................................................................................119
Index to Consolidated Financial Statements...........................................................F-1
</TABLE>
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains statements about future events and
expectations, which are "forward-looking statements." Any statement in this
prospectus that is not a statement of historical fact may be deemed to be a
forward-looking statement. These statements include:
- estimates of current and future population for our markets;
- forecasts of growth in the number of consumers using PCS services;
- statements regarding our plans for and costs of the build-out of
our PCS network;
- statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and projection of when we will
launch commercial PCS service and achieve break-even operating
cash flow; and
- other statements, including statements containing words such as
"anticipate," "believe," "plan," "estimate," "expect," "seek,"
"intend" and other similar words that signify forward-looking
statements.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. For a discussion of some of these factors, see
"Risk Factors" beginning on page 8. You are cautioned not to place undue
reliance on any forward-looking statements, which speak only as of the date
of this prospectus. We undertake no obligation to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
of this prospectus or to reflect the occurrence of unanticipated events.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE BELIEVE IS ESPECIALLY
IMPORTANT CONCERNING OUR BUSINESS AND THIS OFFERING OF WARRANTS AND COMMON
STOCK. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO
YOUR INVESTMENT DECISION. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
"RISK FACTORS" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE
DECIDING TO INVEST IN EITHER THE WARRANTS OR COMMON STOCK.
SUMMARY OF THE TERMS OF THE WARRANTS
We issued 300,000 of the warrants as part of units in a transaction
exempt from the registration requirements of the Securities Act of 1933. Each
unit consisted of $1,000 principal amount at maturity of 14.0% senior
subordinated discount notes due 2010 of our operating subsidiary, UbiquiTel
Operating Company, and one warrant to purchase, after giving effect to our
two-for-one stock split effected on June 1, 2000, 11.93 shares of our common
stock. The 300,000 warrants are hereinafter referred to as the "unit
warrants." We issued 86,183 of the warrants to Donaldson, Lufkin & Jenrette
Securities Corporation in exchange for 54,971 unit warrants that we had
originally issued to Donaldson, Lufkin & Jenrette in connection with the
units offering. The 86,183 warrants are hereinafter collectively referred to
as the "DLJ warrants."
UNIT WARRANTS
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<S> <C>
Warrants Offered............. 300,000 warrants which will entitle the holders to
purchase an aggregate of 3,579,000 shares of our
common stock, currently representing an aggregate of
approximately 5% of our issued and outstanding
common stock on a fully diluted basis, assuming
exercise of all currently issued and outstanding options
and warrants to purchase our common stock.
Exercise Price............... Each warrant will entitle the holder to purchase 11.93
shares of our common stock at an exercise price of
$11.37 per share, subject to adjustments as provided in
the warrant agreement.
Exercise..................... The warrants may be exercised at any time on or after
April 15, 2001 and prior to April 15, 2010. Warrants
that are not exercised by April 15, 2010 will expire. The
exercise price and number of shares of our common
stock issuable upon exercise of the warrants are subject
to adjustment from time to time upon the occurrence of
any of the events described under the heading
"Description of the Warrants--The Unit Warrants--
Adjustments," including:
- particular distributions of shares of our common
stock;
- issuances of options or convertible securities;
- dividends and distributions; and
- particular changes in our options and convertible
securities.
A unit warrant does not entitle its holder to receive any
dividends paid on shares of our common stock.
</TABLE>
2
<PAGE>
DLJ WARRANTS
<TABLE>
<S> <C>
Warrants Offered................. 86,183 warrants which will entitle the holders to
purchase an aggregate of 86,183 shares of our common
stock.
Exercise Price................... Each warrant will entitle the holder to purchase one
share of our common stock at an exercise price of $8.00
per share, subject to adjustments as provided in the
warrant agreement.
Exercise......................... The warrants may be exercised at any time on or after
June 12, 2001 and prior to June 12, 2005. Warrants that
are not exercised by June 12, 2005 will expire. The
exercise price and number of shares of our common
stock issuable upon exercise of the warrants are subject
to adjustment from time to time upon the occurrence of
any of the events described under the heading
"Description of the Warrants--The DLJ Warrants--
Adjustments," including:
- particular distributions of shares of our common
stock;
- issuances of options or convertible securities;
- dividends and distributions; and
- particular changes in our options and convertible
securities.
A DLJ warrant does not entitle its holder to receive any
dividends paid on shares of our common stock.
</TABLE>
3
<PAGE>
WHO WE ARE
OVERVIEW
We are the exclusive provider of Sprint PCS digital wireless
personal communications services, generally known as PCS, to four midsize and
smaller markets in the western and midwestern United States. Through our
management agreement with Sprint PCS, we have the exclusive right to provide
100% digital, 100% PCS products and services under the Sprint and Sprint PCS
brand names in our markets which include a total population of approximately
7.7 million residents. We are among 18 companies, which we believe are
unrelated to each other and to Sprint PCS, that have entered into management
agreements with Sprint PCS to provide Sprint PCS products and services in
markets throughout the United States. Sprint PCS, together with its
affiliates including us, operates the largest all-digital, all-PCS nationwide
wireless network in the United States, already covering more than 190 million
residents in more than 330 metropolitan markets. However, Sprint PCS does not
currently offer PCS services in every state in the United States.
The majority of our network will cover portions of California,
Nevada, Washington, Idaho, Montana, Utah, Indiana and Kentucky. We have
commenced limited operations in one of our markets, which together with our
recent acquisition of the Spokane, Washington market from Sprint PCS, cover
approximately 500,000 residents. We currently have approximately 9,000
subscribers. We expect to cover approximately 55% of the resident population
in our markets by the end of 2001 and expect to cover approximately 63% upon
completion of our build-out.
We are a development stage company with very limited operations and
revenues, significant losses and substantial future capital requirements.
From our inception on September 29, 1999 through December 31, 1999, we
incurred losses of approximately $2.0 million. On a pro forma basis, after
giving effect to various transactions described in "Unaudited Pro Forma
Condensed Consolidated Financial Data," loss available to common stockholders
from our inception through December 31, 1999 would have been approximately
$45.5 million and loss available to common stockholders would have been
approximately $20.4 million for the three months ended March 31, 2000. We
expect to continue to incur significant operating losses and to generate
significant negative cash flow from operating activities until at least 2003
while we develop and construct our PCS network and build our customer base.
BUSINESS STRATEGY
Our business strategy includes the following elements:
- Capitalize on affiliation with Sprint PCS;
- Capitalize on experienced management team;
- Execute optimal network build-out plan;
- Utilize strategic third party relationships in our network
build-out;
- Implement effective operating structure with a focus on customer
service; and
- Focus on midsize and smaller markets.
BACKGROUND
We were organized on September 29, 1999 as a corporation under the
laws of Delaware. Our address and telephone number are 1 Bala Plaza, Suite
402, Cynwyd, Pennsylvania 19004, (610) 660-9510.
4
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands)
UBIQUITEL INC.
The selected summary financial data presented below for the period
from September 29, 1999 (inception) through December 31, 1999, are derived
from the audited consolidated financial statements of UbiquiTel Inc. and
subsidiaries. The selected summary financial data presented below as of and
for the three-month period ended March 31, 2000 have been derived from
unaudited consolidated financial statements of UbiquiTel Inc. and its
subsidiaries, which have been prepared on the same basis as UbiquiTel Inc.
and subsidiaries audited financial statements and, in the opinion of
UbiquiTel, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods. The results of operations for the
three months ended March 31, 2000 are not necessarily indicative of the
results for the full year. The data set forth below should be read in
conjunction with UbiquiTel Inc.'s consolidated financial statements and
accompanying notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM
SEPTEMBER 29, THREE MONTHS
1999 (INCEPTION) ENDED
TO DECEMBER 31, 1999 MARCH 31, 2000
-------------------- ----------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................................................... $ -- $ 69
Expenses:
General and administrative expenses excluding non-cash
compensation charges............................................ 554 907
Non-cash compensation expense for general and administrative
matters......................................................... 1,395 --
Amortization of deferred stock compensation expense granted to
employees for general and administrative matters................ -- 119
Interest expense (income)......................................... 29 (35)
-------------------- ----------------
Loss before extraordinary item...................................... $ (1,978) $ (922)
==================== ================
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $33,729
Total assets.................................................................. 52,363
Long-term debt................................................................ 5,812
Total stockholders' equity.................................................... 37,487
</TABLE>
5
<PAGE>
SPOKANE DISTRICT
The selected summary financial data presented below for each of the
three years in the period ended December 31, 1999 are derived from the
audited financial statements of the Spokane District (wholly owned by Sprint
Spectrum L.P. through April 15, 2000), the predecessor of UbiquiTel Inc. and
subsidiaries. The selected summary financial data presented below as of March
31, 2000 and for the three-month periods ended March 31, 1999 and March 31,
2000 have been derived from unaudited financial statements of the Spokane
District, which have been prepared on the same basis as the Spokane
District's audited financial statements and, in the opinion of Sprint
Spectrum L.P.'s management, include all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for these periods. The results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the full year. The data
set forth below should be read in conjunction with the Spokane District's
financial statements and accompanying notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- --------------------
1997 1998 1999 1999 2000
--------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................................ $ 1,246 $ 3,280 $ 5,625 $ 1,136 $ 1,574
Expenses:
Costs of services and equipment.................. 2,903 3,970 5,046 747 779
Selling, general and administrative expense...... 8,168 4,470 5,419 997 1,214
Depreciation..................................... 2,968 3,112 3,471 828 931
--------- -------- -------- -------- --------
Expenses in excess of net revenues.................. $ 12,793 $ 8,272 $ 8,311 $ 1,436 $ 1,350
========= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets purchased........................................................... $19,025
</TABLE>
6
<PAGE>
UBIQUITEL INC. ON A PRO FORMA BASIS
The unaudited selected summary pro forma financial data presented
below for the period ended December 31, 1999 and the three months ended March
31, 2000, and as of March 31, 2000, gives effect to various transactions
described in "Unaudited Pro Forma Condensed Consolidated Financial Data." The
data set forth below should be read in conjunction with UbiquiTel Inc.'s and
the Spokane District's financial statements and accompanying notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Condensed Consolidated Financial Data"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................................................... $ 5,625 $ 1,643
Operating loss.................................................. (11,059) (2,507)
Loss available to common stockholders........................... (45,451) (20,401)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
---------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 295,736
Total assets.................................................... 363,340
Total liabilities and stockholders' equity...................... 363,340
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING EITHER
THE WARRANTS OR COMMON STOCK BEING OFFERED. THE CAUTIONARY STATEMENTS SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION
WITH ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" AND ELSEWHERE HEREIN. THE UNIT WARRANTS AND DLJ WARRANTS ARE
COLLECTIVELY REFERRED TO AS THE "WARRANTS" IN THE FOLLOWING RISK FACTORS.
RISKS PARTICULAR TO OUR RELATIONSHIP WITH SPRINT PCS
IF WE FAIL TO COMPLETE THE BUILD-OUT OF OUR PCS NETWORK BY THE DATES DESCRIBED
IN OUR MANAGEMENT AGREEMENT, SPRINT MAY TERMINATE THE AGREEMENT AND PURCHASE
OUR OPERATING ASSETS AT A DISCOUNT TO MARKET VALUE WITHOUT FURTHER
STOCKHOLDER APPROVAL, AND WE WOULD NO LONGER BE ABLE TO OFFER SPRINT PCS
SERVICES
Our agreements with Sprint PCS require that we provide network coverage
to a minimum network coverage area within specified time frames. We may amend
our agreements with Sprint PCS in the future to expand our network coverage.
A failure to meet our build-out requirements for any one of our individual
markets would constitute a breach of our management agreement with Sprint PCS
that could lead to a termination. If the management agreement is terminated,
we will no longer be able to offer Sprint PCS products and services, and we
may be required to sell our operating assets to Sprint PCS. This sale may
take place without further stockholder approval and for a price equal to 72%
of our entire business value. Our entire business value includes the value of
our right to use the spectrum licenses in our markets, our business
operations and other assets. The provisions of our management agreement that
allow Sprint PCS to purchase our operating assets at a discount could
adversely affect the value of our common stock, may limit our ability to sell
our business and may reduce the value a buyer would be willing to pay for our
business. See "The Sprint PCS Agreements--Management Agreement--Rights on
Termination."
WE MAY ENCOUNTER DIFFICULTIES IN COMPLETING THE BUILD-OUT OF OUR NETWORK, WHICH
COULD INCREASE COSTS AND DELAY COMPLETION OF OUR BUILD-OUT
As part of our build-out, we must successfully lease or otherwise retain
rights to a sufficient number of radio communications and network control
sites, complete the purchase and installation of equipment, build out the
physical infrastructure and test the network. Some of the radio
communications sites are likely to require us to obtain zoning variances or
other local governmental or third party approvals or permits. Additionally,
we must retain rights to a sufficient number of tower sites, which requires
us to obtain local regulatory approvals. The local governmental authorities
in various locations in our markets have, at times, placed moratoriums on the
construction of additional towers and radio communications sites. We may also
have to make changes to our radio base station network design as a result of
difficulties in the site acquisition process. Additionally, the Federal
Communications Commission requires that our PCS network must not interfere
with the operations of microwave radio systems, and Sprint PCS may be
required to relocate incumbent microwave operations to enable us to complete
our build-out. Any failure to construct our portion of the Sprint PCS network
on a timely basis may affect our ability to provide services in our markets
on a schedule consistent with our current business plan, limit our network
capacity or reduce the number of new Sprint PCS subscribers. Any significant
delays could have a material adverse effect on our business.
IF WE FAIL TO MEET THE TECHNICAL STANDARDS DESCRIBED IN OUR MANAGEMENT
AGREEMENT, SPRINT MAY TERMINATE THE AGREEMENT AND PURCHASE OUR OPERATING
ASSETS AT A DISCOUNT TO MARKET VALUE WITHOUT FURTHER STOCKHOLDER APPROVAL,
AND WE WOULD NO LONGER BE ABLE TO OFFER SPRINT PCS SERVICES
Our agreements with Sprint PCS require us to build our PCS network in
accordance with Sprint PCS' technical requirements. Sprint PCS can, at any
time with at least 30 days' prior notice to us, adjust the technical
requirements for the network. A failure to meet these technical requirements
would constitute a breach of our management agreement with Sprint PCS that
could lead to a termination. If the management agreement is terminated, we
will no longer be able to offer Sprint PCS products and services, and we may
be required to sell our operating assets to Sprint PCS. This sale may take
place without further stockholder approval and for a price equal
8
<PAGE>
to 72% of our entire business value. The provisions of our management agreement
that allow Sprint PCS to purchase our operating assets at a discount could
adversely affect the value of our common stock, may limit our ability to sell
our business and may reduce the value a buyer would be willing to pay for our
business. See "The Sprint PCS Agreements--The Management Agreement--Rights on
Termination."
THE TERMINATION OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS OR SPRINT PCS'
FAILURE TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT WOULD SEVERELY
RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS AND, IF OUR MANAGEMENT AGREEMENT
IS TERMINATED, SPRINT PCS MAY PURCHASE OUR OPERATING ASSETS AT A DISCOUNT TO
MARKET VALUE WITHOUT FURTHER STOCKHOLDER APPROVAL
Since we do not own any licenses to operate a wireless network, our
ability to offer Sprint PCS products and services and our PCS network's
operation are dependent on our agreements with Sprint PCS not being
terminated. Our agreements with Sprint PCS can be terminated for breach of
any material terms. We are also dependent on Sprint PCS' ability to perform
its obligations under our agreements. The termination of our management
agreement with Sprint PCS, or the failure of Sprint PCS to perform its
obligations under our management agreement, would severely restrict our
ability to conduct our business. If our management agreement is terminated,
we may be required to sell our operating assets to Sprint PCS. This sale may
take place without further stockholder approval and for a price equal to 72%
of our entire business value. The provisions of our management agreement that
allow Sprint PCS to purchase our operating assets at a discount could
adversely affect the value of our common stock, may limit our ability to sell
our business and may reduce the value a buyer would be willing to pay for our
business. See "The Sprint PCS Agreements--The Management Agreement--Rights on
Termination."
WE MAY NOT RECEIVE AS MUCH SPRINT PCS TRAVEL REVENUE AS WE ANTICIPATE BECAUSE
SPRINT PCS CAN CHANGE THE RATE WE RECEIVE OR FEWER PEOPLE MAY TRAVEL ON OUR
NETWORK
We are paid a fee from Sprint PCS for every minute that a Sprint PCS
subscriber based outside of our markets uses the Sprint PCS network in our
markets, which we refer to as travel revenue. Similarly, we pay a fee to
Sprint PCS for every minute that a Sprint PCS subscriber based in our markets
uses the Sprint PCS network outside our markets, which we refer to as travel
fees. We anticipate that travel revenue will represent approximately 10% of
our projected revenue in 2000, and will continue to represent a substantial
portion of our revenue in the future. Under our agreements with Sprint PCS,
in October 2000, Sprint PCS can change the current fee we receive or pay for
each Sprint PCS travel minute. The unilateral change by Sprint PCS in the
travel revenue we are paid could substantially decrease our revenues and net
income. In addition, Sprint PCS customers from our markets may spend more
time in other Sprint PCS coverage areas than we anticipate and Sprint PCS
customers from outside our markets may spend less time in our markets or may
use our services less than we anticipate, which will reduce our travel
revenue. As a result, we may receive less Sprint PCS travel revenue than we
anticipate or we may have to pay more Sprint PCS travel fees than the travel
revenue we collect. For more information, see "Business--Travel and Roaming."
THE INABILITY TO USE SPRINT PCS' SUPPORT SERVICES COULD DISRUPT OUR BUSINESS AND
INCREASE OUR OPERATING COSTS
We rely on Sprint PCS' internal support systems, including customer care,
customer activation, billing and other administrative support. Our operations
could be disrupted if Sprint PCS is unable to maintain and expand these
office services, or to efficiently outsource those services and systems
through third party vendors.
The rapid expansion of Sprint PCS' business is expected to require that
Sprint PCS continue to enhance its internal support systems. Sprint PCS'
ability to provide adequate capacity for billing and other systems is
dependent on a number of factors, including forecasts of customer growth,
customer usage pattern and software releases from third-party vendors. We
cannot assure 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' internal support systems could cause:
- delays or problems in our own operations or service;
- delays or difficulty in gaining access to customer and financial
information;
- a loss of Sprint PCS customers; and
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- an increase in the costs of those services.
Our services agreement with Sprint PCS provides that, upon nine months'
prior written notice, Sprint PCS may terminate any service that we purchase
from Sprint PCS. 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.
IF SPRINT PCS DOES NOT COMPLETE THE CONSTRUCTION OF ITS NATIONWIDE PCS NETWORK,
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS
Sprint PCS currently intends to cover a significant portion of the
population of the United States, Puerto Rico and the U.S. Virgin Islands by
creating a nationwide PCS network through its own construction efforts and
those of its affiliates. Sprint PCS is still constructing its nationwide
network and does not offer PCS services, either on its own network or through
its roaming agreements, in every city in the United States. Sprint PCS has
entered into, and anticipates entering into, management agreements similar to
ours with companies in other markets under its nationwide PCS build-out
strategy. Our results of operations are dependent on Sprint PCS' national
network and, to a lesser extent, on the networks of its other affiliates.
Sprint PCS' network may not provide nationwide coverage to the same extent as
its competitors which could adversely affect our ability to attract and
retain customers.
OUR ROAMING ARRANGEMENTS MAY NOT BE COMPETITIVE WITH OTHER WIRELESS SERVICE
PROVIDERS, WHICH MAY RESTRICT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS
We rely on roaming arrangements with other wireless service providers for
coverage in some areas. Some risks related to these arrangements are as
follows:
- the quality of the service provided by another provider during a
roaming call may not approximate the quality of the service
provided by the Sprint PCS network;
- the price of a roaming call may not be competitive with prices of
other wireless companies for roaming calls;
- customers may have to use a more expensive dual-band/dual-mode
handset with diminished standby and talk time capacities;
- customers must end a call in progress and initiate a new call
when leaving the Sprint PCS network and entering another wireless
network; and
- 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.
SPRINT PCS MAY MAKE BUSINESS DECISIONS THAT WOULD NOT BE IN OUR BEST INTEREST
Under our management agreement, Sprint PCS has a substantial amount of
control over the conduct of our business. Conflicts between us and Sprint PCS
may arise, and because Sprint PCS owes us no duties except as set forth in the
management agreement, these conflicts may not be resolved in our favor.
Accordingly, Sprint PCS may make decisions that adversely affect our business,
such as the following:
- Sprint PCS prices its national plans based on its own objectives
and could set price levels that may not be economically sufficient for
our business;
- Sprint PCS could change the per minute rate for Sprint PCS travel
revenue it must pay to us, the per minute charge we must pay to
Sprint PCS for travel fees, and the costs for Sprint PCS to perform
support services;
- we must obtain Sprint PCS' consent to sell non-Sprint PCS approved
equipment, which consent could be withheld;
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- Sprint PCS may alter its network and technical requirements, which
could result in increased equipment and build-out costs;
- Sprint PCS may request that we build-out additional areas within our
markets, which if undertaken, could result in less return on investment
or a reduction of our license population if we decline to build the
requested area;
- if Sprint PCS terminates our management agreement because we fail to
meet the build-out of our network or the technical standards as
required under our management agreement, Sprint PCS may force us to
sell our operating assets at a discount to market value without
further stockholder approval, which may limit our ability to sell our
business and may reduce the value a buyer would be willing to pay for
our business; and
- Sprint or Sprint PCS could make other business decisions which could
adversely affect the Sprint and Sprint PCS brand names, products or
services.
PROVISIONS OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS MAY DIMINISH OUR VALUE
AND RESTRICT THE SALE OF OUR BUSINESS
Under certain circumstances and without further stockholders approval,
Sprint PCS may purchase our operating assets or capital stock for a percentage
of our "entire business value," which includes the value of the spectrum
licenses, business operations and other assets more fully described in "The
Sprint PCS Agreements--The Management Agreement--Rights on Termination." In
addition, Sprint PCS must approve any change of control of our ownership and
consent to any assignment of our management agreement with Sprint PCS. Sprint
PCS has a right of first refusal if we decide to sell our operating assets to a
third party. We are also subject to a number of restrictions on the transfer of
our business including a prohibition on the sale of us or our operating assets
to competitors of Sprint or Sprint PCS. These restrictions and other
restrictions in our management agreement 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
operate to reduce our entire business value.
IF SPRINT PCS DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, OUR
MANAGEMENT AGREEMENT WITH SPRINT PCS MAY BE TERMINATED
Sprint PCS, not us, owns the licenses necessary to provide wireless
services in our markets. 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 us. If the Federal
Communications Commission were to determine that our management agreement with
Sprint PCS needs to be modified to increase the level of licensee control, we
have agreed with Sprint PCS to use our best efforts to modify the agreement to
comply with applicable law. If we cannot agree with Sprint PCS to modify the
agreement, it may be terminated. If the agreement is terminated, we would no
longer be a part of the Sprint PCS network and it would be extremely difficult
to conduct 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 wireless networks. We are dependent
on Sprint PCS' licenses, which are subject to renewal and revocation. Sprint
PCS' licenses in our markets will expire in 2004 through 2007, but may be
renewed for additional 10-year terms. The Federal Communications Commission
has adopted specific standards that apply to wireless personal communications
services license renewals which, in the event of a comparative proceeding
with competing applications, includes the award of a renewal expectancy to
Sprint PCS upon its showing of "substantial service" during the past license
term. Any failure by Sprint PCS or us to comply with these standards could
cause nonrenewal of the Sprint PCS licenses for our markets. Additionally, if
Sprint PCS does not demonstrate to the Federal Communications Commission that
Sprint PCS has met the 5-year and 10-year construction requirements for each
of its wireless personal communications services licenses, it can lose the
affected licenses and be ineligible to regain them.
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WE RELY ON THE USE OF THE SPRINT PCS BRAND NAME AND LOGO TO MARKET OUR SERVICES,
AND A LOSS OF USE OF THIS BRAND AND LOGO OR A DECREASE IN THE MARKET VALUE OF
THIS BRAND AND LOGO WOULD HINDER OUR ABILITY TO MARKET OUR PRODUCTS
The Sprint PCS brand and logo is highly recognizable. If we lose our
rights to use the Sprint PCS brand and logo under our trademark and service
mark license agreements, we would lose the advantages associated with
marketing efforts conducted by Sprint PCS. If we lose the rights to use this
brand and logo, customers may not recognize our brand readily and we may have
to spend significantly more money on advertising to create brand recognition.
See "The Sprint PCS Agreements--The Trademark and Service Mark License
Agreements."
OUR RELATIONSHIP WITH SPRINT PCS OR ITS SUCCESSOR MAY BE ADVERSELY AFFECTED BY
THE PROPOSED MERGER OF SPRINT AND MCI WORLDCOM, WHICH COULD RESTRICT OUR
ABILITY TO OPERATE SUCCESSFULLY
Sprint and MCI WorldCom have announced that the boards of directors of
both companies have approved a definitive merger agreement whereby the two
companies would merge to form a new company called WorldCom. Although the
companies have approved the merger, the completion of the merger is still
subject to various conditions, including the approvals of the shareholders of
both companies, the Federal Communications Commission, the Justice
Department, various state governmental bodies and foreign antitrust
authorities. If the merger is completed, the results of the merger may alter
the nature of our relationship with Sprint PCS, which could restrict our
ability to operate successfully. Also, any negative impact on Sprint as a
result of the merger could have a negative impact on us as a Sprint PCS
affiliate.
IF SPRINT PCS DOES NOT RENEW OUR MANAGEMENT AGREEMENT, OUR ABILITY TO CONDUCT
OUR BUSINESS WOULD BE SEVERELY RESTRICTED
Our management agreement with Sprint PCS is not perpetual. Sprint PCS can
choose not to renew the agreement at the expiration of the 20-year initial
term or any ten-year renewal term. Our agreement with Sprint PCS terminates
in all events in 50 years. If Sprint PCS decides not to renew the management
agreement or terminates it in accordance with its terms, we would no longer
be a part of the Sprint PCS network and it would severely restrict our
ability to conduct our business.
OTHER RISKS PARTICULAR TO US
WE MAY HAVE A CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF
SECTION 5 OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH OUR INITIAL PUBLIC
OFFERING OF OUR COMMON STOCK
On or about May 17, 2000, we established our website with three
hyperlinks to an independent unaffiliated website that included specific
articles regarding UbiquiTel and our recent initial public offering of common
stock. One of the hyperlinks accessed the prospectus summary contained in the
prospectus forming a part of the registration statement relating to our
initial public offering, while each of the other hyperlinks accessed a press
release regarding the initial public offering. Our hyperlinks were
operational for only nine days, and were disabled on May 26, 2000. The
information contained on one or more of the hyperlinks may have constituted a
prospectus that did not meet the requirements of the Securities Act, in which
case the existence of any of the hyperlinks may have caused us to violate
Section 5 of the Securities Act. If the existence of any of these hyperlinks
caused a violation of Section 5 of the Securities Act, we believe that only
purchasers in the initial public offering, which was completed on June 12,
2000, who read the information contained in the hyperlinks would have the
right, for a period of one year from the date of their purchase of the common
stock, to bring an action for rescission or for damages resulting from their
purchase of common stock. We cannot assure you, however, that if such
violation occurred this right would be limited to those purchasers. We do not
believe that the existence of any of these hyperlinks caused a violation of
Section 5, and if any such claim were asserted, we would contest the matter
vigorously. Accordingly, we do not believe that our exposure, if any,
resulting from the existence of any of these hyperlinks would be material to
our results of operations or financial condition.
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WE HAVE A LIMITED OPERATING HISTORY AND IF WE DO NOT SUCCESSFULLY MANAGE OUR
ANTICIPATED RAPID GROWTH, WE MAY NOT BE ABLE TO COMPLETE OUR ENTIRE PCS
NETWORK BY OUR TARGET DATE, IF AT ALL
As of the date of this prospectus, we have commenced limited operations.
Our performance as a PCS provider will depend on our ability to manage
successfully the network build-out process, implement operational and
administrative systems, expand our base of employees, and train and manage
our employees, including engineering, marketing and sales personnel. We will
require expenditures of significant funds for the development, construction,
testing and deployment of our PCS network before expanding commercial PCS
operations. These activities are expected to place significant demands on our
managerial, operational and financial resources.
The management of our anticipated growth will require, among other things:
- continued development of our operational and administrative systems;
- stringent control of costs of network build-out;
- integration of our network infrastructure with the rest of the Sprint
PCS network;
- increased marketing activities;
- the ability to attract and retain qualified management, technical and
sales personnel; and
- the training of new personnel.
Failure to successfully manage our expected rapid growth and development
could impair our ability to achieve profitability and expand the coverage in
our markets.
WE MAY NEED MORE CAPITAL THAN WE CURRENTLY PROJECT TO BUILD-OUT OUR PORTION OF
THE SPRINT PCS NETWORK; AND IF WE FAIL TO OBTAIN REQUIRED ADDITIONAL CAPITAL,
WE MAY NOT HAVE SUFFICIENT FUNDS TO COMPLETE OUR BUILD-OUT IN ACCORDANCE WITH
THE TERMS OF OUR MANAGEMENT AGREEMENT WITH SPRINT PCS AND SPRINT PCS MAY
TERMINATE OUR MANAGEMENT AGREEMENT AND PURCHASE OUR OPERATING ASSETS AT A
DISCOUNT TO MARKET VALUE WITHOUT FURTHER APPROVAL OF OUR STOCKHOLDERS
The build-out of our portion of the Sprint PCS network will require
substantial capital. Additional funds could be required for a variety of
reasons, including unanticipated expenses or operating losses. Additional
funds may not be available. Even if those funds are available, we may not be
able to obtain them on a timely basis, or on terms acceptable to us or within
limitations permitted by the covenants under our senior credit facility or
the covenants under the indenture that governs our senior subordinated
discount notes. Failure to obtain additional funds, should the need for them
develop, could result in the delay or abandonment of our development and
expansion plans. If we do not have sufficient funds to complete our
build-out, we may be in breach of our management agreement with Sprint PCS
and under our debt agreements. If Sprint PCS terminates our management
agreement as result of this breach, we may be required to sell our operating
assets to Sprint PCS at a discount to market value without further
stockholder approval. The provisions in our management agreement that allow
Sprint PCS to purchase our operating assets at a discount could adversely
affect the value of our common stock, may limit our ability to sell our
business and may reduce the value a buyer would be willing to pay for our
business.
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 outsource portions of our business, we depend heavily on
third-party vendors, suppliers, consultants, contractors and local telephone
companies. We have retained those persons to:
- design and engineer our systems;
- construct radio communications sites, network control centers and
towers;
- lease radio communications sites;
- install transmission lines; and
- deploy our wireless personal communications services network systems.
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We lease a portion of the radio communications sites for our wireless
systems through master lease agreements with communication site management
companies such as SpectraSite. SpectraSite, in turn, has separate leasing
arrangements with each of the owners of the sites. If SpectraSite or other
similar firms were to become insolvent or were to breach those arrangements, we
may lose access to those radio communications sites and experience extended
service interruption in the areas serviced by those sites. We have retained LCC
International and other consultants and contractors to assist in the design and
engineering of our systems, construct radio communications sites, network
control centers and towers, lease radio communications sites and deploy our PCS
network systems and we will be significantly dependent upon them in order to
fulfill our build-out obligations. The failure by any of our vendors, suppliers,
consultants, contractors or local telephone companies to fulfill their
contractual obligations to us could materially delay construction and adversely
affect the operations of our portion of the Sprint PCS network.
WE HAVE SUBSTANTIAL DEBT WHICH WE MAY NOT BE ABLE TO SERVICE AND WHICH MAY
RESULT IN OUR LENDERS CONTROLLING OUR ASSETS IN AN EVENT OF DEFAULT
In April 2000, we issued 300,000 units consisting of senior
subordinated discount notes due 2010 and warrants to purchase 3,579,000 shares
of our common stock, which yielded gross proceeds to us of $152.3 million. In
March 2000, we signed a $250.0 million senior credit facility, and made
borrowings of $75.0 million under the credit facility in April 2000. As a
result, we have a substantial amount of long-term debt. See "Description of
Certain Indebtedness."
The substantial amount of our debt will have a number of important
consequences for our operations, including the following:
- we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
- we may not have sufficient funds to pay interest on, and principal of,
our debt;
- we may not be able to obtain additional financing for currently
unanticipated capital requirements, capital expenditures, working
capital requirements and other corporate purposes;
- some of our debt, including borrowings under our senior credit
facility, will be at variable rates of interest, which could result
in higher interest expense in the event of increases in market
interest rates;
- due to the liens on substantially all of our assets and the assets of
our subsidiaries that secure our debt, lenders may control our assets
or subsidiaries upon a default; and
- we may be more highly leveraged than some of our competitors, which may
put us at a competitive disadvantage.
Our ability to make payments on our debt depends upon our future
operating performance which is subject to general economic and competitive
conditions and to financial, business and other factors, many of which we
cannot control. If the cash flow from our operating activities is
insufficient, we may take actions, such as delaying or reducing capital
expenditures, attempting to restructure or refinance our debt, selling assets
or operations or seeking additional equity capital. Any or all of these
actions may not be sufficient to allow us to service our debt obligations.
Further, we may be unable to take any of these actions on satisfactory terms,
in a timely manner or at all. The senior credit facility and the indenture
that governs the senior subordinated discount notes limit our ability to take
several of these actions. Under our current business plan, we expect to incur
substantial debt before achieving break-even cash flow. Our failure to
generate sufficient funds to pay our debts or to successfully undertake any
of these actions could, among other things, materially adversely affect the
market value of our common stock.
WE MAY NOT RECEIVE THE FUNDS UNDER OUR SENIOR CREDIT FACILITY, WHICH COULD
PREVENT US FROM MEETING OUR NETWORK BUILD-OUT OBLIGATIONS UNDER OUR
AGREEMENTS WITH SPRINT PCS
We signed our $250.0 million senior credit facility in March 2000.
Concurrently with our sale of senior subordinated discount notes, we borrowed
$75.0 million of term loans under the credit facility, which were funded
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into an escrow account. The escrow account will remain the property of our
lenders and will not be released to us if an event of default has occurred
under the credit agreement. Additionally, the escrow funds will not be
released until specified conditions have been satisfied. These conditions
include, among others, evidence that we have used all of the proceeds from
our sale of our senior subordinated discount notes and from our recent
initial public offering of our common stock to pay fees and expenses in
connection with those offerings, to fund the build-out of our network or for
other general corporate and working capital purposes. Additional borrowings
under our senior credit facility must be placed into escrow until the
conditions to release our initial borrowing of $75.0 million have been
satisfied. Accordingly, there can be no assurance that we will receive the
proceeds from the senior credit facility. If we fail to receive these funds,
we may not be able to meet our network build-out obligations under our
agreements with Sprint PCS.
IF WE DEFAULT UNDER OUR SENIOR CREDIT FACILITY, OUR LENDER MAY DECLARE OUR DEBT
IMMEDIATELY DUE AND PAYABLE AND SPRINT PCS MAY FORCE US TO SELL OUR ASSETS
WITHOUT STOCKHOLDER APPROVAL
Our $250.0 million senior credit facility requires that we comply with
specified financial ratios and other performance covenants. If we fail to
comply with these covenants or we default on our obligations under our senior
credit facility, our lender may accelerate the maturity of our debt. If our
lender accelerates our debt, Sprint PCS has the option to purchase our
operating assets at a discount to market value and assume our obligations
under the senior credit facility, without further stockholder approval. If
Sprint PCS does not exercise this option, our lender may sell our assets to
third parties without approval of our stockholders. If Sprint PCS provides
notice to our lender that we are in breach of our management agreement with
Sprint PCS and, as a result, our obligations under the credit agreement are
accelerated and Sprint PCS does not elect to operate our business, our lender
may designate a third party to operate our business without the approval of
our stockholders.
OUR INDEBTEDNESS PLACES RESTRICTIONS ON US WHICH MAY LIMIT OUR OPERATING
FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS
The indenture that governs our senior subordinated discount notes and the
credit agreement that governs our senior credit facility 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:
- designated types of mergers or consolidations;
- paying dividends or other distributions to our stockholders;
- making investments;
- selling assets;
- repurchasing our common stock;
- changing lines of business;
- borrowing additional money; and
- entering into 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.
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WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO THE SIGNIFICANT COMPETITION IN THE
WIRELESS COMMUNICATIONS SERVICES INDUSTRY OR KEEP PACE WITH OUR COMPETITORS
IN THE INTRODUCTION OF NEW PRODUCTS, SERVICES AND EQUIPMENT, WHICH COULD
IMPAIR OUR ABILITY TO ATTRACT NEW CUSTOMERS
Our dependence on Sprint PCS to develop competitive products and
services and the requirement that we obtain Sprint PCS' consent to sell
non-Sprint PCS approved equipment may limit our ability to keep pace with our
competitors in the introduction of new products, services and equipment.
Additionally, we expect that existing cellular providers will upgrade their
systems and provide expanded, digital services to compete with the Sprint PCS
products and services that we intend to offer. These wireless providers
require their customers to enter into long-term contracts, which may make it
more difficult for us to attract customers away from them. Sprint PCS
generally does not require its customers to enter into long-term contracts,
which may make it easier for other wireless providers to attract customers
away from us.
WE MAY NOT BE ABLE TO COMPETE WITH LARGER, MORE ESTABLISHED WIRELESS PROVIDERS
WHO HAVE RESOURCES TO COMPETITIVELY PRICE THEIR PRODUCTS AND SERVICES, WHICH
COULD RESULT IN A REDUCTION OF OUR SUBSCRIBERS
We will compete in some of our markets with more than three wireless
providers, some of which have an infrastructure in place and have been
operational for a number of years. Some of our competitors:
(1) have substantially greater financial, technological, marketing
and sales and distribution resources than us;
(2) have more extensive coverage in specific areas of our markets
and have broader regional coverage than us; and
(3) may market other services, such as traditional telephone
service, cable television access and access to the Internet,
with their wireless communications services.
We may be unable to compete successfully with these larger
competitors who have substantially greater resources or who offer more
services than we do to a larger subscriber base, which could result in a
reduction in new subscribers.
WE MAY NOT BE ABLE TO RESPOND TO THE RECENT TREND IN THE CONSOLIDATION OF THE
WIRELESS COMMUNICATIONS INDUSTRY, OR COMPETE WITH POTENTIAL ACQUIRORS FOR
ACQUISITIONS, WHICH COULD RESULT IN A REDUCTION OF OUR SUBSCRIBERS, DECLINE
IN PRICES FOR OUR PRODUCTS AND SERVICES AND ADDITIONAL DILUTION TO OUR
STOCKHOLDERS IF WE ISSUE OUR COMMON STOCK IN ACQUISITIONS
There has been a recent trend in the wireless communications
industry towards consolidation of wireless service providers through joint
ventures, mergers and acquisitions. We expect this consolidation to lead to
larger competitors over time. Several large competitors already exist, such
as AT&T Wireless with over 12 million subscribers and the recent partnership
of Bell Atlantic-GTE and Vodafone AirTouch with over 19 million subscribers.
We may not be able to respond to pricing pressures that may result from a
consolidation in our industry, which could result in a reduction of new
subscribers and cause market prices for our products and services to decline
in the future. Also, if we expand our operations through acquisitions, we
will compete with other potential acquirors, some of which may have greater
financial or operational resources than us. If we issue additional shares of
our common stock in connection with any acquisition, this may result in
dilution to our stockholders.
WE MAY HAVE DIFFICULTY IN OBTAINING HANDSETS AND EQUIPMENT, WHICH ARE IN SHORT
SUPPLY, WHICH COULD CAUSE DELAYS AND INCREASED COSTS IN THE BUILD-OUT OF OUR
NETWORK
We currently purchase all handsets and equipment through Sprint PCS.
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 or 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' 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
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equipment costs could 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.
THE TECHNOLOGY WE USE HAS LIMITATIONS AND COULD BECOME OBSOLETE, WHICH WOULD
REQUIRE US TO IMPLEMENT NEW TECHNOLOGY AT SUBSTANTIALLY INCREASED COSTS AND
LIMIT OUR ABILITY TO COMPETE EFFECTIVELY
We intend to employ digital wireless communications technology
selected by Sprint PCS for its nationwide network. Code division multiple
access, known as CDMA, technology is a relatively new technology. CDMA may
not provide the advantages expected by Sprint PCS. If another technology
becomes the preferred industry standard, we may be at a competitive
disadvantage and competitive pressures may require Sprint PCS to change its
digital technology which, in turn may require us to make changes at
substantially increased costs. We may not be able to respond to such
pressures and implement new technology on a timely basis, or at an acceptable
cost. We also expect to face competition from other existing communications
technologies such as specialized mobile radio, known as SMR, and enhanced
specialized mobile radio, known as ESMR, and domestic and global mobile
satellite service. SMR and ESMR systems can provide services that may be
competitive with those offered by PCS and are often less expensive to build
than PCS systems. In addition, we expect that in the future providers of
wireless communications services will compete more directly with providers of
traditional telephone services, energy companies, utility companies and cable
operators who expand their services to offer communications services.
Potential users of PCS systems may find their communications needs satisfied
by other current and developing technologies. One or two-way paging or beeper
services that feature voice messaging and data display as well as tone-only
service may be adequate for potential subscribers who do not need to speak to
the caller. See "Business--Technology."
OUR SERVICES MAY NOT BE BROADLY USED AND ACCEPTED BY CONSUMERS, WHICH COULD
REDUCE THE AMOUNT OF OUR NEW SUBSCRIBER REVENUE
PCS systems have a limited operating history in the United States.
The extent of potential demand for PCS in our markets cannot be estimated
with any degree of certainty. Our inability to establish and successfully
market PCS services could have a material adverse effect on our financial
condition and results of operations.
WE MAY NOT ACHIEVE OR SUSTAIN OPERATING PROFITABILITY OR POSITIVE CASH FLOW
FROM OPERATING ACTIVITIES
We expect to incur significant operating losses and to generate
significant negative cash flow from operating activities until at least 2003
while we develop and construct our PCS network and build our customer base.
Our operating profitability will depend upon many factors, including, among
others, our ability to market our services successfully, achieve our
projected market penetration and manage customer turnover rates effectively.
If we do not achieve and maintain operating profitability and positive cash
flow from operating activities on a timely basis, we may not be able to meet
our debt service requirements.
UNAUTHORIZED USE OF OUR PCS NETWORK COULD DISRUPT OUR BUSINESS
We will likely incur costs associated with the unauthorized use of
our PCS network, including administrative and capital costs associated with
detecting, monitoring and reducing the incidence of fraud. Fraud impacts
interconnection costs, capacity costs, administrative costs, fraud prevention
costs and payments to other carriers for unbillable fraudulent roaming.
SOME OF OUR STOCKHOLDERS HAVE OTHER INVESTMENTS IN TELECOMMUNICATIONS
BUSINESSES, WHICH MAY RESULT IN A CONFLICT OF INTEREST WITH US
Some of our principal stockholders as well as some of our directors
affiliated with these stockholders have investments in, or serve on boards
of, other telecommunications businesses. As a result, conflicts of interest
may arise from these investments and other directorships. Additionally, these
stockholders may invest in other telecommunications businesses that compete
with us. Our interests may conflict with the interests of these companies,
and any conflicts may not be resolved in our favor.
17
<PAGE>
OUR CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE PROVISIONS THAT MAY
DISCOURAGE A CHANGE OF CONTROL TRANSACTION
Some provisions of our certificate of incorporation and bylaws and
the provisions of Delaware law could have the effect of delaying, deferring
or preventing an acquisition of us. For example, we have a staggered board of
directors, the members of which may only be removed for cause, authorized but
unissued shares of preferred stock which could be used to fend off a takeover
attempt, our stockholders may not take actions by written consent and are
limited in their ability to make proposals at stockholder meetings.
OUR PLAN OF COVERAGE FOR OUR MARKETS MAY BE INADEQUATE TO PROFITABLY OPERATE OUR
BUSINESS
Our projected build-out plan for our markets does not cover all
areas of our markets. As a result, our plan may not adequately serve the
needs of the potential customers in our markets or attract enough subscribers
to operate our business successfully. To correct this potential problem, we
may have to cover a greater percentage of our markets than we anticipate,
which we may be unable to do profitably.
RISKS PARTICULAR TO OUR INDUSTRY
WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER WHICH WOULD INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE
Our strategy to reduce customer turnover may not be successful. The
rate of customer turnover may be the result of several factors, including
network coverage, reliability issues such as blocked calls, dropped calls,
handset problems, non-use of phones, change of employment, the non-use of
customer contracts, affordability, customer care concerns and other
competitive factors. Price competition and other competitive factors could
also cause increased customer turnover. 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.
USE OF HAND-HELD PHONES MAY POSE HEALTH RISKS, WHICH COULD RESULT IN A
REDUCTION IN SUBSCRIBERS AND INCREASED EXPOSURE TO LITIGATION
Media reports have suggested that certain radio frequency emissions
from wireless handsets may be linked to various health concerns, including
cancer, and may interfere with various electronic medical devices, including
hearing aids and pacemakers. The actual or perceived risk of radio frequency
emissions from portable telephones could adversely affect us through a
reduced subscriber growth rate, a reduction in subscribers, reduced network
usage per subscriber, reduced financing available to the mobile
communications industry and increased exposure to potential litigation.
REGULATION BY GOVERNMENT AGENCIES AND TAXING AUTHORITIES MAY INCREASE OUR COSTS
OF PROVIDING SERVICE OR REQUIRE US TO CHANGE OUR SERVICES
The licensing, construction, use, operation, sale and
interconnection arrangements of wireless telecommunication systems are
regulated to varying degrees by the Federal Communications Commission, the
Federal Trade Commission, the Federal Aviation Administration, the
Environmental Protection Agency, the Occupational Safety and Health
Administration and, depending on the jurisdiction, state and local regulatory
agencies and legislative bodies. Adverse decisions regarding these regulatory
requirements could negatively impact Sprint PCS' 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 relationship with Sprint PCS.
OUR BUSINESS IS SEASONAL AND 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
18
<PAGE>
three fiscal quarters. The price of our common stock may drop and our overall
results of operations could be significantly reduced if we have a worse than
expected fourth quarter for any reason, including the following:
- our inability to match or beat pricing plans offered by
competitors;
- the failure to adequately promote Sprint PCS' products, services
and pricing plans;
- our inability to obtain an adequate supply or selection of
handsets;
- a downturn in the economy of some or all of our markets; or
- a poor holiday shopping season.
There is also uncertainty as to the extent of customer demand as
well as the extent to which airtime and monthly recurring charges may
continue to decline. As a result, our future prospects and those of the
industry, and the success of PCS and other competitive services, remain
uncertain.
RISKS RELATING TO THE OFFERING
THE WARRANTS MAY NOT HAVE AN ACTIVE MARKET AND THE PRICE MAY BE VOLATILE, SO YOU
MAY BE UNABLE TO SELL YOUR WARRANTS AT THE PRICE YOU DESIRE OR AT ALL
We cannot assure you that a liquid market will develop for the
warrants, that you will be able to sell the warrants at a particular time, if
at all, or that the prices that you receive when you sell will be favorable.
Prior to this offering, there has been no public market for the warrants. The
initial purchasers of the warrants have informed us that they intend to make
a market in the warrants, but they are not obligated to do so and may cease
market-making at any time. In addition, such market-making activity will be
subject to limits imposed by the Securities Act of 1933 and other
regulations, and may be limited during the pendency of any shelf registration
statement. We do not intend to apply (and are not obligated to apply) for
listing of the warrants on any securities exchange or any automated quotation
system. Therefore, we cannot assure you as to the liquidity of any trading
market for the warrants. Future trading prices of the warrants will depend on
many factors, including our operating performance and financial condition and
the market for similar securities.
YOU MAY NOT RECEIVE A RETURN ON INVESTMENT IN THE WARRANTS THROUGH EITHER
DIVIDENDS PAID ON THE COMMON STOCK OR THE EXERCISE OF YOUR WARRANTS AND SALE
OF YOUR SHARES
We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. Instead, we intend to retain future earnings to
fund our growth. In addition, our existing indebtedness restricts, and we
anticipate our future indebtedness may restrict, our ability to pay
dividends. Therefore, you will not receive a return on your investment in the
common stock underlying our warrants by exercising them and receiving a
payment of dividends of the common stock.
OUR EXISTING STOCKHOLDERS, DIRECTORS AND OFFICERS MAY BE ABLE TO CONTROL THE
OUTCOME OF SIGNIFICANT MATTERS PRESENTED TO STOCKHOLDERS FOLLOWING THE
COMPLETION OF THIS OFFERING
Our existing stockholders, directors and officers beneficially own
approximately 74.9% of our outstanding common stock on a fully diluted basis.
Consequently, those persons, if they act as a group, will be able to control
the outcome of matters submitted for stockholder action, including the
election of members to our board of directors and the approval of significant
change in control transactions. This may have the effect of delaying or
preventing a change in control. For more information on this subject, please
refer to "Management" and "Principal Stockholders."
POSSIBLE SALES OF OUR COMMON STOCK COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECREASE
Many of our current stockholders hold large portions of our common
stock. The occurrence of sales of a large number of shares of our common
stock, 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 any
future offerings of equity securities.
19
<PAGE>
USE OF PROCEEDS
All of the warrants and common stock offered under this prospectus
are being sold by the warrantholders. We will not receive any proceeds from
the sale of the warrants or the common stock issued upon exercise of the
warrants, other than the payment of the exercise price of the warrants.
DIVIDEND POLICY
We intend to retain our future earnings, if any, to fund the
development and growth of our business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future. Our future decisions
concerning the payment of dividends on the common stock will depend upon our
results of operations, financial condition and capital expenditure plans, as
well as such other factors as the board of directors, in its sole discretion,
may consider relevant. In addition, our existing indebtedness restricts, and
we anticipate our future indebtedness may restrict, our ability to pay
dividends.
20
<PAGE>
CAPITALIZATION
The following table shows the cash and cash equivalents position and
our total capitalization as of March 31, 2000, and as adjusted to reflect:
- our acquisition of the Spokane, Washington PCS network and
related assets from Sprint PCS;
- receipt of gross proceeds of $152.3 million from our sale of the
units consisting of senior subordinated discount notes and the
unit warrants;
- receipt of gross proceeds of $100.0 million from our initial
public offering;
- initial borrowings of $75.0 million in term loans under our
$250.0 million senior credit facility;
- exercise of a warrant to purchase 4,978,150 shares of our common
stock, which was issued in connection with our senior
subordinated note;
- repayment of our senior subordinated note;
- conversion of our preferred stock into common stock;
- cancellation of our non-voting common stock;
- payments to preferred stockholders upon closing of our initial
public offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of common stock and 136,758 shares
of common stock to our founding stockholders to maintain a
specific percentage stock ownership in connection with the senior
subordinated discount notes.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------------------
ACTUAL AS ADJUSTED
-------------- ----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 33,729 $ 220,736
Cash, restricted................................................... - 75,000(1)
-------------- ----------------
Total cash and cash equivalents.................................... $ 33,729 $ 295,736
============== ================
Long-term debt:
Senior credit facility.......................................... $ 0 $ 75,000(1)
Senior subordinated debt........................................ 5,812(2) 0
Senior subordinated discount notes.............................. 0 136,297(3)
-------------- ----------------
Total long-term debt......................................... $ 5,812 $ 211,297
Redeemable warrants................................................ 2,758 570
Stockholders' equity:
Convertible preferred stock..................................... 19 -
Non-voting common stock......................................... 16 -
Voting common stock and additional paid-in capital.............. 51,314 162,604(4)
Accumulated deficit............................................. (13,862) (17,437)
-------------- ----------------
Total stockholders' equity................................... 37,487 145,167
-------------- ----------------
Total capitalization......................................... $ 46,057 $ 357,034
============== ================
</TABLE>
------------------------
(1) This amount was funded into an escrow account and will not be released to
us until specified conditions have been satisfied. See "Risk Factors-Other
Risks Particular to Us."
(2) Actual reflects the $5.8 million of the senior subordinated note allocated
to long-term debt.
(3) As adjusted reflects the $136.3 million of the $152.3 million of gross
proceeds attributable to the senior subordinated discount notes issued as
part of our units offering allocated to long-term debt.
(4) Of such amount, $16.3 million represents the value assigned to the unit
warrants and $0.6 million represents the value assigned to the shares of
preferred stock issued in connection with our units offering.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
We derived unaudited pro forma condensed consolidated financial and
operating data as of and for the three months ended March 31, 2000 and for
the year ended December 31, 1999 from our historical consolidated financial
statements and from other financial data included elsewhere in this
prospectus. Our financial results have been adjusted based on currently
available information and assumptions that we believe are reasonable to give
effect to the following transactions as if each transaction had occurred as
of January 1, 1999 for the purpose of the pro forma statements of operations
and as of March 31, 2000 for the purpose of the pro forma balance sheet:
- our acquisition of the Spokane, Washington PCS network and
related assets from Sprint PCS;
- receipt of gross proceeds of $152.3 million from our sale of the
units consisting of senior subordinated discount notes and the
warrants;
- receipt of gross proceeds of $100.0 million from our initial
public offering;
- initial borrowings of $75.0 million in term loans under our
$250.0 million senior credit facility;
- exercise of a warrant to purchase 4,978,150 shares of our common
stock, which was issued in connection with our senior
subordinated note;
- repayment of our senior subordinated note;
- conversion of our preferred stock into common stock;
- cancellation of our non-voting common stock;
- payments to preferred stockholders upon closing of our initial
public offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of common stock and 136,758 shares
of our common stock to our founding stockholders to maintain a
specified percentage stock ownership in connection with the
senior subordinated discount notes.
We provide the following unaudited pro forma condensed consolidated
financial statements and related notes for informational purposes only. The
accompanying data do not purport to represent what our results of operations
would have been if the pro forma transactions had been completed on the dates
indicated, nor do they purport to indicate our future financial position or
results of operations.
The data shown below should be read in conjunction with
"Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the
consolidated financial statements and accompanying notes included elsewhere
in this prospectus.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
UBIQUITEL SPOKANE ADJUSTMENTS AS ADJUSTED
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues........................... $ 69 $ 1,574 $ - $ 1,643
Costs of services and equipment........ - 779 - 779
-------------- --------------- --------------- ---------------
Gross profit........................... 69 795 - 864
Operating expenses:
Selling, general and administrative
excluding non-cash compensation
charges.......................... 907 1,214 - 2,121
Amortization of deferred stock
compensation expense granted to
employees for general and
administrative matters........... 119 - - 119
Depreciation and amortization....... - 931 200(1) 1,131
-------------- --------------- --------------- ---------------
Operating loss......................... (957) (1,350) (200) (2,507)
Interest income (expense), net...... 35 - (8,698)(2) (8,663)
-------------- --------------- --------------- ---------------
Loss before extraordinary item......... (922) (1,350) (8,898) (11,170)
Less: preferred stock dividend........ (9,231) - - (9,231)
-------------- --------------- --------------- ---------------
Loss available to common stockholders.. (10,153) (1,350) (8,898) (20,401)
Extraordinary item-write-off of
deferred financing costs on early
extinguishment of debt.............. (1,723) - - (1,723)
-------------- --------------- --------------- ---------------
Net loss available to common
stockholders........................ $(11,876) $(1,350) $(8,898) $(22,124)
============== =============== =============== ===============
Pro forma basic and diluted net loss
per common share.................... $(0.24) $(0.35)
============== ===============
Pro forma weighted average common
shares outstanding.................. 50,264 62,764
============== ===============
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated statement of operations for the three months
ended March 31, 2000, the following adjustments have been made:
(1) Represents the amortization of intangible asset recorded from the
Spokane acquisition consisting of goodwill and customer lists in the
amount of $15,975 over a period of 20 years which is the initial term
of the Sprint PCS management agreement.
(2) Represents additional interest expense based on the following:
<TABLE>
<S> <C>
Accrued interest and prepayment premium on senior subordinated debt..................... $ 80
Interest expense on $75,000 drawdown from senior credit facility assuming an interest
rate of 10%.......................................................................... 1,875
Unused commitment fee of 1.375% on senior credit facility assuming only minimum
drawdowns............................................................................ 601
Amortization of deferred financing fees from senior credit facility over a period of
8.5 years............................................................................ 209
Amortization of deferred financing costs relating to senior subordinated discount notes
over 10 years........................................................................ 203
Interest expense on senior subordinated discount notes.................................. 5,330
Amortization of the discount on senior subordinated discount notes over 10 years........ 400
--------
$ 8,698
========
</TABLE>
Excluded from the pro forma results of operations is a non-recurring charge of
$2,188 for the remaining discount on the senior subordinated note upon the early
extinguishment of the debt. This charge will be reflected as an extraordinary
item in the 2000 financial statements.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA AS
UBIQUITEL SPOKANE ADJUSTMENTS ADJUSTED
-------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net revenues................................... $ - $ 5,625 $ - $ 5,625
Costs of services and equipment................ - 5,046 - 5,046
-------------- --------------- ------------ ---------------
Gross profit................................... - 579 - 579
Operating expenses:
Selling, general and administrative
excluding non-cash compensation charges.. 554 5,419 - 5,973
Non-cash compensation for general and
administrative matters................... 1,395 - - 1,395
Depreciation and amortization............... - 3,471 799(1) 4,270
-------------- --------------- ------------ ---------------
Operating loss................................. (1,949) (8,311) (799) (11,059)
Interest expense............................ 29 - 34,354(2) 34,383
-------------- --------------- ------------ ---------------
Net loss....................................... (1,978) (8,311) (35,153) (45,442)
Less: preferred stock dividends................ (9) - - (9)
-------------- --------------- ------------ ---------------
Loss available to common stockholders.......... $(1,987) $(8,311) $(35,153) $(45,451)
============== =============== ============ ===============
Pro forma basic and diluted loss per common
share....................................... $(0.04) $(0.72)
============== ===============
Pro forma weighted average common shares
outstanding................................. 50,264 62,764
============== ===============
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated statement of operations for the year ended
December 31, 1999, the following adjustments have been made:
(1) Represents the amortization of intangible asset recorded from the
Spokane acquisition consisting of goodwill and customer lists in the
amount of $15,975 over a period of 20 years for goodwill which is the
initial term of the Sprint PCS management agreement and five years for
customer lists which is based on management's expectation to build-out
the Spokane market.
(2) Represents additional interest expense based on the following:
<TABLE>
<S> <C>
Accrued interest and prepayment premium on senior subordinated debt..................... $ 91
Interest expense on $75,000 drawdown from senior credit facility assuming an interest
rate of 10%.......................................................................... 7,500
Unused commitment fee of 1.375% on senior credit facility assuming only
minimum drawdowns.................................................................... 2,200
Amortization of deferred financing fees from senior credit facility over a period of
8.5 years............................................................................ 835
Amortization of deferred financing costs relating to senior subordinated discount notes
over 10 years........................................................................ 811
Interest expense on senior subordinated discount notes.................................. 21,319
Amortization of the discount on senior subordinated discount notes over 10 years........ 1,598
----------
$ 34,354
==========
</TABLE>
Excluded from the pro forma results of operations is a non-recurring charge of
$2,188 for the remaining discount on the senior subordinated note upon the early
extinguishment of the debt. This charge will be reflected as an extraordinary
item in the 2000 financial statements.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
UBIQUITEL INC. AND SUBSIDIARIES
AS OF MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
UBIQUITEL SPOKANE(1) ADJUSTMENTS AS ADJUSTED
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents......................... $ 33,729 $ - $ 187,007(2) $ 220,736
Cash, restricted.................................. - - 75,000(3) 75,000
Prepaid expenses and other assets................. 2,067 93 (937) 1,223
Property and equipment............................ 9,022 18,932 - 27,954
Deferred financing costs, net..................... 7,363 - 14,907(4) 22,270
Intangible assets................................. - - 15,975(5) 15,975
Other assets...................................... 182 - - 182
-------------- --------------- --------------- ----------------
TOTAL ASSETS................................ $ 52,363 $ 19,025 $ 291,952 $ 363,340
============== =============== =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses............. $ 6,306 $ - $ - $ 6,306
Senior credit facility............................ - - 75,000(6) 75,000
Senior subordinated debt.......................... 5,812 - (5,812)(7) -
Senior subordinated discount notes................ - - 136,297(8) 136,297
Redeemable warrants............................... 2,758 - (2,188)(9) 570
STOCKHOLDERS' EQUITY:
Convertible preferred stock....................... 19 - (19)(10) -
Common stock and additional paid-in-capital....... 51,330 - 111,274(11) 162,604
Accumulated deficit............................... (13,862) - (3,575)(12) (17,437)
Sprint Spectrum L.P.'s equity in assets to be
sold............................................ - 19,025 (19,025)(13) -
-------------- --------------- --------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $ 52,363 $ 19,025 $ 291,952 $ 363,340
============== =============== =============== ================
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
For the purpose of determining the pro forma effect of transactions
described above on our consolidated balance sheet as of March 31, 2000 the
following adjustments have been made:
(1) The historical balance sheet of the Spokane, Washington District does
not reflect an amount for liabilities and stockholders' equity. The
financial statements provided by the Spokane predecessor were
abbreviated financial statements and identify only the assets to be
sold. Sprint Spectrum L.P.'s equity in assets to be sold is an assumed
amount. As indicated in Note 4 of the notes to the unaudited pro forma
condensed consolidated balance sheet, the purchase price for the
Spokane acquisition was approximately $35,000 and is reflected in the
pro forma adjustments excluding this offering.
(2) Represents the following adjustments to cash and cash equivalents:
<TABLE>
<S> <C>
Proceeds from senior subordinated discount notes........................................ $ 152,277
Proceeds of our initial public offering................................................. 100,000
Cash used to pay estimated fees and expenses net of amounts prepaid..................... (6,913)
Cash used for payments to preferred stockholders upon closing our initial public
offering............................................................................. (1,000)
Cash used to pay Spokane purchase price................................................. (35,000)
Cash used to pay origination fees and expenses for senior credit facility............... (7,100)
Cash used to pay fees and expenses for senior subordinated discount notes............... (7,177)
Cash used to pay prepayment premium on senior subordinated debt......................... (80)
Cash used to retire outstanding senior subordinated debt................................ (8,000)
------------
$ 187,007
============
</TABLE>
(3) Represents the proceeds from the initial drawdown of $75,000 of the
senior credit facility to be held in escrow until specific conditions
have been satisfied as defined in the agreement.
(4) Represents the adjustments to deferred financing fees as follows:
<TABLE>
<S> <C>
Write-off of unamortized deferred financing fees related to senior subordinated debt.... $ (307)
Estimated origination fees and expenses related to senior credit facility............... 7,100
Expenses related to senior subordinated discount notes.................................. 7,177
Additional warrants issued in connection with senior subordinated discount notes........ 321
Issuance of shares of preferred stock to preferred stockholders convertible into 77,002
shares of common stock to maintain a specific percentage stock ownership upon the
issuance of the units consisting of the unit warrants and senior subordinated
discount notes....................................................................... 616
----------
$ 14,907
==========
</TABLE>
(5) The preliminary allocation of the purchase price for the acquisition of
the Spokane, Washington PCS network assets, which is based on our
initial determination of relative values, is reflected as follows and
is expected to be finalized in 2000:
<TABLE>
<CAPTION>
ALLOCATION
----------
<S> <C>
Prepaid expenses........................................................................ $ 93
Property and equipment, net............................................................. 18,932
Intangible assets including goodwill (20 year amortization) and customer lists (5 year
amortization)........................................................................ 15,975
----------
$35,000
==========
</TABLE>
28
<PAGE>
The amortization period of 20 years for goodwill is based on the
initial term of the Sprint PCS management agreement. The amortization
period of 5 years for customer lists is based on management's
expectation to build out the Spokane market.
(6) Represents initial drawdown of the senior credit facility of $75,000.
(7) Represents retirement of senior subordinated debt.
(8) Represents value ascribed to the senior subordinated discount notes
from the gross proceeds of $152,277. The remaining $15,980 was ascribed
to the unit warrants and is reflected in stockholders' equity.
(9) Represents exercise of a warrant to purchase 4,978,150 shares of our
common stock issued in connection with the senior subordinated debt.
(10) Represents conversion of convertible preferred stock to common stock in
connection with our initial public offering.
(11) Represents adjustments to stockholders' equity as follows:
<TABLE>
<S> <C>
Proceeds of our initial public offering................................................. $ 100,000
Estimated fees and expenses of our initial public offering.............................. (7,850)
Conversion of preferred stock to common stock........................................... 19
Exercise of warrants issued in connection with senior subordinated debt................. 2,188
Unit warrants issued with senior subordinated discount notes............................ 15,980
Additional warrants issued in connection with senior subordinated discount notes........ 321
Issuance of shares of preferred stock to preferred stockholders convertible into
77,002 shares of common stock to maintain a specific percentage stock ownership in
connection with our units consisting of the unit warrants and senior subordinated
discount notes....................................................................... 616
-----------
$ 111,274
===========
</TABLE>
(12) Represents fees and expenses incurred as follows:
<TABLE>
<S> <C>
Write-off of unamortized deferred financing fees related to the senior subordinated
debt................................................................................. $ (307)
Write-off of unamortized discount relating to senior subordinated debt.................. (2,188)
Expenses relating to prepayment of senior subordinated debt............................. (80)
Payments to preferred stockholders upon closing of our initial public offering.......... (1,000)
----------------
$ (3,575)
================
</TABLE>
(13) Represents the elimination of Sprint Spectrum L.P.'s assumed equity in
assets to be sold.
29
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
UBIQUITEL INC.
- In the table below, we provide you with selected historical
consolidated financial and operating data for, the period from
commencement of operations on September 29, 1999 to December 31,
1999, and balance sheet data as of December 31, 1999, which are
derived from and should be read in conjunction with the audited
consolidated financial statements of UbiquiTel Inc. and
subsidiaries included elsewhere in this prospectus; and
- selected historical consolidated financial and operating data for
the three months ended March 31, 2000 and balance sheet data as
of March 31, 2000, which are derived from and should be read in
conjunction with the unaudited consolidated financial statements
of UbiquiTel Inc. and subsidiaries included elsewhere in this
prospectus.
In our opinion, the unaudited interim financial statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary to
present fairly the financial position and the results of operations for the
interim periods. Financial and operating results for the three months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the full year.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
SEPTEMBER 29, 1999 ENDED
(INCEPTION) TO MARCH 31, 2000
DECEMBER 31, 1999, (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................................... $ - $ 69
Operating expenses:
General and administrative expenses excluding non-cash
compensation charges....................................... 554 907
Non-cash compensation expense for general and administrative
matters.................................................... 1,395 -
Amortization of deferred stock compensation expense granted to
employees for general and administrative matters........... - 119
-------------- -----------------
Operating loss................................................... (1,949) (957)
Interest expense (income)..................................... 29 (35)
-------------- -----------------
Loss before extraordinary item................................... (1,978) (922)
Extraordinary item-write-off of deferred financing costs on
early extinguishment of debt............................... - (1,723)
Preferred stock dividends plus accretion...................... (9) (9,231)
-------------- -----------------
Net loss available to common stockholders........................ $ (1,987) $ (11,876)
============== =================
Pro forma basic and diluted net loss per share of common
stock(1).................................................... $ (0.04) $ (0.24)
============== =================
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 23,959 $ 33,729
Total assets.................................................. 30,191 52,363
Long-term debt................................................ 5,812 5,812
Total stockholders' equity.................................... 15,478 37,487
</TABLE>
------------------
(1) Basic and diluted net loss per share of common stock is computed by
dividing net loss by the weighted average number of common shares
outstanding after giving effect to the conversion of preferred stock into
common stock upon the initial public offering and the exercise of warrants
to purchase 4,978,150 shares of common stock which were issued in
connection with our units consisting of the senior subordinated notes and
unit warrants.
30
<PAGE>
SPOKANE DISTRICT
The selected financial data presented below under the caption
"Statement of Operations Data" for each of the three years in the period
ended December 31, 1999, and under the caption "Balance Sheet Data" as of
December 31, 1999 and 1998, are derived from the condensed financial
statements of the Spokane District (wholly owned by Sprint Spectrum L.P.
through April 15, 2000), the predecessor of UbiquiTel Inc. and subsidiaries.
The selected financial data presented below as of March 31, 2000 and for the
three-month periods ended March 31, 2000 and 1999 have been derived from
unaudited condensed financial statements of the Spokane District which have
been prepared on the same basis as the Spokane District's audited financial
statements and, in the opinion of Sprint Spectrum L.P.'s management, include
all adjustments, consisting only of normal recurring accruals, necessary for
a fair presentation of the financial position and results of operations for
these periods. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results that may be expected for
the full year. The Spokane District did not launch operations until December
16, 1996. As a result, we have not presented financial data for 1996 because
revenues were less than $10,000. The data set forth below should be read in
conjunction with the Spokane District's financial statements and accompanying
notes included elsewhere in this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- --------------------
1997 1998 1999 1999 2000
----------- ----------- ---------- --------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $ 1,246 $ 3,280 $ 5,625 $ 1,136 $ 1,574
Expenses:
Costs of services and equipment............... 2,903 3,970 5,046 747 779
Selling, general and administrative expense... 8,168 4,470 5,419 997 1,214
Depreciation.................................. 2,968 3,112 3,471 828 931
----------- ----------- ---------- --------- --------
Expenses in excess of net revenues............... $ 12,793 $ 8,272 $ 8,311 $ 1,436 $ 1,350
=========== =========== ========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1998 1999 AS OF MARCH 31, 2000
-------------------- ------------------ ----------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets purchased........................ $19,551 $19,784 $19,025
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and the related notes included
elsewhere in this prospectus. The discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of factors including, but not limited to, those under
"Risk Factors" and elsewhere in this prospectus. We are a development stage
company and intend to significantly expand our operations. Accordingly, we do
not believe the discussion and analysis of our historical financial condition
and results of operations set forth below are indicative nor should they be
relied upon as an indicator of our future performance.
OVERVIEW
In October 1998, a limited liability company whose sole member was
The Walter Group, entered into a management agreement with Sprint PCS whereby
it became the Sprint PCS affiliate with the exclusive right to provide 100%
digital, 100% PCS services under the Sprint and Sprint PCS brand names in the
Reno/Tahoe market. The Walter Group is an international wireless
telecommunications consulting and service company based in Seattle,
Washington. The limited liability company subsequently changed its name to
UbiquiTel L.L.C. During the period from October 1998 to October 1999,
UbiquiTel L.L.C. attempted unsuccessfully to obtain financing for the
build-out of the Reno/Tahoe market. In November 1999, UbiquiTel L.L.C.
assigned the management and related agreements to us. UbiquiTel L.L.C. had no
operations or financial transactions prior to the assignment of these
agreements to us.
In December 1999, we amended our management agreement with Sprint PCS
to expand or markets to include a total of 7.7 million residents in the western
and midwestern United States.
In March 2000, we entered into a new $250.0 million senior credit
facility.
In April 2000, we completed a private sale of 300,000 units consisting
of our senior subordinated discount notes due 2010 and warrants to purchase, in
the aggregate, 3,579,000 shares of our common stock after giving effect to a
two-for-one stock split. We received gross proceeds of approximately $152.3
million from the sale of the units.
In April 2000, we acquired Sprint PCS' Spokane, Washington PCS network
and related assets for $35.0 million cash. We acquired switching equipment,
transmitting and receiving equipment at 41 radio communications sites, ancillary
equipment, prepaid expenses, goodwill and customer lists. We did not acquire any
customer related assets or liabilities such as accounts receivable or accrued
liabilities. The Spokane market did not launch operations until December 16,
1996, and had no significant revenues until 1997.
In June 2000, we completed an initial public offering of 12,500,000
shares of our common stock. We received gross proceeds of $100.0 million from
the initial public offering.
We have currently commenced limited operations in one of our
markets, which together with the Spokane, Washington market, cover
approximately 500,000 residents. We currently have approximately 9,000
subscribers. We expect to cover approximately 55% of the resident population
in our markets by the end of 2001 and expect to cover approximately 63% by
June 30, 2004 upon completion of our build-out. We anticipate that the net
proceeds of our recent initial public offering of common stock, when combined
with the proceeds from our sale of preferred stock and senior subordinated
discount notes and the availability of borrowings under our senior credit
facility, will be adequate to fund our anticipated network build-out plan,
anticipated capital expenditures, working capital requirements, operating
losses and other cash needs through anticipated break-even cash flow from
operations in 2003.
We are a development stage company with very limited operations and
revenues, significant losses and substantial capital requirements. From our
inception on September 29, 1999 through December 31, 1999, we incurred losses
of approximately $2.0 million. On a pro forma basis, after giving effect to
various transactions
32
<PAGE>
described in "Unaudited Pro Forma Condensed Consolidated Financial Data,"
loss available to common stockholders from our inception through December 31,
1999 would have been approximately $45.5 million and loss available to common
stockholders would have been approximately $20.4 million for the three months
ended March 31, 2000. We expect to continue to incur significant operating
losses and to generate significant negative cash flow from operating
activities until at least 2003 while we develop and construct our PCS network
and build our customer base.
As a Sprint PCS affiliate, we do not own the licenses to operate our
network and instead, we pay Sprint PCS for the use of its licenses. Under our
management agreement with Sprint PCS, Sprint PCS is entitled to receive 8.0%
of all collected revenue from Sprint PCS subscribers based in our markets and
fees from wireless service providers other than Sprint PCS when their
subscribers roam into our network. We are responsible for building, owning
and managing the portion of the Sprint PCS Network located in our markets
under the Sprint and Sprint PCS brand names. We believe that our markets are
important to Sprint PCS' strategy of providing PCS service nationwide. Sprint
PCS paid approximately $90.0 million for the PCS licenses in our markets and
will incur additional expenses for microwave clearing. However, Sprint PCS is
still constructing its nationwide network and does not offer PCS services,
either on its own network or through its roaming agreements, in every city in
the United States. Sprint PCS has entered into, and anticipates entering
into, management agreements similar to ours with companies in other markets
under its nationwide PCS build-out strategy. Our results of operations are
dependent on Sprint PCS' network and, to a lesser extent, on the networks of
its affiliates.
Under our long-term management agreement with Sprint PCS, we expect
to purchase our network and subscriber equipment under Sprint PCS' vendor
contracts that reflect its volume discounts. In addition, we will have access
to Sprint PCS' national marketing support and will be able to take advantage
of Sprint PCS' retail distribution agreements with national retailers such as
Circuit City, Kmart and OfficeMax and an exclusive PCS distribution agreement
with RadioShack. We intend to offer national plans designed by Sprint PCS as
well as specialized local plans tailored to our markets' demographics. As
part of our marketing process, we may offer our handsets at a price less than
our cost. We expect to continue to employ these discounts in an effort to
grow our subscriber base. For the foreseeable future, we expect that the cost
of handsets will exceed our handset revenues.
As a Sprint PCS affiliate, we will purchase a full suite of support
services from Sprint PCS. Initially, the charges for these services will be
lower than if we provided these services ourselves. In addition, we expect
that, by using these established services, our capital expenditures and
demands on our management's time in connection with support services will be
lower than if we developed and provided the services ourselves. We will have
access to these services during the term of our Sprint PCS management
agreement unless Sprint PCS provides us at least nine months advance notice
of its intention to terminate any particular service. Because of the economic
benefits to us, we will initially purchase: customer billing and collections;
customer care; subscriber activation including credit verification; handset
logistics; network operations control center monitoring; national platform
interconnectivity; voice mail; directory assistance and operator services;
long distance; and roaming clearinghouse services. If Sprint PCS terminates
any of these services or increases the amount it charges us for any of these
services, our operating costs may increase and our operations may be
interrupted or restricted.
In addition to the benefits and services provided through our
agreement with Sprint PCS, we will also utilize the services of third parties
such as Lucent Technologies, LCC International and SpectraSite Communications
to successfully complete the build-out and support the operations of our
network. As a result of this outsourcing, we are substantially dependent on
Sprint PCS and the other third parties for the build-out and operation of our
network. If we fail to complete the build-out on schedule or meet Sprint PCS'
program requirements, we would be in breach of our management agreement with
Sprint PCS that could result in its termination. If the management agreement
is terminated, we will no longer be able to offer Sprint PCS products and
services, and we may be required to sell our operating assets to Sprint PCS
at a discount to market value and without further stockholder approval.
Sprint and MCI WorldCom announced on October 5, 1999 that they have
agreed to merge to form a new company called WorldCom. The merger is subject
to various conditions, including the approvals of the shareholders of both
companies, the Federal Communications Commission, the Justice Department and
various state government
33
<PAGE>
bodies and foreign antitrust authorities. Until the merger actually occurs,
we will not know what effect it will have on Sprint's business. Any negative
impact on Sprint could have a negative impact on us as a Sprint PCS affiliate.
RESULTS OF OPERATIONS
PROSPECTIVE INCOME STATEMENT
REVENUES. We will derive our revenues from four general sources that
are described in order of their significance:
- SUBSCRIBER REVENUE. Subscriber revenue consists of monthly
recurring service charges and monthly non-recurring charges for
local, long distance, travel and roaming airtime usage in excess
of the pre-subscribed usage plan. Our customers' charges are
dependent on their rate plans, based on the number of minutes
included in their plan. We intend to use the Sprint PCS billing
platform and rate plans which are designed to offer simple and
understandable options. We have limited flexibility to change the
pricing on these rate plans, and must obtain Sprint PCS' final
approval. We expect subscriber revenue to constitute the majority
of our revenues in the future. We do not earn revenue for the
activation of new customers.
- SPRINT PCS TRAVEL REVENUE. Sprint PCS travel revenue is generated
when a Sprint PCS subscriber based outside our markets uses our
portion of the Sprint PCS network. We anticipate that travel
revenue will represent a substantial portion of our future
revenue. Under our agreements with Sprint PCS, in October 2000,
Sprint PCS can change the current fee we receive for each Sprint
PCS travel minute. The change by Sprint PCS in the travel revenue
we are paid could substantially decrease our revenues.
- NON-SPRINT PCS ROAMING REVENUE. Non-Sprint PCS roaming revenue is
generated when a non-Sprint PCS subscriber uses our portion of
the Sprint PCS network. We must have roaming arrangements with
other wireless providers in order to permit roaming for our
subscribers and for the non-Sprint PCS subscribers.
- PRODUCT SALES REVENUE. Product sales revenue is generated from
the sale of handsets and accessories. We record and retain 100%
of the revenue from the sale of handsets and accessories, net of
an allowance for returns, as product sales revenue.
We recognize 100% of revenues from Sprint PCS' subscribers based in
our markets, proceeds from the sale of handsets and accessories and fees from
Sprint PCS when their customers travel into our portion of the Sprint PCS
network. Under our management agreement with Sprint PCS, Sprint PCS receives
8% of all collected revenue from Sprint PCS subscribers based in our markets
and fees from wireless service providers other than Sprint PCS when their
subscribers roam into our portion of the Sprint PCS network. We report the
amount retained by Sprint PCS as an operating expense.
OPERATING EXPENSES. We expect that our operating expenses will
principally include network operations, sales and marketing and general and
administrative expenses, some of which will be incurred through our
management and services agreements with Sprint PCS and others of which we
will incur directly.
- NETWORK OPERATIONS EXPENSES. Network operations expenses include
radio communications site lease costs, utilities, network control
maintenance, network control site leases, engineering personnel,
transport facilities, interconnect charges and handset and
equipment costs. Sprint PCS can adjust the program requirements
at any time so long as it gives us at least 30 days prior notice
which may increase our network operations expense. We will also
be charged travel fees by Sprint PCS and roaming fees by other
wireless carriers when our customers make a wireless call on
networks outside our markets. We also include as an expense the
8% of all collected revenue to which Sprint PCS is entitled.
34
<PAGE>
- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling expenses
relate to our distribution channels, sales representatives, sales
support personnel, our retail stores, advertising programs and
residual commissions. General and administrative expenses include
our corporate executive payroll, compensation and benefits,
insurance and facilities, receivable related bad debt, and local
market finance and administration expenses. The fees we pay to
Sprint PCS for the use of their support services, including
billing and collections services, customer care and subscriber
activation are also included in this expense category. If Sprint
PCS terminates a service or increases the amount it charges us
for a support service, our operating costs may increase.
DEPRECIATION AND AMORTIZATION EXPENSE. We expect to depreciate our
property and equipment using the straight-line method over five to ten years.
Amortization of intangible asset from our Spokane acquisition in the amount
of $16.0 million will be amortized over a period of 20 years.
INTEREST EXPENSE. We will accrue interest at a rate of 14.0% per annum
on our senior subordinated discount notes through April 15, 2005 and will pay
interest semiannually in cash thereafter. Interest on our senior credit facility
will accrue at our option at the prime rate or the federal funds rate plus
specified margins or the reserve adjusted London interbank offered rate.
Interest expense will also include the amortized amount of deferred financing
fees relating to our senior credit facility and senior subordinated discount
notes. We expect our interest expense to increase in the future as we borrow
under our senior credit facility to fund our network build-out and operating
losses. See "Description of Certain Indebtedness."
HISTORICAL INCOME STATEMENTS
UBIQUITEL
THREE MONTHS ENDED MARCH 31, 2000
During the three months ended March 31, 2000 we earned nominal
revenues attributable to travel airtime. We continued developing our PCS
business in portions of Nevada and California.
We incurred a net loss of $11.9 million, of which $8.8 million is
attributable to our issuance of Series B preferred stock at a price less than
our initial public offering price of $8.00 per share of common stock.
We incurred general and administrative expenses of $906,679,
including nominal amounts payable to Sprint PCS, during the period in
addition to a non-cash expense related to amortization of deferred stock
compensation expense of $118,643. We are a development stage company and we
believe general and administrative expenses incurred during this period are
not indicative of future general and administrative expenses.
During the period we replaced a $25.0 million credit facility with
Paribas with a $250.0 million facility with Paribas. We wrote off $1.7
million in deferred financing costs in connection with the original facility
and recognized this as an extraordinary item.
During the period we incurred interest expense of approximately
$348,000 consisting of the commitment fee on our $25.0 million facility and
interest on the long-term debt. We received approximately $383,000 in
interest income, resulting in net interest income of approximately $35,000.
We are a development stage company and have incurred an aggregate
loss since inception of $13.9 million. The operating results during this
three month period are not indicative of the anticipated results of
operations that we expect to achieve following commencement of our commercial
operations.
Amortization of deferred stock compensation related to options
granted to employees for general and administrative matters totaled
approximately $118,643 for the period, based on the fair market value of the
common stock underlying options granted during the period.
35
<PAGE>
FROM SEPTEMBER 29, 1999 (INCEPTION) TO DECEMBER 31, 1999
From September 29, 1999 (inception) through December 31, 1999, our
operating activities were focused primarily on developing a PCS business in
portions of Nevada, including Reno, Carson City, Lake Tahoe and the
transportation corridor west along I-80 to Auburn, California. During this
period we did not generate any revenues and, as a result, have incurred
operating losses since inception. During this period, total cumulative
expenses of approximately $2.0 million were incurred. These expenses related
to non-cash compensation for general and administrative matters, salaries and
benefits, professional fees and interest expense. The operating results
during this period are not indicative of the anticipated results of
operations which we expect to achieve, following commencement of commercial
operations, as a Sprint PCS affiliate.
Non-cash compensation for general and administrative matters totaled
approximately $1.4 million 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 fair market value of the
common stock issued on November 1, 1999.
SPOKANE DISTRICT
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net service revenues increased by $0.5 million or 48.2% to $1.4
million in first quarter 2000 compared to first quarter 1999. Net service
revenues primarily consisted of subscriber revenue from monthly service
charges. The increase is primarily attributable to an increased number of
subscribers.
Net equipment revenues decreased by approximately $20,000 or 11.8%
to $161,000 in first quarter 2000 compared to first quarter 1999. Net
equipment revenues primarily consisted of sales of handset and accessory
equipment. The decrease is primarily due to lower retail sales prices for
handsets partially offset by increased subscriber additions.
Costs of services increased by $0.1 million or 57.4% in first
quarter 2000 compared to first quarter 1999. As a percentage of net service
revenues, these costs represented approximately 29% of revenues in first
quarter 2000 compared to approximately 27% of revenues in 1999. Costs of
services as a percentage of net service revenues have remained relatively
steady.
Cost of equipment decreased by $0.1 million or 23.8% to $0.4 million
in first quarter 2000 compared to first quarter 1999. As a percentage of net
equipment revenues, these costs represented approximately 232% of revenues in
first quarter 2000 compared to approximately 268% of revenues in 1999. As
part of Sprint Spectrum L.P.'s marketing plan, handsets are normally sold at
prices below Sprint Spectrum L.P.'s cost. The decrease in cost of equipment
as a percentage of net equipment revenues is primarily attributable to
decreases in handset costs somewhat offset by lower handset sales prices.
Selling, general and administrative expenses increased by $0.2
million or 21.7% to $1.2 million in first quarter 2000 compared to first
quarter 1999. As a percentage of revenues, these expenses represented
approximately 77% of revenues in first quarter 2000 compared to approximately
88% in 1999. The increase is primarily attributable to increased activity
offset somewhat by increased efficiencies.
Depreciation expense increased by $0.1 million or 12.5% to $0.9
million in first quarter 2000 compared to first quarter 1999. This increase
is primarily attributable to an increase in the asset base.
Expenses in excess of net revenues decreased by approximately
$86,000 or 6.0% to $1.4 million in first quarter 2000 compared to first
quarter 1999. This decrease is a result of increased costs and expenses more
than offset by increased revenue.
Management notes the 2000 operations reflect the operation of the
Spokane District by Sprint PCS. Historical results are not necessarily
indicative of future operations that we will manage.
36
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998
Net service revenues increased by $2.2 million or 83.8% to $4.8 million
in 1999 compared to 1998. Net service revenues primarily consisted of subscriber
revenue from monthly service charges. The increase is primarily attributable to
an increased number of subscribers.
Net equipment revenues increased by approximately $0.2 million or 25.0%
to $0.9 million in 1999 compared to 1998. Net equipment revenues primarily
consisted of sales of handsets and accessory equipment. The increase is
primarily attributable to increased subscriber additions partially offset by
lower retail sales prices for handsets.
Costs of services increased by $0.6 million or 36.2% to $2.3 million in
1999 compared to 1998. As a percentage of net service revenues, these costs
represented approximately 49% of revenues in 1999 compared to approximately 67%
of revenues in 1998. The increase in costs is primarily attributable to the
increase in revenues somewhat offset by increased efficiencies.
Cost of equipment increased by $0.5 million or 20.1% to $2.7 million in
1999 compared to 1998. As a percentage of net equipment revenues, these costs
represented approximately 312% of revenues in 1999 compared to approximately
325% of revenues in 1998. As part of Sprint Spectrum L.P.'s marketing plan,
handsets are normally sold at prices below Sprint Spectrum L.P.'s cost. The
decrease in cost of equipment as a percentage of net equipment revenues is
primarily attributable to decreases in handset costs somewhat offset by lower
retail sales prices.
Selling, general and administrative expenses increased by $0.9 million
or 21.2% to $5.4 million in 1999 compared to 1998. As a percentage of revenues,
these expenses represented approximately 96% of revenues in 1999 compared to
approximately 136% in 1998. The increase is primarily attributable to increased
activity offset somewhat by increased efficiencies.
Depreciation expense increased by $0.4 million or 11.5% to $3.5 million
in 1999 compared to 1998. This increase is primarily attributable to an increase
in the asset base.
Expenses in excess of net revenues increased by approximately $40
thousand or 0.5% to $8.3 million in 1999 compared to 1998. This increase is a
result of increased costs and expenses offset by increased revenues.
Management notes the 1999 operations reflect the operation of the
Spokane District by Sprint PCS. Historical results are not necessarily
indicative of future operations that we will manage.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net service revenues increased by $1.9 million or 281.1% to $2.6
million in 1998 compared to 1997. Net service revenues primarily consisted of
subscriber revenue from monthly service charges. The increase is primarily
attributable to an increased number of subscribers.
Net equipment revenues increased by approximately $0.1 million or 21.9%
to $0.7 million in 1998 compared to 1997. Net equipment revenues primarily
consisted of sales of handsets and accessory equipment. The increase is
primarily attributable to increased subscriber additions partially offset by
lower retail sales prices for handsets.
Costs of services increased by $0.4 million or 25.7% to $1.7 million in
1998 compared to 1997. As a percentage of net service revenues, these costs
represented approximately 67% of revenues in 1998 compared to approximately 202%
of revenues in 1997. The increase in costs is primarily attributable to the
increase in revenues somewhat offset by increased efficiencies.
Cost of equipment increased by $0.7 million or 46.7% to $1.5 million in
1998 compared to 1997. As a percentage of net equipment revenues, these costs
represented approximately 325% of revenues in 1998 compared to approximately
270% of revenues in 1997. As part of Sprint Spectrum L.P.'s marketing plan,
handsets are
37
<PAGE>
normally sold at prices below Sprint Spectrum L.P.'s cost. The increase in cost
of equipment as a percentage of net equipment revenues is primarily attributable
to lower retail sales prices of handsets in 1998.
Selling, general and administrative expenses decreased by $3.7 million
or 45.3% to $4.5 million in 1998 compared to 1997. As a percentage of revenues,
these expenses represented approximately 136% of revenues in 1998 compared to
approximately 655% in 1997. The decrease is primarily attributable to the end of
start-up activities offset somewhat by increased revenue generating activity.
Depreciation expense increased by $0.1 million or 4.8% to $3.1 million
in 1998 compared to 1997. This increase is primarily attributable to an increase
in the asset base.
Expenses in excess of net revenues decreased by $4.5 million or 35.3%
to $8.3 million in 1998 compared to 1997. This decrease is a result of increased
revenues and decreased selling, general and administrative expenses somewhat
offset by increased costs of services and equipment.
Management notes the 1998 operations reflect the operation of the
Spokane District by Sprint PCS. Historical results are not necessarily
indicative of future operations that we will manage.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our activities have consisted principally of raising
capital, consummating and supporting our agreements with Sprint PCS, developing
the initial design of our PCS network and adding to our management team. We have
relied on the proceeds from equity and debt financing, rather than revenues, as
our primary sources of capital. Specifically, operations during this development
phase have been funded through equity infusions of $42.0 million in the form of
preferred stock, the incurrence of subordinated indebtedness of $8.0 million as
well as availability under our prior $25.0 million credit facility, which has
been replaced by our $250.0 million senior credit facility. See "Description of
Certain Indebtedness."
Completion of our PCS network will require substantial capital. Our
build-out plan includes the installation of three switches and over 500 radio
communications sites by the end of 2001. In addition, we will develop
approximately 20 company-owned Sprint PCS stores and associated
administrative systems within the same time period. We have commenced limited
operations in one of our markets, which together with the Spokane, Washington
market, cover approximately 500,000 residents. We expect to cover
approximately 55% of the resident population in our markets by the end of
2001 and expect to cover approximately 63% upon the completion of our
build-out. We anticipate that the net proceeds of our recent initial public
offering of common stock, when combined with the proceeds from our sale of
preferred stock and senior subordinated discount notes and the availability
of borrowings under our $250.0 million senior credit facility, will be
adequate to fund our anticipated network build-out plan, anticipated capital
expenditures, working capital requirements, operating losses and other cash
needs through anticipated break-even cash flow from operations in 2003. The
actual funds required to build-out our PCS network and fund operating losses
and working capital needs may vary materially from these estimates, and
additional funds could be required in the event of unforeseen delays, cost
overruns, unanticipated expenses, engineering design changes and other
technological risks. If we expand more rapidly than currently anticipated, or
if our working capital needs exceed our current expectations, we will need to
raise additional capital from equity or debt sources. We cannot be sure that
we will be able to obtain the additional financing to satisfy our cash
requirements or to implement our growth strategy on acceptable terms or at
all. If we cannot obtain such financing on terms acceptable to us, we may be
forced to curtail our planned business expansion and may be unable to fund
our ongoing operations.
Net cash used by operating activities was approximately $2.2 million
for the three months ended March 31, 2000 and an aggregate of $2.4 million
from inception to March 31, 2000. Cash used in operating activities for the
period was attributable to operating losses and working capital needs. Net
cash used in investing activities was approximately $5.4 million during the
three months ended March 31, 2000. The expenditures were related primarily to
the purchase of equipment needed to begin construction on our portion of the
Sprint PCS Network. Net cash provided by financing activities was
approximately $17.4 million, consisting primarily of the preferred stock
issued during the period.
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<PAGE>
On March 31, 2000, we signed a new senior secured credit agreement
with Paribas. The new senior credit facility consists of a revolving loan of
up to $55.0 million, a term loan A of $120.0 million and a term loan B of
$75.0 million. Until the earlier to occur of the syndication of the senior
credit facility, or August 2000, Paribas may re-allocate the amounts among
the revolving loan, term loan A and term loan B at their discretion.
Concurrently with the closing of the outstanding notes, we borrowed $75.0
million of term loans, which were funded into an escrow account. The escrow
account will remain the property of our lenders and will not be released to
us if an event of default has occurred under the credit agreement.
Additionally, the escrow account will not be released to us until specified
conditions have been satisfied. These conditions include, among others,
evidence that we have used all of the proceeds from our sale of senior
subordinated discount notes and from our recent initial public offering of
common stock to pay fees and expenses in connection with those offerings, to
fund the build-out of our network or for other general corporate and working
capital purposes. Additional borrowings under our senior credit facility must
be placed into escrow until the conditions to release our initial borrowing
of $75.0 million have been satisfied. Our senior credit facility contains
financial and other covenants customary for the wireless industry, and is
secured by a first priority lien on our assets and a pledge by us of our
capital stock in UbiquiTel Operating Company. Scheduled amortization payments
of principal for the term loans under the senior credit facility begin on
June 30, 2004.
On April 11, 2000, we issued 300,000 units consisting of the senior
subordinated discount notes and unit warrants to purchase 3,579,000 shares of
our common stock. The senior subordinated discount notes mature on April 15,
2010 and are limited to an aggregate principal amount at maturity of $300.0
million. The senior subordinated discount notes generated gross proceeds to
us of $152.3 million. The senior subordinated discount notes are general,
unsecured obligations subordinated in right of payment to all senior debt,
including obligations under our senior secured credit facility. The senior
subordinated discount notes accrue interest at a rate of 14.0% per annum,
computed on a semi-annual basis, calculated from April 11, 2000. The senior
subordinated discount notes will not bear interest payable in cash prior to
April 15, 2005, and will bear interest payable semi-annually in cash on each
of April and October 15, beginning October 15, 2005.
On June 12, 2000, we completed our initial public offering of
12,500,000 shares of our common stock. We received gross proceeds of $100.0
million from the initial public offering.
The indenture that governs the senior subordinated discount notes
and the credit agreement that governs our senior credit facility 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, such as making investments, selling assets and
borrowing additional money. These restrictions could limit our ability to
obtain debt financing, refinance or pay principal or interest on outstanding
debt or make acquisitions for cash or debt. Also, we will have to dedicate a
substantial portion of our cash flow from operations to the payment of
interest on, and principal of, our debt, which will reduce funds available
for other purposes.
As part of our management agreement, Sprint PCS requires us to
build-out portions of our network by various dates including December 31,
2000, March 31, 2001, September 30, 2001 and June 1, 2005. See "The Sprint
PCS Agreements--The Management Agreement--Network build-out." We expect our
PCS network build-out will require approximately $239.0 million of capital
expenditures by the end of 2003. The table below identifies our planned
capital expenditures through 2003.
<TABLE>
<CAPTION>
ESTIMATED CAPITAL
EXPENDITURES
YEAR (IN MILLIONS)
---- -------------
<S> <C>
2000........................................... $120.0
2001........................................... 61.0
2002........................................... 25.0
2003........................................... 33.0
</TABLE>
On March 31, 2000, we had working capital of $29.5 million, calculated
by subtracting current liabilities of $6.3 million from current assets of $35.8
million.
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Currently, we have limited sources of revenue to meet our
anticipated capital requirements. We expect the primary sources of funding to
be the proceeds provided by our recent initial public offering of common
stock, our sale of the senior subordinated discount notes and borrowings
available under our $250.0 million senior credit facility.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our
financial instruments. These instruments arise from transactions entered into
in the normal course of business. We are currently subject to interest rate
risk on our existing credit facility. Our fixed rate debt will consist
primarily of the accreted balance of our senior subordinated discount notes.
Our variable rate debt will consist of borrowings made under our $250.0
million senior credit facility.
Our primary market risk exposure will relate to:
- the interest rate risk on long-term and short-term borrowings;
- our ability to refinance the senior subordinated discount notes
at maturity at market rates; and
- the impact of interest rate movements on our ability to meet
interest expense requirements and meet financial covenants.
We may decide, from time to time, to manage the interest rate risk on our
outstanding long-term and short-term debt through the use of fixed and
variable rate debt and interest rate swaps, but are not obligated to do so.
At December 31, 1999, as adjusted to give effect to our initial
public offering of common stock, our sale of preferred stock and senior
subordinated discount notes, our $250.0 million senior credit facility and
expected borrowings thereunder, and in each case the use of proceeds
therefrom, only the borrowings under our senior credit facility bear interest
at variable rates. Assuming $75.0 million of borrowings at variable rates and
assuming a two percentage point increase in the average interest rate under
these borrowings, it is estimated that our interest expense for the year
ended December 31, 1999, would have increased by approximately $1.5 million.
In the event of an adverse change in interest rates, management would likely
take actions that would mitigate our exposure to interest rate risk, through
interest rate swaps or otherwise; however, due to the uncertainty of the
actions that would be taken and their possible effects, this analysis assumes
no such action. Further, this analysis does not consider the effects of the
change in the level of overall economic activity that could exist in such an
environment.
INFLATION
Management believes that inflation has not had, and will not have, a
material adverse effect on our results of operations.
SEASONALITY
Our business is seasonal 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. The factors
contributing to this trend include the increasing use of retail distribution,
which is dependent on year-end holiday shopping, the timing of new product
and service offerings, competitive pricing pressures and aggressive marketing
and promotions during the holiday season.
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BUSINESS
OVERVIEW
We are the exclusive provider of Sprint PCS digital wireless
personal communications services to four midsize and smaller markets in the
western and midwestern United States. Through our management agreement with
Sprint PCS, we have the exclusive right to provide 100% digital, 100% PCS
products and services under the Sprint and Sprint PCS brand names in our
markets which include a total population of approximately 7.7 million
residents. We are among 18 companies, which we believe are unrelated to each
other and to Sprint PCS, that have entered into affiliation agreements with
Sprint PCS to provide Sprint PCS products and services throughout the United
States. Sprint PCS, together with its affiliates including us, operates the
largest all-digital, all-PCS nationwide wireless network in the United States
based on covered population, already covering more than 190 million residents
in more than 330 metropolitan markets. Sprint PCS has PCS licenses to cover
more than 270 million people across all 50 states, Puerto Rico and the U.S.
Virgin Islands. However, Sprint PCS does not currently offer PCS services in
every state in the United States.
We believe that our strategic relationship with Sprint PCS provides
us with a significant competitive advantage because of its strong brand name
recognition, quality products and services, established distribution
channels, long-standing equipment vendor relationships and all digital
nationwide coverage. We further believe that our relationship with Sprint PCS
will allow us to establish high quality, branded wireless services more
quickly, at a lower cost and with lower initial capital requirements than
would otherwise be possible.
We have commenced limited operations in one of our markets, which
together with our recent acquisition of the Spokane, Washington market from
Sprint PCS, cover approximately 500,000 residents. We currently have
approximately 9,000 subscribers. We expect to cover approximately 55% of the
resident population in our markets by the end of 2001 and expect to cover
approximately 63% upon completion of our build-out. We anticipate that the
net proceeds of our recent initial public offering, when combined with the
proceeds from the sale of our preferred stock and senior subordinated
discount notes and the availability of borrowings under our senior credit
facility, will be adequate to fund our anticipated network build-out plan,
capital expenditures, working capital requirements, operating losses and
other cash needs through anticipated break-even cash flow from operations in
2003.
We have assembled an experienced management team to execute our
network build-out and business strategy. Our senior management team has an
average of over ten years of experience in the wireless communications
industry with companies such as Comcast Cellular Communications, PacTel
Cellular and Frontier Cellular Communications. Donald A. Harris, our Chairman
of the Board, President and Chief Executive Officer, previously was president
of Comcast Cellular Communications and managed much of its network build-out
in Pennsylvania, New Jersey and Delaware with a covered population of over 8
million residents.
In October 1998, UbiquiTel L.L.C., whose sole member was The Walter
Group, entered into an agreement with Sprint PCS for the exclusive rights to
market Sprint's 100% digital, 100% PCS products and services to the residents
in the Reno/Tahoe Nevada market. The Walter Group is an international
wireless telecommunications consulting and service company based in Seattle,
Washington. UbiquiTel L.L.C. had no financial transactions from its inception
on August 24, 1998 to September 29, 1999. On September 29, 1999, UbiquiTel
Inc. was incorporated. In November 1999, UbiquiTel L.L.C. assigned all of its
material contracts including the rights to the Sprint PCS agreements to
UbiquiTel Inc., which were then subsequently assigned to UbiquiTel Operating
Company, which was formed in November 1999. On December 28, 1999, UbiquiTel
Inc. amended its agreement with Sprint PCS to expand our markets to include
Northern California, Spokane/Montana, Southern Idaho/Utah/Nevada and Southern
Indiana/Kentucky which together with Reno/Tahoe contain approximately 7.7
million residents.
The description of our business and other descriptions in this
prospectus contain product names, trade names and trademarks of other
companies.
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WIRELESS INDUSTRY GROWTH
Since the introduction of commercial cellular service in 1983, the
wireless communications industry has experienced dramatic growth. The number
of wireless subscribers for cellular, wireless personal communications
services and enhanced specialized mobile radio service has increased from an
estimated 340,213 at the end of 1985 to an estimated 86.0 million as of
December 31, 1999, according to the Cellular Telecommunications Industry
Association, an international association for the wireless industry. The
following chart sets forth statistics for the domestic wireless telephone
industry as a whole, as published by the Cellular Telecommunications Industry
Association.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
WIRELESS INDUSTRY STATISTICS(1)
Total service revenues (in billions)........ $14.2 $19.1 $23.6 $27.5 $33.1 $40.0
Wireless subscribers at end of period
(in millions)............................... 24.1 33.8 44.0 55.3 69.2 86.0
Subscriber growth........................... 50.8% 40.0% 30.4% 25.6% 25.1% 24.3%
Average local monthly bill(2)............... $56.21 $51.00 $47.70 $42.78 $39.43 $41.24
</TABLE>
-----------
(1) Reflects domestic commercial cellular, enhanced specialized mobile radio
service and wireless personal communications services providers.
(2) Does not include revenue from roaming and long distance.
Paul Kagan Associates, Inc., an independent media and
telecommunications research firm, estimates in its publication, Kagan's
Wireless Industry Projections-January 14, 2000, that the number of domestic
wireless users will increase to approximately 107 million by the end of 2000
and 202 million by the end of 2005. This growth is expected to be driven
largely by a substantial projected increase in wireless personal
communications services users, who are forecast to account for approximately
21% of total wireless users in 2000 and 41% in 2005, representing a
significant increase from approximately 10% as of the end of 1998. Paul Kagan
Associates projects that total wireless industry penetration, defined as the
number of wireless subscribers nationwide divided by total United States
population, will grow from an estimated 38% in 2000 to 69% in 2005. The
foregoing market statistics may not reflect the future growth rates of the
wireless communications industry generally nor our growth rate specifically.
We believe that a significant portion of the predicted growth in the
consumer market for wireless telecommunications will result from:
- anticipated declines in costs of service;
- increased service and pricing versatility; and
- increased awareness of the productivity, convenience and privacy
benefits associated with the services offered by wireless
personal communications services providers.
We also believe that the rapid growth in the use of laptop computers
and personal digital assistants, combined with emerging software applications
for delivery of electronic mail, fax and database searching, will contribute
to the growing demand for wireless services.
SPRINT PCS
Sprint is a diversified telecommunications service provider whose
principal activities include long distance service, local service, wireless
telecommunications products and services, product distribution and directory
publishing activities, and other telecommunications activities, investments
and alliances. Sprint PCS, a wholly-owned subsidiary of Sprint, operates the
only 100% digital, 100% PCS wireless network in the United States with
42
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licenses to provide service nationwide using a single frequency and a single
technology. The Sprint PCS network uses code division multiple access or CDMA
technology nationwide.
Sprint launched the first commercial PCS service in the United
States in November 1995. Since then, Sprint PCS has experienced rapid
subscriber growth, providing service to more than 5.7 million customers as of
December 31, 1999. In the fourth quarter of 1999, Sprint PCS added more than
one million new subscribers, representing the largest single quarter of
customer growth ever recorded by a wireless provider in the United States.
During 1999, Sprint PCS added more than 3.1 million new subscribers. Sprint
PCS, together with its affiliates, operates the largest all-digital, all-PCS
nationwide wireless network in the United States, already serving more than
330 metropolitan markets including more than 4,000 cities and communities
across the country. Sprint PCS has licensed PCS coverage of more than 270
million people in all 50 states, Puerto Rico and the U.S. Virgin Islands.
However, Sprint PCS does not currently offer PCS services in every state in
the United States. The graph below illustrates Sprint PCS' subscriber growth
from the beginning of 1997 through the end of 1999. These statistics may not
reflect Sprint PCS' future subscriber growth nor our subscriber growth.
SPRINT PCS HISTORICAL SUBSCRIBERS
(in thousands)
[GRAPH]
Sprint PCS currently provides nationwide service through:
- operation of its own digital network;
- strategic affiliations with other companies, such as us,
primarily in and around smaller metropolitan areas;
- roaming on analog cellular networks of other providers using
dual-band/dual-mode handsets; and
- roaming on digital PCS networks of other CDMA-based providers.
Sprint PCS has adopted a strategy to rapidly extend its 100%
digital, 100% PCS network by entering into agreements with independent
wireless companies, such as UbiquiTel, to construct and manage Sprint PCS
markets and market Sprint PCS services. Through these affiliations, Sprint
PCS services will be available in key cities contiguous to current and future
Sprint PCS markets. Sprint PCS' affiliates are an integral part of its plan
to provide nationwide seamless coverage.
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OUR MARKETS
Our network will cover portions of California, Nevada, Washington,
Idaho, Montana, Wyoming, Utah, Oregon, Arizona, Indiana, Kentucky, Illinois
and Tennessee for a combined population of approximately 7.7 million
residents. These markets are attractive for the following reasons:
- FEWER COMPETITORS/UNTAPPED MARKET PENETRATION. Because the
national wireless providers have focused on the largest
metropolitan markets, we believe that our markets have lower
wireless penetration rates as compared to the national average of
32% as of year end 1999. As of December 31, 1999, three or fewer
wireless service providers, other than us, operated in areas that
comprise over 75% of the residents in our markets. By comparison,
less than 10% of the resident population in the 50 most populated
markets in the United States are served by four or fewer wireless
service providers. We further believe that offering a high
quality, all digital nationwide product in our markets will allow
us to achieve greater market penetration with less pricing
competition than in larger markets. However, we can provide no
assurance that other national wireless providers will not choose
to focus on our markets in the future.
- CONTIGUOUS TO MAJOR EXISTING SPRINT PCS MARKETS. Our markets are
contiguous to major Sprint PCS markets with a combined license
population of over 22 million. Some of the major contiguous
markets include San Francisco and Sacramento, California; Seattle
and Tacoma, Washington; Salt Lake City and Provo, Utah; Las
Vegas, Nevada; Indianapolis, Indiana; St. Louis, Missouri;
Nashville, Tennessee; Louisville, Kentucky; and Cincinnati and
Dayton, Ohio. We believe that having a large established base of
Sprint PCS customers in close proximity to our markets will
facilitate brand awareness, create an extended seamless coverage
area and generate Sprint PCS travel revenue as existing Sprint
PCS customers travel into our markets.
- IMPORTANT TRANSPORTATION CORRIDORS. Our markets include the most
important and, in some cases, the only transportation corridors
that link the population centers within a particular market. Our
network will cover over 2,200 highway miles, including major
interstates such as I-80 and I-90. Over 45 million vehicle miles
are traveled daily on the major highway miles we expect to cover
in our markets. We anticipate that our coverage of important
transportation corridors will further increase our travel and
roaming revenue. However, the lower population densities along
these corridors results in a higher build-out cost per resident
than other areas of our markets.
- POPULAR VACATION AND TOURIST DESTINATIONS. Our markets contain
popular vacation and tourist destinations, including various
national parks and ski resorts such as Yellowstone National Park
and Glacier National Park, and Lake Tahoe and Sun Valley resorts
with over 20 million visitors per year. As a result, we
anticipate that we will receive significant Sprint PCS travel and
roaming revenue from tourists.
- FAVORABLE DEMOGRAPHICS. Our markets have attractive demographic
characteristics for wireless services, including an overall
average population growth rate that is over 60% higher than the
national average. In addition, there are at least 20 colleges and
universities located within our markets, including 12 schools
with student populations greater than 10,000 each such as Utah
State University (Logan), Indiana University (Bloomington) and
the University of Nevada.
RENO/TAHOE/NORTHERN CALIFORNIA
This market has a resident population of approximately 1.7 million.
Limited commercial service was launched in areas directly adjacent to
Sacramento in February 2000, and we expect to launch Reno/Lake Tahoe by the
third quarter of 2000. We expect to complete the majority of the network
build-out of this market by the end of 2001 at which time we will cover
approximately 72% of the resident population in our license area.
Distinguishing characteristics with respect to this market include:
- Contiguous to major Sprint PCS markets including:
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- Sacramento, San Francisco, the San Francisco Bay Area,
California;
- Stockton, Fresno, and Central, California;
- Portland, Eugene and Salem, Oregon; and
- Planned coverage in Medford and Klamath Falls, Oregon.
- Licensed area includes over 750 (300 under expected coverage)
highway miles along important corridors such as I-5 and I-80.
- Over 13.3 million vehicle miles are traveled daily on the major
highways within our expected coverage area.
- Over 6.0 million tourists visit the Reno/Lake Tahoe area
annually.
- Largest concentration of ski areas in North America (15 alpine
and 13 cross-country ski areas), including Heavenly Valley and
Squaw Valley.
- Several Lake Tahoe casino, recreation and resort destinations.
- Two major universities in the coverage area with a combined
student population of over 25,000 including:
- University of Nevada, Reno (12,000 students); and
- California State University, Chico (13,470 students).
SPOKANE/MONTANA
This market includes a total resident population of approximately
1.8 million residents. In April 2000, we completed our acquisition of the
Spokane market from Sprint PCS for $35.0 million. This market is operational
in the greater Spokane, Washington and Coeur d'Alene, Idaho metropolitan
areas. We are implementing plans to rapidly expand the Spokane coverage area
to include the important communities of Pullman, Washington, Moscow and
Lewiston, Idaho and the I-90 corridor west towards Seattle by the first
quarter of 2001. We will complete our network build-out requirements by
selectively expanding our coverage to include markets in Montana and Wyoming.
At the completion of our build-out in this market, we expect to cover
approximately 65% of the resident population in our licensed area.
Distinguishing characteristics with respect to this market include:
- Contiguous to major Sprint PCS markets including:
- Seattle, Tacoma and Olympia, Washington;
- Portland, Oregon; and
- Planned coverage in the eastern Washington cities of Yakima,
Tri-Cities (Kennewick, Pasco and Richland) and Walla Walla.
- Licensed area includes over 1,400 (350 under expected coverage)
highway miles along important corridors such as I-90 and I-15.
- Over 6.1 million vehicle miles are traveled daily on the major
highways within our expected coverage area.
- Approximately 5.9 million tourists visit the national parks and
resorts in this market.
- Popular ski and summer resort areas include Big Sky, Big Mountain
and Schweitzer.
- Home to the National Parks of Yellowstone and Glacier.
- Four major universities in the coverage area with a combined
student population of over 52,000 including:
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- University of Montana, Missoula (12,200 students);
- Montana State, Bozeman (11,750 students);
- Washington State University, Pullman (16,700 students); and
- University of Idaho, Moscow (12,000 students).
SOUTHERN IDAHO/UTAH/NEVADA
This market includes a total resident population of approximately
1.5 million residents. We expect to launch commercial services in the Logan
and Brigham City, Utah market by the first quarter of 2001 and in the Boise,
Idaho and St. George, Utah market by the second quarter of 2001. We expect to
complete the majority of the build-out of this market by the end of 2001.
Upon completion of our build-out in this market, we expect to cover
approximately 72% of the resident population in our licensed area.
Distinguishing characteristics with respect to this market include:
- Contiguous to major Sprint PCS markets including:
- Salt Lake City, Ogden and Provo, Utah; and
- Las Vegas, Nevada.
- Licensed area includes over 1,070 (790 under expected coverage)
highway miles along important corridors such as I-15 and I-84.
- Approximately 14.0 million vehicle miles are traveled daily on
the major highways within our expected coverage area.
- Approximately 8.5 million tourists visit the national parks and
resorts in this market.
- Home to national parks such as Zion, Bryce and Grand Teton.
- Popular ski areas include Sun Valley, Jackson Hole and Snowbasin
(2002 Winter Olympics site).
- Rapidly growing metropolitan area of Boise, home to many high
tech employers such as Micron and Hewlett Packard.
- Three major universities in the coverage area with a combined
student population of over 42,000 including:
- Utah State University, Logan (14,400 students);
- Idaho State University, Pocatello (12,700 students); and
- Boise State University, Boise (15,400 students).
SOUTHERN INDIANA/KENTUCKY
This market includes a total resident population of approximately
2.7 million residents. We expect to launch commercial services in the
Evansville, Terre Haute and Bloomington, Indiana markets by the second
quarter of 2001. Over the next two quarters, we expect to continue the
expansion of our coverage area along major highways and thoroughfares
throughout our license areas in southern Indiana and Kentucky. We expect to
complete the majority of the build-out of this market by the end of 2001.
Upon completion of our build-out in this market, we expect to cover
approximately 50% of the resident population in our licensed area.
Distinguishing characteristics with respect to this market include:
- Contiguous to major Sprint PCS markets including:
- Indianapolis, Indiana;
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- Dayton, Columbus and Cincinnati, Ohio;
- Louisville and Lexington, Kentucky;
- Nashville, Tennessee; and
- St. Louis, Missouri.
- Licensed area includes over 850 (840 under expected coverage)
highway miles along important corridors such as I-70, I-64, I-24,
I-65 and I-74 as well as state routes 150, 41, 50 and 60.
- Over 12.3 million vehicle miles are traveled daily on the major
highways within our expected coverage area.
- Strong industrial economy with major employers including General
Electric, General Motors, International Paper, Toyota Motor,
ALCOA, Whirlpool and AK Steel.
- Three major universities in the coverage area with a combined
student population of over 61,000 including:
- Indiana University, Bloomington (35,600 students);
- Indiana State University, Terre Haute (11,000 students); and
- Western Kentucky University (14,700 students).
BUSINESS STRATEGY
CAPITALIZE ON OUR AFFILIATION WITH SPRINT PCS
In all of our markets, we plan to capitalize upon the extensive
benefits of our Sprint PCS affiliation. This affiliation includes the
following benefits:
EXCLUSIVE PROVIDER OF SPRINT PCS PRODUCTS AND SERVICES. We are the
exclusive provider of Sprint PCS' 100% digital, 100% PCS products and
services in our markets and we will provide these products and services
exclusively under the Sprint and Sprint PCS brand names.
STRONG BRAND RECOGNITION AND NATIONAL ADVERTISING SUPPORT. We will
benefit from the strength and the reputation of the Sprint and Sprint PCS
brands. Sprint PCS' national advertising campaigns and developed marketing
programs will be provided to us at no additional cost under our agreements
with Sprint PCS. We will offer the same strategic pricing plans, promotional
campaigns and handset and accessory promotions that we believe have made
Sprint PCS the fastest growing wireless service provider in the United States.
ESTABLISHED DISTRIBUTION CHANNELS. We will have use of all the
national distribution channels used by Sprint, including over 350 retail
outlets in our markets. These channels include:
- exclusive PCS offering in RadioShack (over 150 outlets);
- other major national third-party retailers such as Circuit City,
OfficeMax and Kmart (over 200 outlets);
- Sprint PCS' national inbound telemarketing sales force;
- Sprint PCS' national accounts sales team; and
- Sprint PCS' electronic commerce sales platform.
NATIONWIDE COVERAGE. We plan to operate our PCS network seamlessly
with the Sprint PCS national network. This will provide customers in our
markets with immediate nationwide traveling coverage using the Sprint PCS
network and other wireless networks with which Sprint PCS has roaming
agreements. Sprint PCS, together with its affiliates, operates the largest
all-digital, all-PCS nationwide wireless network in the United States,
already
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serving more than 190 million residents in more than 330 metropolitan
markets. Sprint PCS has PCS licenses to serve more than 270 million people
across all 50 states, Puerto Rico and the U.S. Virgin Islands. However,
Sprint PCS does not currently offer PCS services in every state in the United
States.
COST-EFFECTIVE SUPPORT SERVICES FROM SPRINT PCS. Our affiliation
with Sprint PCS provides us with the option to use Sprint PCS' established
support services, including customer activation, billing and customer care.
Using this option, we can accelerate the launch of our commercial PCS
operations and reduce our capital expenditures and operating costs compared
to establishing and operating our own systems. Sprint PCS has indicated it
intends to provide these services to us at its internal costs which reflect
Sprint PCS' economies of scale. We may elect to develop our own internal
capabilities to handle these functions or outsource them to a third party if
doing so proves to be more cost effective.
APPROVED SPRINT PCS NETWORK DESIGN. We will leverage Sprint PCS'
extensive experience with designing and implementing a digital PCS network
build-out. Sprint PCS sets our network standards, reviews our network
build-out plans, and certifies our systems before we commence operations. As
a result, the risk of a poor network design is dramatically reduced.
PURCHASING ECONOMIES OF SCALE OF A NATIONWIDE NETWORK. We will
purchase our network and subscriber equipment under Sprint PCS' vendor
contracts that provide for volume discounts. Sprint PCS' purchasing power
also influences new technology development by its vendors and provides Sprint
PCS and its affiliates, like us, with preferential access to handsets and
other equipment.
SPRINT PCS LICENSES AND LONG-TERM COMMITMENT. Sprint PCS has funded
the purchase of the licenses covering our markets at a cost of approximately
$90 million and will incur additional expenses for microwave clearing. As a
Sprint PCS affiliate, we did not have to fund the acquisition of the licenses
thereby reducing our start-up costs. Moreover, our affiliation with Sprint
PCS is for a 50-year term, including an initial 20-year term with three
10-year automatic renewal periods unless either party provides two years'
prior notice to the other party of its intent to terminate the agreement.
EXECUTE OPTIMAL NETWORK BUILD-OUT PLAN
We utilize a rigorous financial model to analyze every aspect of our
100% digital, 100% PCS network build-out. Accordingly, we have targeted the
more densely populated areas within our markets for network build-out as well
as areas expected to generate significant Sprint PCS travel and other roaming
revenue such as the major transportation corridors and tourist destinations.
Through our strategic relationships, we are constructing a
state-of-the-art, high quality, all digital PCS network which includes a high
density of radio communications sites. We believe that our high quality
network will allow our system to handle more customers with fewer dropped
calls and better clarity than our competitors. By leasing radio
communications sites on facilities shared with one or more other wireless
providers, we expect to rapidly deploy a cost effective PCS network. We
estimate that over 75% of our sites will be located on shared facilities.
UTILIZE OTHER STRATEGIC THIRD PARTY RELATIONSHIPS IN NETWORK
BUILD-OUT
We have entered into other strategic relationships with various
third parties to benefit from their specialized expertise and economies of
scale in order to build-out our portion of the Sprint PCS Network more
quickly and with lower initial capital and staffing requirements than would
otherwise be possible. Specifically, we have relationships with:
- LUCENT TECHNOLOGIES. Lucent Technologies is an international
equipment supplier in the development and deployment of code
division multiple access networks. We have selected Lucent
Technologies as our equipment vendor in the Reno/Tahoe/Northern
California market. We have also engaged Lucent to perform overall
program management for network development in all of our markets.
As program manager, Lucent is responsible for the coordination,
scheduling, tracking and controlling of the
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network build-out, including oversight of radio communications
site network design, site acquisition, construction, radio
communications site equipment installation, integration and
optimization. The term of the agreement with Lucent is
approximately 24 months. During these 24 months, or such shorter
or longer period needed to complete the build-out, we will pay
Lucent a monthly fee for each of the two program managers
assigned to us.
- LCC INTERNATIONAL. LCC International is an engineering and site
development firm specializing in the use of radio frequency
design techniques and software tools in the deployment of
cellular and PCS networks worldwide. We have engaged LCC
International to provide radio base station network design and
optimization, site acquisition including leasing, zoning,
permitting and regulatory compliance, fixed network design
service and switch design and operation services in each of our
markets. The term of our agreement with LCC International is
initially five years through September 2004 and is automatically
renewable for one additional five year term, followed by
additional and successive terms of one year, unless terminated by
either us or LCC International upon providing the other party
written notice at least 90 days in advance of the conclusion of
the initial or any renewal term. Either party may terminate the
agreement in the event of a material breach of the agreement by
the other party if the breaching party has not cured the breach
within 30 days of receiving written notice. We pay LCC
International fixed fees.
- SPECTRASITE COMMUNICATIONS. SpectraSite Communications is a
telecommunications site development and management firm. The
company designs, builds, owns, operates and maintains towers for
sending and receiving microwave, cellular, PCS, paging and
specialized mobile radio technologies for broadcast, telephone,
communications and utility companies in the United States and
Canada. We recently entered into a new master site agreement with
SpectraSite Communications for its existing towers as well as
towers that it may construct for us on build-to-suit sites that
we identify from time to time under a master design and build
agreement between us. Under the master design and build
agreement, SpectraSite Communications has the right of first
refusal to construct and acquire build-to-suit sites and we are
entitled to engage SpectraSite Communications to handle any
construction necessary to install our network equipment on shared
facilities that we license or sublicense from SpectraSite
Communications or any third party. The master design and build
agreement has a term of five years unless services have been
performed in markets totaling a covered population of ten
million. Under the master site agreement, we intend to license
space on build-to-suit sites or sublicense space on SpectraSite
Communications' existing towers to house our network equipment.
Each time we license or sublicense tower space from SpectraSite
Communications, we will enter into a separate site agreement,
which will have an initial term of ten years for build-to-suit
sites and five years for non-build-to-suit sites. The initial
term for each site agreement will be automatically renewable for
three additional five year terms unless SpectraSite
Communications no longer has rights to the tower space or we
provide written notice to SpectraSite Communications of our
intention not to renew within 90 days of the expiration of the
then current term of the site agreement. We will be able to
terminate a site agreement during its initial term if we pay
SpectraSite Communications liquidated damages equal to the rent
due for the remainder of the initial term for non-build-to-suit
sites or the lesser of rent due for the balance of the initial
term or the total construction costs for build-to-suit sites. We
will pay SpectraSite fixed monthly rent during the initial five
year term of each master site agreement in annual installments
beginning at the inception of each agreement. During any renewal
term, our base rent shall increase each year on the anniversary
date of the renewal term by an amount equal to 3% of the base
rent payable for the immediately preceding year. SpectraSite
Communications has preferential access to more than 2,400
existing towers throughout the United States. We will evaluate
the available inventory for possible shared facilities sites for
our network equipment.
IMPLEMENT EFFECTIVE OPERATING STRUCTURE WITH A FOCUS ON CUSTOMER
SERVICE
Our organization and management structure is based on a
decentralized, local market-focused model. We will rely on Sprint PCS to
provide the majority of our support services, including customer activation,
billing and customer care, while focusing our resources on the management of
each market rather than the development of
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these ancillary services. We will place experienced management teams at the
local level with the authority to tailor operations and sales and marketing
programs to each market.
We place particular emphasis on customer service to ensure high
customer satisfaction. Our local sales force will actively seek feedback from
existing customers from the day of activation through the life of that
customer in order to respond effectively and expeditiously to that customer's
needs. The Sprint PCS customer care platform located in each of our retail
stores will enable our sales and customer care representatives to provide an
additional level of customer service by rapidly diagnosing and resolving any
problems a customer may experience with their equipment or service. By
providing extensive and frequent interaction with our customers we expect to
reduce customer turnover and overall customer acquisition costs. Our local
sales and customer service associates will be measured and compensated by
their ability to provide superior customer service.
FOCUS ON MIDSIZE AND SMALLER MARKETS
We believe that midsize and smaller markets receive a lower level of
attention from the major wireless providers as they focus on the larger
markets. As of December 31, 1999, three or fewer wireless service providers,
other than us, operated in areas that comprise over 75% of the residents in
our markets. By comparison, less than 10% of the resident population in the
50 most populated markets in the United States are served by four or fewer
wireless service providers. We believe that an opportunity exists for us to
provide a high quality, digital product to these markets with less
competition than frequently seen in the larger markets. We will capitalize on
this opportunity through our own internal build-out as well as through the
pursuit of future acquisitions or affiliations.
NETWORK BUILD-OUT
Pursuant to our management agreement with Sprint PCS, we have agreed
upon a minimum build-out plan which includes specific coverage and deployment
schedules for the network planned within our markets. We plan to meet or
exceed the minimum build-out requirements by focusing on achievable
objectives.
Our strategy is to provide service to the population centers in our
markets and the interstates and primary roads connecting these areas. We plan
to initiate service only in areas that provide financial returns that meet
stringent internal requirements and where we are capable of providing
coverage which meets the needs of our target markets.
As described earlier, to achieve our build-out as rapidly and
efficiently as possible, we have entered into outsourcing or other
relationships with Lucent Technologies, LCC International and SpectraSite
Communications.
The following table lists the location, the basic trading areas,
commonly referred to as "BTAs", megahertz of spectrum, estimated total
residents and percent coverage for each of our markets under our Sprint PCS
management agreement. The estimated total residents does not represent
expected customers but rather our total potential customers within each
market. However, our network build-out plan focuses on providing service to
the residents in the most densely populated and strategic areas of our
markets which is represented by the estimated percent coverage.
We have commenced limited operations in the Reno/Tahoe/Northern
California market. Together with the Spokane market, we currently provide
service to over 9,000 subscribers.
<TABLE>
<CAPTION>
ESTIMATED
TOTAL ESTIMATED
MEGAHERTZ RESIDENTS PERCENT
LOCATION BTA NO.(1) OF SPECTRUM(2) (000'S)(3) COVERAGE(4)
-------------------------------------------- ----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
RENO/TAHOE/NORTHERN CALIFORNIA
Chico-Oroville, CA.................... 79 30 225
Eureka, CA............................ 134 30 148
Redding, CA........................... 371 30 284
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED
TOTAL ESTIMATED
MEGAHERTZ RESIDENTS PERCENT
LOCATION BTA NO.(1) OF SPECTRUM(2) (000'S)(3) COVERAGE(4)
-------------------------------------------- ----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Reno, NV.............................. 372 30 584
Sacramento, CA........................ 389* 30 313
Yuba City-Marysville, CA.............. 485* 30 142
----------- ------------------- ----------------- ---------------
Subtotal.............................. 1,696 72%
SPOKANE/MONTANA
Billings, MT.......................... 41 30 315
Bozeman, MT........................... 53 30 81
Butte, MT............................. 64 30 68
Great Falls, MT....................... 171 30 167
Helena, MT............................ 188 30 70
Kalispell, MT......................... 224 30 76
Lewiston-Moscow, ID................... 250 30 127
Missoula, MT.......................... 300 30 172
Spokane, WA........................... 425 30 754
----------- ------------------- ----------------- ---------------
Subtotal.............................. 1,830 65%
SOUTHERN IDAHO/UTAH/NEVADA
Boise-Nampa, ID....................... 50 30 562
Idaho Falls, ID....................... 202 30 218
Las Vegas, NV......................... 245* 30 22
Logan, UT............................. 258 30 104
Pocatello, ID......................... 353 30 106
Provo-Orem, UT........................ 365* 30 12
St. George, UT........................ 392 30 137
Salt Lake City-Ogden, UT.............. 399* 30 105
Twin Falls, ID........................ 451 30 164
----------- ------------------- ----------------- ---------------
Subtotal.............................. 1,430 72%
SOUTHERN INDIANA/KENTUCKY
Anderson, IN.......................... 15* 30 44
Bloomington-Bedford, IN............... 47 30 241
Bowling Green-Glasgow, KY............. 52 30 249
Cincinnati, OH........................ 81* 10 17
Clarksville, Hopkinsville, TN/KY...... 83 30 254
Columbus, IN.......................... 93 30 157
Evansville, IN........................ 135 30 518
Indianapolis, IN...................... 204* 30 86
Louisville, KY........................ 263* 30 252
Madisonville, KY...................... 273 30 47
Owensboro, KY......................... 338 30 165
Paducah-Murray-Mayfield, KY........... 339 30 234
Richmond, IN.......................... 373 30 105
Terre Haute, IN....................... 442* 30 246
Vincennes-Washington, IN.............. 457 30 96
----------- ------------------- ----------------- ---------------
Subtotal.............................. 2,711 50%
----------------- ---------------
TOTAL.................................. 7,667 63%
----------------- ---------------
</TABLE>
-----------
* Denotes partial portion of BTA.
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(1) A basic trading area, or BTA, is a collection of counties surrounding a
metropolitan area in which there is a commercial community of interest.
The BTA number indicated in the table is assigned to that market by the
Federal Communications Commission for the purpose of issuing licenses for
wireless services.
(2) Spectrum licensed to Sprint PCS or related parties of which we have
exclusive access.
(3) Estimated total residents is based on 1990 Census data for each BTA
within a given market extrapolated through the first quarter of 2000
based on estimated population growth rates. Estimated BTA residents may
not add-up due to rounding.
(4) Estimated percent coverage is the ratio of estimated covered residents
(based on our actual or projected network coverage in markets upon
completion of our network build-out) to estimated total residents for
each of our four markets.
More than 75% of our radio communications sites will be shared
facilities on existing structures, which will result in higher radio
communications site lease expenses. These higher lease expenses will be
offset in part by certain operating expense savings resulting from shared
facilities. Shared facilities will also substantially reduce our capital
expenditures and time to market.
Wireless providers that have offered poor or spotty coverage,
inferior voice quality, unresponsive customer care or confusing billing
formats suffer higher than average customer turnover rates. Accordingly, we
will only launch service after comprehensive and reliable coverage and
service can be maintained in a particular market. In addition, we will use
the Sprint PCS billing platform and rate plans which are designed to offer
simple and understandable options. Specifically, the Sprint PCS "Free and
Clear" calling plans offer bundled minute options that include local, long
distance and traveling on the entire Sprint PCS network.
PRODUCTS AND SERVICES
We will offer established products and services throughout our
markets 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 product offering
includes the following features:
100% DIGITAL WIRELESS NETWORK WITH NATIONWIDE SERVICE
We are part of the largest 100% digital wireless personal
communications services network in the country. Sprint PCS and its
affiliates, cover more than 190 million people in more than 330 metropolitan
areas across the country. Although Sprint PCS does not currently offer PCS
services in every state in the United States, this provides an extended
coverage area for our customers, allowing access to Sprint PCS services
throughout the Sprint PCS network. Dual-band/dual-mode handsets allow roaming
on wireless networks where Sprint PCS has roaming agreements.
SPRINT PCS WIRELESS WEB
We will 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 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 also 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.com, Amazon.com, FOXSports.com, GetThere.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" calling plans or a bundle of minutes for a set
price that can be used for either data or voice.
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ADVANCED HANDSETS
We will offer two types of handsets, a single band/single mode and a
dual-band/dual mode, with various advanced features and technology. Our 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. Our dual-band/dual-mode handsets allow
customers to make and receive calls on both PCS and cellular frequency bands
with the applicable digital or analog technology. These handsets allow
roaming on cellular networks where Sprint PCS digital service is not
available. All handsets are co-branded with the vendor and the Sprint and
Sprint PCS brand names and are equipped with preprogrammed features such as
caller ID, call waiting, phone books, speed dial and last number redial.
PRIVACY AND SECURITY
Sprint PCS provides voice transmissions encoded into a digital
format with a significantly lower risk of cloning and eavesdropping than on
other analog or digital based systems. Sprint PCS customers using
dual-band/dual-mode handsets in analog mode do not have the benefit of
digital security.
IMPROVED VOICE QUALITY
We believe the Sprint PCS code division multiple access technology
offers significantly improved voice quality, more powerful error correction,
less susceptibility to call fading and enhanced interference rejection, all
of which results in fewer dropped calls.
CUSTOMER SERVICE
Sprint PCS provides toll free customer care services to customers
based in our markets under our Sprint PCS services agreement. Sprint PCS
offers customer care 24 hours a day, seven days a week. All Sprint PCS
handsets are preprogrammed with a speed dial feature that allows customers to
easily reach customer care at any time. In addition to these services
provided through our agreement with Sprint PCS, we will also provide local
customer service at each of our retail stores.
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.
OTHER SERVICES
Sprint PCS' research and development lab is continuously working
with technology and equipment providers to develop new products and services.
We will work with Sprint PCS to develop and adopt complimentary service
offerings to introduce in our markets.
TRAVELING AND ROAMING
SPRINT PCS TRAVELING
Sprint PCS traveling includes both inbound Sprint PCS traveling,
when a Sprint PCS subscriber based outside of our markets uses our portion of
the Sprint PCS network, and outbound Sprint PCS traveling, when a Sprint PCS
subscriber based in our markets uses the Sprint PCS network outside of our
markets. Sprint PCS pays us a per minute fee for inbound Sprint PCS
traveling. Similarly, we pay a per minute fee to Sprint PCS for outbound
Sprint PCS traveling. Pursuant to our management agreement with Sprint PCS,
Sprint PCS has the discretion to change the per minute rate for Sprint PCS
traveling fees. Because we serve smaller markets adjacent to larger
metropolitan areas, we believe inbound Sprint PCS traveling will exceed
outbound Sprint PCS traveling. See "Risk Factors-Risks Particular to Our
Relationship with Sprint PCS-We may not receive as much Sprint PCS travel
revenue as we anticipate because Sprint PCS can change the rate we receive or
fewer people may travel on our network."
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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 markets 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 management agreement with Sprint
PCS, 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 markets, 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 markets.
MARKETING STRATEGY
Our marketing and sales strategy will use Sprint PCS' proven
strategies and developed national distribution channels that have helped
generate the highest incremental wireless penetration of any cellular or PCS
provider in the United States. In the fourth quarter of 1999, Sprint added
approximately one million net new subscribers, the largest single quarter of
customer growth ever reported by a wireless provider in the United States. In
1999, Sprint PCS added more than 3.1 million new wireless subscribers. These
statistics may not reflect Sprint PCS' future growth rate nor our growth
rate. We plan to enhance Sprint PCS' proven strategies with strategies
tailored to our specific markets.
BRAND EQUITY
We will feature exclusively and prominently the nationally
recognized Sprint and Sprint PCS brand names in our marketing effort. From
the customers' point of view, they will use our PCS network and the Sprint
PCS national network seamlessly as a unified national network.
PRICING
We will use the Sprint PCS pricing strategy to offer customers in
our markets simple, easy to understand service plans. Sprint PCS' consumer
pricing plans are typically structured with competitive monthly recurring
charges, large local calling areas, service features such as voicemail,
enhanced caller ID, call waiting and three-way calling and competitive
per-minute rates. Lower per-minute rates relative to analog cellular
providers are possible in part because the code division multiple access
system that both we and Sprint PCS employ has greater capacity than current
analog cellular systems, enabling us to market high usage customer plans at
lower prices. All of Sprint PCS' current pricing plans:
- include minutes in any Sprint PCS market (with no traveling
charges);
- are feature-rich and generally require no annual contracts or
hidden charges;
- offer a wide selection of phones to meet the needs of consumers
and businesses; and
- provide a limited-time money back guarantee on Sprint PCS phones.
In addition, Sprint PCS' national "Free and Clear" calling plans,
which offer simple, affordable plans for every consumer and business
customer, include free long distance calling from anywhere on its nationwide
network.
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LOCAL FOCUS
Our local focus will enable us to supplement Sprint PCS' marketing
strategies with our own strategies tailored to each of our specific markets.
This will include attracting local businesses to enhance our distribution and
drawing on our management team's experience in our markets. We will use local
radio, television and newspaper advertising to sell our products and services
in each of our markets. We intend to build a local sales force to execute our
marketing strategy and to employ a direct sales force targeted to business
sales. In addition, Sprint PCS' existing agreements with national retailers
provide us with access to over 350 retail locations in our markets.
ADVERTISING AND PROMOTIONS
Sprint PCS promotes its products through the use of national as well
as regional television, radio, print, outdoor and other advertising
campaigns. We benefit from the national advertising at minimal costs to us.
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 markets, such as
RadioShack, Circuit City, OfficeMax 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 that provide customers with benefits
such as additional features at the same rate or free minutes of use for
limited time periods. We will offer these promotional campaigns to potential
customers in our markets.
SPONSORSHIPS
Sprint PCS is a sponsor of numerous selective, broad-based national,
regional and local events. These sponsorships provide Sprint PCS with brand
name and product recognition in high profile events, provide a forum for
sales and promotional events and enhance our promotional efforts in our
markets.
BUNDLING OF SERVICES
We intend to take advantage of the complete array of communications
services offered by bundling Sprint PCS services with other Sprint products,
such as long distance and Internet access.
SALES AND DISTRIBUTION
Our sales and distribution plan mirrors Sprint PCS' proven multiple
channel sales and distribution plan. Key elements of our sales and
distribution plan consist of the following:
SPRINT PCS RETAIL STORES
We plan to operate company-owned Sprint PCS branded retail stores
throughout our markets. These stores will be located in major traffic centers
within our markets, providing us with a strong local presence and a high
degree of visibility. We will train our sales representatives to be informed
and persuasive advocates for Sprint PCS' services. Following the Sprint PCS
model, these stores will be designed to facilitate retail sales, activation,
bill collection and customer service. We plan to open approximately 20 new
stores by the end of 2001 when we are commercially active in all our markets
and continue adding stores as market conditions require.
SPRINT STORE WITHIN A RADIOSHACK STORE
Sprint has an exclusive arrangement with RadioShack to install a
"store within a store," making Sprint PCS the exclusive brand of PCS sold
through RadioShack stores. RadioShack currently has over 150 stores in our
markets.
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OTHER NATIONAL THIRD PARTY RETAIL STORES
In addition to RadioShack, we will benefit from the distribution
agreements established by Sprint PCS with other national retailers which
currently include Kmart, Staples, Circuit City, OfficeMax, Montgomery Ward,
Office Depot, Ritz Camera, Target and Heileg-Meyers. These retailers currently
have over 200 retail stores in our markets.
NATIONAL ACCOUNTS AND DIRECT SELLING
We will participate in Sprint PCS' national accounts program. Sprint
PCS has a national accounts team which focuses on the corporate headquarters of
Fortune 1000 companies. Once a representative reaches an agreement with the
corporate headquarters, we service the offices of that corporation located in
our markets. Our direct sales force will target the employees of these
corporations in our markets and cultivate other local business clients.
We will be required to submit monthly reports to Sprint PCS that track
sales to these accounts. Sprint PCS determines how revenue unit credit is
attributed to national accounts in our markets.
We must follow an activation and fulfillment process for our national
accounts that are established by Sprint PCS, which includes procedures for
transmitting, activating and filling orders. These procedures also address:
- administrative requirements,
- transfer of services among Sprint PCS markets,
- equipment return policies,
- customer proposal support, and
- credit policies.
Sprint PCS has established specific roles and responsibilities for the
national accounts program. These roles and responsibilities set forth how
compensation is determined for national sales and area sales, specific
strategies for closing sales and account management. Sprint PCS also establishes
criteria for determining national sales and area sales based on dollar revenues
and metropolitan areas in the defined area.
INBOUND TELEMARKETING
Sprint PCS will provide inbound telemarketing sales when customers call
from our markets. As the exclusive provider of Sprint PCS products and services
in our market, we will use the national Sprint 1-800-480-4PCS number campaigns
that generate call-in leads. These leads are then handled by Sprint PCS' inbound
telemarketing group.
ELECTRONIC COMMERCE
Sprint PCS launched an Internet site in December 1998 which contains
information on Sprint PCS products and services. A visitor to Sprint PCS'
Internet site can order and pay for a handset and select a rate plan. Customers
visiting the site can review the status of their account, including the number
of minutes used in the current billing cycle. Customers in our markets who
purchase products and services over the Sprint PCS Internet site will be
customers of our PCS network.
TECHNOLOGY
GENERAL
In the commercial mobile 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 relatively new but not yet widely used technology, also allows
for interconnected two-way real time voice and data services.
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The Federal Communications Commission licenses these services on a geographic
basis, using distinct radio spectrum bands. Cellular service, which uses a
portion of the 800 MHz spectrum, was the original form of widely-used commercial
mobile wireless voice communications. Cellular systems were originally
analog-based, but over the last several years cellular operators have been
providing digital service, usually as a complement to analog service in most of
the major metropolitan markets. In 1994, the Federal Communications Commission
allocated the 1850 - 1990 MHz band for wireless high capacity, commonly referred
to as broadband, personal communications services to be provided utilizing
digital technology.
Both analog and digital mobile wireless communications systems, whether
wireless broadband personal communications services or cellular service, 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 radio
communications site. The radio communications site is connected by microwave or
traditional telephone lines to a switch that uses computers to control the
operation of the cellular or digital wireless personal communications services
system. The switch:
- controls the transfer of calls from radio communications site to
radio communications site as a subscriber's handset travels;
- coordinates calls to and from handsets;
- allocates calls among the radio communications sites within the
system; and
- connects calls to the local wireline telephone system or to a
long distance carrier.
Wireless communications providers establish interconnection agreements
with local telephone companies and long distance telephone companies, thereby
integrating their system with the existing communications system. Because the
signal strength of a transmission between a handset and a radio communications
site declines as the handset moves away from the radio communications site, the
switching office and the radio communications site 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
radio communications site where the signal strength is stronger.
Digital wireless broadband personal communications services differ from
traditional analog cellular service principally in that digital wireless
broadband personal communications services systems use frequencies in a higher
spectrum band 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 re-use 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 broadband personal communications services
or cellular service frequencies, to provide greater call privacy and stronger
data transmission, such as facsimile, electronic mail and connecting laptop
computers with computer/data networks. Moreover, digital technology also permits
the provision of enhanced services such as caller ID.
Digital wireless 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. Digital wireless
personal communications systems operate under one of three principal air
interface protocols, code division multiple access, commonly referred to as
CDMA, time division multiple access, commonly referred to as TDMA, or global
system for mobile communications, a form of time division multiple access
commonly referred to as GSM. Each of these three digital technologies is
incompatible with the other two. Thus, for example, a subscriber of a system
that utilizes code division multiple access technology is unable to use his or
her 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 default to an analog cellular system in that area. The
same issue exists in the case of users of time division multiple access or
global system for mobile communications systems. Many of the digital wireless
personal communications
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services operators now have dual-mode or tri-mode handsets available to their
customers. Because not all areas of the country are served by each of the three
digital modes, these handsets will remain necessary for segments of the
subscriber base.
CODE DIVISION MULTIPLE ACCESS TECHNOLOGY
Sprint PCS' national 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 radio
communications site while maintaining a connection with the radio communications
site currently in use. Code division multiple access networks monitor the
quality of the transmission received by multiple radio communications sites
simultaneously to select a better transmission path and to ensure that the
network does not disconnect the call in one cell unless replaced by a stronger
signal from another radio communications site. Analog, time division multiple
access and global system for mobile communications networks use a "hard
hand-off" and disconnect the call from the current radio communications site as
it connects with a new one without any simultaneous connection to both radio
communications sites.
SIMPLIFIED FREQUENCY PLANNING
Frequency planning is the process used to analyze and test alternative
patterns of frequency use within a wireless network to minimize interference and
maximize capacity. Unlike 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 allows multi-vendor equipment
to be used in the same network to a larger extent than code division multiple
access platforms. 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
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handsets that support either the time division multiple access or global system
for mobile communications technologies.
COMPETITION
We will compete throughout our markets with both incumbent cellular and
new PCS providers. The cellular providers in our markets serve different
geographic segments, with AirTouch (recently acquired by Vodafone) and AT&T
Wireless Services covering our three western regional markets, and GTE and
BellSouth servicing the midwestern market of Southern Indiana/Kentucky.
Competition from PCS providers is significantly more fragmented, with a
number of different operators competing with incompatible air-interface
technologies. In the Reno/Tahoe/Northern California market, Pacific Bell
Wireless is the principle PCS competitor operating with GSM air-interface
technology. In the metropolitan area of Spokane, our network competes with the
GSM operator VoiceStream and the CDMA operator GTE. In Montana, regional
operators Three River Wireless and Black Foot compete with small CDMA networks.
PCS competitors in the Southern Idaho/Utah market consist primarily of the GSM
operator VoiceStream with a small start-up CDMA carrier South Central
Communications operating in St. George and southern Utah. In the Southern
Indiana/Kentucky market, CDMA operator Ameritech and GSM operators OmniPoint
(recently acquired by VoiceStream) and PowerTel compete for different markets.
We also face competition from resellers in each of our markets, 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
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 the same, similar or other communications
technologies, including satellite-based telecommunications and wireless cable
systems and other traditional telephone networks. 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 significantly greater financial and
technical resources and subscriber bases than we do. Some of our competitors
also have well 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 will 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. Indeed, the Federal
Communications Commission has recently reclaimed certain 700 MHz band spectrum
previously allocated for UHF television broadcast use and has scheduled an
auction of licenses for traditional telephone network systems in large
geographic areas for later this year. Based upon increased competition, we
anticipate that market prices for
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two-way wireless services generally will decline in the future. We will compete
to attract and retain customers principally on the basis of:
- the strength of the Sprint and Sprint PCS brand names, services
and features;
- the national presence of Sprint PCS;
- the location of our markets;
- our network coverage and reliability;
- customer care; and
- pricing.
Our ability to compete successfully will also depend, in part, on our
ability to anticipate and respond to various competitive factors affecting the
industry, including:
- new services and technologies that may be introduced;
- changes in consumer preferences;
- demographic trends;
- economic conditions; and
- discount pricing strategies by competitors.
INTELLECTUAL PROPERTY
The Sprint diamond design logo is a service mark registered with the
United States Patent and Trademark Office. The service mark is owned by Sprint.
We will 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 markets. 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 instances that are noncompetitive 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
markets. In all other instances, Sprint PCS reserves the right to use the
licensed marks in providing its services within or without our markets.
The trademark license agreements contain numerous restrictions with
respect to the use and modification of any of the licensed marks. See "The
Sprint PCS Agreements-The Trademark and Service Mark License Agreements" for
more information on this topic.
EMPLOYEES
As of May 15, 2000, we employed 48 full-time employees. None of our
employees are represented by a labor union. We believe that our relations with
our employees are good.
PROPERTIES
Our headquarters are located in Bala Cynwyd, Pennsylvania and we lease
space in a number of locations, primarily for our base stations and switching
centers. As of May 15, 2000, our material leased properties were as listed
below:
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<TABLE>
<CAPTION>
PURPOSE LOCATION SQUARE FEET LEASE TERM
----------------------------- ------------------------------- --------------- --------------
<S> <C> <C> <C>
Office Space lease 1 Bala Plaza, Suite 402 6,000 10 years
Bala Cynwyd, Pennsylvania
Switch lease 5355 Capital Court 5,760 10 years
Unit Number 102
Reno, Nevada
</TABLE>
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings that we believe
would, if adversely determined, individually or in the aggregate, have a
material adverse effect on our financial condition or results of operations.
ENVIRONMENTAL COMPLIANCE
We anticipate that our environmental compliance expenditures will
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 are expected to arise
in connection with standards compliance or permits which are usually related to
generators, batteries or fuel storage. Our environmental compliance expenditures
are not expected to be material to our operations in the future.
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THE SPRINT PCS AGREEMENTS
The following is a summary of the material terms and provisions of the
Sprint PCS agreements and the consent and agreement modifying the Sprint PCS
management agreement. We have filed the Sprint PCS agreements and the consent
and agreement as exhibits to the registration statement of which this prospectus
is a part and urge you to review them carefully.
OVERVIEW OF SPRINT PCS RELATIONSHIP AND AGREEMENTS
Under long-term agreements with Sprint PCS, we will exclusively market
PCS services under the Sprint and Sprint PCS brand names in our markets. Sprint
PCS owns the spectrum licenses and we are granted use of these licenses through
our agreements with Sprint PCS. The agreements with Sprint PCS require us to
interface with the Sprint PCS national wireless network by building our PCS
network to operate on the PCS frequencies licensed to Sprint PCS. The Sprint PCS
agreements also give us access to Sprint PCS' equipment discounts, travel
revenue from Sprint PCS customers traveling into our markets, and various other
support services. Our relationship and agreements with Sprint PCS provide
strategic advantages, including avoiding the need to fund up-front spectrum
acquisition costs and the costs of establishing billing and other customer
services infrastructure. The management agreement has an initial term of 20
years and will automatically renew for three additional successive 10-year terms
for a total term of 50 years, 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.
We have four major agreements with Sprint PCS:
- the management agreement;
- the services agreement;
- the trademark and service mark license agreement with Sprint; and
- the trademark and service mark license agreement with Sprint PCS.
In addition, Sprint PCS has entered into a consent and agreement that
modifies our management agreement for the benefit of Paribas, the lender under
UbiquiTel Operating Company's $250.0 million senior credit facility. This
consent replaced an existing consent and agreement between the parties that had
modified our management agreement in substantially the same manner for the
benefit of Paribas under UbiquiTel Operating Company's previous $25.0 million
credit facility.
THE MANAGEMENT AGREEMENT
Under our management agreement with Sprint PCS, we have agreed to:
- construct and manage a network in our markets in compliance with
Sprint PCS' PCS licenses and the terms of the management
agreement;
- share with Sprint the costs associated with its relocation of
interfering microwave sources in our markets;
- distribute during the term of the management agreement Sprint PCS
products and services;
- use Sprint PCS' and our own distribution channels in our markets;
- conduct advertising and promotion activities in our markets; and
- manage that portion of Sprint PCS' customer base assigned to our
markets.
Sprint PCS will supervise our PCS network operations and has the right
to unconditional access to our PCS network.
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EXCLUSIVITY. We are designated as the only person or entity that can
manage or operate a PCS network for Sprint PCS in our markets. Sprint PCS is
prohibited from owning, operating, building or managing another wireless
mobility communications network in our markets while our management agreement is
in place and no event has occurred that would permit the agreement to terminate.
Sprint PCS is permitted under our agreement to make national sales to companies
in our markets and, as required by the Federal Communications Commission, to
permit resale of the Sprint PCS products and services in our markets. If Sprint
PCS decides to expand the geographic size of our build-out, Sprint PCS must
provide us with written notice of the proposed expansion. We have 90 days to
determine whether we will build out the proposed area. If we do not exercise
this right, Sprint PCS can build out the markets or permit another third party
to do so.
NETWORK BUILD-OUT. The management agreement specifies the terms of the
Sprint PCS affiliation, including the required network build-out plan. We have
agreed on a minimum build-out plan which includes specific coverage and
deployment schedules for the network planned within our service area as depicted
in the table below. The aggregate coverage will result in network coverage of
approximately 55% of the population in our markets of 7.7 million by the end of
2001. We have agreed to operate our PCS network to provide for a seamless
handoff of a call initiated in our markets to a neighboring Sprint PCS network.
<TABLE>
<CAPTION>
PHASE 0 PHASE 1 PHASE 2 PHASE 3
MARKET SEPTEMBER 21, 2000 DECEMBER 31, 2000 MARCH 31, 2001 SEPTEMBER 30, 2001
------------------------------ -------------------- --------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Reno/Tahoe/Northern California Reno, NV Yuba City/Marysville, Eureka, CA
Sparks, NV CA
Carson City, NV Oroville, CA
Lake Tahoe, NV Chico, CA
Red Bluff, CA
Redding,CA
Spokane/Montana Pullman, WA Newport, WA
Lewiston, ID Sandpoint, ID
Moscow, ID
Southern Idaho/Utah/Nevada Logan, UT Boise, ID Twin Falls, ID
Brigham, UT Nampa, ID Pocatello, ID
Caldwell, ID Idaho Falls, ID
Mountain Home, ID Rexburg, ID
Jackson, WY St. Anthony, ID
Ketchum, ID
Cedar City, UT
St. George, UT
Mesquite, NV
Southern Indiana/Kentucky Terre Haute, IN Vincennes, IN
Bloomington, IN Washington, IN
Bedford, IN Petersburg, IN
Evansville, IN Jasper, IN
Owensboro, KY Cannelton, IN
Rockport, IN
Bedford, IN
Mitchell, IN
New Castle, IN
Rushville, IN
Connersville, IN
Liberty, IN
Clarkesville, TN
</TABLE>
The management agreement also includes minimum build-out plan
requirements for select cities in the Spokane/Montana market, with a launch date
of June 1, 2005.
PRODUCTS AND SERVICES. The management agreement identifies the products
and services that we can offer in our markets. 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' sole determination, consumer confusion with
Sprint PCS
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products and services. We may cross-sell services such as long distance
service, Internet access, handsets, and prepaid phone cards with Sprint,
Sprint PCS and other Sprint PCS affiliates. If we decide to sell the same
services of third parties, we must give Sprint PCS an opportunity to provide
the services on the same terms and conditions. We cannot offer traditional
telephone services based on wireless technology specifically designed for the
competitive local telephone market in areas where Sprint owns the local
telephone company unless we name the Sprint-owned local telephone company as
the exclusive distributor or Sprint PCS approves the terms and conditions.
We will participate in the Sprint PCS sales programs for national
sales to customers, and will pay the expenses and receive the compensation
from national accounts located in our markets. As a participant in these
sales programs, our responsibilities include assisting Sprint PCS' national
sales team in our markets in connection with implementing national sales
programs, negotiating customer contracts and managing customer accounts. We
must use Sprint's long distance service for calls made from within designated
portions of our markets to areas outside those designated portions and to
connect our network to the national platforms Sprint PCS uses to provide some
of its services under our services agreement. We must pay Sprint PCS the same
price for this service that Sprint PCS pays to Sprint, along with an
additional administrative fee.
SERVICE PRICING, ROAMING, TRAVEL AND FEES. We must offer Sprint PCS
subscriber pricing plans designated for regional or national offerings,
including Sprint PCS' "Free and Clear" plans. We are permitted to establish
our own local price plans for Sprint PCS products and services offered only
in our markets, subject to Sprint PCS' 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 markets and inbound non-Sprint PCS
roaming. Sprint PCS will receive 8% of the collected revenues. Outbound
non-Sprint PCS roaming revenue, inbound and outbound Sprint PCS travel fees,
proceeds from the sales of handsets and accessories, proceeds from sales not
in the ordinary course of business, and amounts collected with respect to
taxes are not considered collected revenues. Except in the case of taxes, we
will retain 100% of these revenues. Many Sprint PCS subscribers purchase
bundled pricing plans that allow Sprint PCS traveling anywhere on the Sprint
PCS network without incremental Sprint PCS travel charges. However, we will
earn Sprint PCS travel revenue for every minute that a Sprint PCS subscriber
from outside our markets enters our markets and uses our services. We will
earn revenue from Sprint PCS based on a per minute rate established by Sprint
PCS when Sprint PCS' or its affiliates' subscribers travel 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 markets use the Sprint PCS
network outside our markets. The analog roaming rate onto a non-Sprint PCS
provider's network is set under Sprint PCS' third party roaming agreements.
ADVERTISING AND PROMOTIONS. Sprint PCS is responsible for all
national advertising and promotion of the Sprint PCS products and services.
We are responsible for advertising and promotion in our markets. Sprint PCS'
service area includes the urban markets around our markets. Sprint PCS will
pay for advertising in these markets. Given the proximity of those markets to
ours, we expect considerable spill-over from Sprint PCS' advertising in
surrounding urban markets.
PROGRAM REQUIREMENTS. We will comply with Sprint PCS' program
requirements for technical standards, travel, roaming and interservice area
calls, customer service standards, national and regional distribution and
national accounts programs. Some of these technical standards relate to
network up-time, dropped calls, blocked call attempts and call origination
and termination failures. We are required to build a network that meets
minimum transport requirements established by Sprint PCS for links between
our cell sites and switches. These requirements are measured in milliseconds.
We are also required to have minimal loss and echo return loss on our
telephone lines. We must meet substantially high network up-time percentage
in excess of 95%. Also, we must meet a less than 5% dropped call rate and
ratio of blocked call attempts to total call attempts as well as a less than
12% ratio of call origination to termination failures. Sprint PCS can adjust
the program requirements at any time so long as it gives us at least 30 days
prior notice. We have the right to appeal to Sprint PCS' management
adjustments which could cause an unreasonable increase in cost to us if the
adjustment:
- causes us to incur a cost exceeding 5% of the sum of our equity
plus our outstanding long term debt, or
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- causes our long-term operating expenses to increase by more than
10% on a net present value basis.
If Sprint PCS denies our appeal, then we have 10 days after the denial to
submit the matter to arbitration. If we do not submit the matter to
arbitration within the ten-day period or comply with the program adjustment,
Sprint PCS has the termination rights described below.
We are not currently required to meet the customer service standards
because we have elected to use Sprint PCS' established support services which
include customer service. Under our services agreement with Sprint PCS,
Sprint PCS may terminate, upon nine months' advance written notice, customer
service. We would then be required to establish and operate our own customer
service center to, among other things, handle customer inquiries 24 hours a
day, 365 days a year, and activate handsets and accounts and handle billing
and collections within stringent time guidelines established by Sprint PCS,
which may range from 24 to 72 hours.
NON-COMPETITION. We may not offer Sprint PCS products and services
outside our markets without the prior written approval of Sprint PCS. Within
our markets we may offer, market or promote telecommunications products and
services only under the Sprint PCS brands, our own brand, brands of related
parties of ours or other products and services approved under the management
agreement, except that no brand of a significant competitor of Sprint PCS or
its related parties may be used for those products and services. To the
extent we have or obtain licenses to provide PCS services outside our
markets, we may not use the spectrum to offer Sprint PCS products and
services without prior written consent from Sprint PCS. Additionally, if
customers from our markets travel to other geographic areas, we must route
those customers' incoming and outgoing calls according to Sprint PCS' roaming
and inter-service area requirements, without regard to any wireless networks
that we or our affiliates operate.
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.
CHANGE OF CONTROL. Sprint PCS must consent to a change of control of
us, but this consent cannot be unreasonably withheld.
ASSIGNMENT. We cannot assign the Sprint PCS agreements to any person
without the prior consent of Sprint PCS, except that we can assign the
agreements to any affiliate of ours that is not a significant competitor of
Sprint PCS in the telecommunications business.
RIGHTS OF FIRST REFUSAL. Sprint PCS has rights of first refusal to
buy our assets, without further stockholder approval, upon a proposed sale of
all or substantially all of our assets that are used in connection with the
operation or management of the Sprint PCS network in our markets.
TERMINATION OF MANAGEMENT AGREEMENT. The management agreement can be
terminated as a result of:
- termination of Sprint PCS' PCS licenses;
- an uncured breach under the management agreement;
- bankruptcy of a party to the management agreement;
- the management agreement not complying with any applicable law in
any material respect;
- the termination of either of the trademark and service mark
license agreements; or
- our failure to obtain the financing necessary for the build-out
of our PCS network and for our working capital needs.
However, Sprint PCS' rights of termination have been modified by the
consent and agreement and are discussed more particularly under "Consent and
Agreement." The termination or non-renewal of the management agreement
triggers certain of our rights and those of Sprint PCS. The right of either
party to require the other to
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purchase or sell the operating assets, as discussed below, may not be
exercised, except in limited circumstances in the case of Sprint PCS, until
October 15, 2000.
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 Sprint PCS
agreements.
RIGHTS ON TERMINATION. If we have the right to terminate the
management agreement because of an event of termination caused by Sprint PCS,
generally we may:
- require Sprint PCS to purchase all of our operating assets used
in connection with our PCS network for an amount equal to 80% of
our Entire Business Value (as defined in the management
agreement);
- if Sprint PCS is the licensee for 20 MHz or more of the spectrum
on the date of 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:
- the original cost to Sprint PCS of the license plus any
microwave relocation costs paid by Sprint PCS; or
- 9% of our Entire Business Value; or
- sue Sprint PCS for damages or submit the matter to
arbitration and thereby not terminate the management
agreement.
If Sprint PCS has the right to terminate the management agreement
because of an event of termination caused by us, generally Sprint PCS may:
- require us, without further stockholder approval, to sell our
operating assets to Sprint PCS for an amount equal to 72% of our
Entire Business Value;
- require us to purchase, subject to governmental approval, the
licensed spectrum for an amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any
microwave relocation costs paid by Sprint; or
- 10% of our Entire Business Value;
- take any action as Sprint PCS deems necessary to cure our breach
of the management agreement, including assuming responsibility
for, and operating, our PCS network; or
- sue us for damages or submit the matter to arbitration and
thereby not terminate the management agreement.
RIGHTS ON NON-RENEWAL. If Sprint PCS gives us timely notice that it
does not intend to renew the management agreement, we may:
- require Sprint PCS to purchase all of our operating assets used
in connection with our PCS network for an amount equal to 80% of
our Entire Business Value; or
- if Sprint PCS is the licensee for 20 MHz or more of the spectrum
on the date of 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:
- 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 can be terminated for
failure to comply with legal requirements or regulatory considerations,
Sprint PCS may:
- purchase all of our operating assets, without further stockholder
approval, for an amount equal to 80% of our Entire Business
Value; or
- require us to purchase, subject to governmental approval, the
licensed spectrum for an amount equal to the greater of:
- the original cost to Sprint PCS of the license plus any
microwave relocation costs paid by Sprint PCS; or
- 10% of our Entire Business Value.
If 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, each of whom must be an expert in valuing wireless
telecommunications companies. The three appraisers will determine the Entire
Business Value on a going concern basis using the following guidelines:
- the Entire Business Value will be based on the price a willing
buyer would pay a willing seller for the entire on-going
business;
- the appraisers will use then-current customary means of valuing a
wireless telecommunications business;
- the appraisers will value the business as it is conducted under
the Sprint and Sprint PCS brands and the Sprint PCS agreements;
- where Sprint PCS may, or is required to, purchase our operating
assets the appraisers will value the business as if we own the
spectrum and frequencies that we actually use. Where we may, or
are required to, purchase a portion of Sprint PCS' licensed
spectrum, the business will be valued as if we already own that
portion of the spectrum and frequencies that we are going to
purchase; and
- the valuation will not include any value for the business not
directly related to the Sprint PCS products and services.
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, managers, officers, employees, agents and representatives 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, managers, officers, employees,
agents and representatives against all claims against any of the foregoing
arising from Sprint PCS' violation of any law and from Sprint PCS' 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.
THE SERVICES AGREEMENT
The services agreement outlines various support services provided by
Sprint PCS and available to us at established rates. Sprint PCS can change
any or all of the service rates one time in each 12 month period. Some of
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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-service area 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. Sprint may require us to purchase certain services where
necessary to comply with legal or regulatory requirements (for example, where
provision of 911 emergency service is mandatory). We have chosen to initially
buy services such as billing, customer care and activation from Sprint PCS.
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 provided under the services agreement in
connection with any other business or outside our markets. We may discontinue
use of any service upon three months' prior written notice. We will have
access to these services during the term of our Sprint PCS management
agreement unless Sprint PCS provides us at least nine months' advance notice
of its intention to terminate any particular service.
We have agreed with Sprint PCS to indemnify each other as well as
officers, directors, employees and certain other related parties and their
officers, directors and employees for violations of law or the services
agreement except for any liabilities resulting from the indemnitee's
negligence or willful misconduct. The services agreement also provides that
no party to the agreement will be liable to the other party for special,
indirect, incidental, exemplary, consequential or punitive damages, or loss
of profits arising from the relationship of the parties or the conduct of
business under, or breach of, the services agreement except as may otherwise
be required by the indemnification provisions. The services agreement
automatically terminates upon termination of the management agreement and
neither party may terminate the services agreement for any reason other than
the termination of the management agreement.
THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS
We have non-transferable, royalty-free licenses to use 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
"Experience the Clear Alternative to Cellular Today" on Sprint PCS products
and services. We believe that the Sprint and Sprint PCS brand names and
symbols enjoy a very 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 markets of which we become aware and to provide assistance to
Sprint and Sprint PCS in connection with Sprint's and Sprint PCS' 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' abandonment of
the licensed marks or if Sprint or Sprint PCS files for bankruptcy, or the
management agreement is terminated.
THE CONSENT AND AGREEMENT
OVERVIEW
Sprint PCS has entered into a consent and agreement that modifies
our management agreement for the benefit of Paribas, the lender under
UbiquiTel Operating Company's $250.0 million credit facility. The consent
replaced an existing consent and agreement between the parties that had
modified our management agreement in substantially the same manner for the
benefit of Paribas under UbiquiTel Operating Company's previous $25.0 million
credit facility. The consent generally provides, among other things, the
following.
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CONSENT TO SECURITY INTEREST AND PLEDGE OF STOCK. Sprint PCS has
consented to the grant of the following:
- a first priority security interest in all our assets including
the Sprint PCS agreements;
- a lien upon all of our assets and property including our rights
under the Sprint PCS agreements;
and
- a first priority security interest in the capital stock of
UbiquiTel Operating Company.
Sprint PCS has agreed to acknowledge the grant of these security
interests and to waive its right or the right of any of its affiliates to
challenge or contest the validity of the interests.
AGREEMENT NOT TO TERMINATE SPRINT PCS AGREEMENTS UNTIL DEBT
OBLIGATIONS ARE REPAID. Sprint PCS has agreed not to exercise its rights or
remedies under the Sprint PCS agreements, except its right to cure some
defaults, and including its right to terminate the agreements and withhold
payments (other than rights of setoff) until UbiquiTel Operating Company's
obligations under the credit agreement with Paribas are satisfied in full.
NO COMPETITION UNTIL DEBT OBLIGATIONS ARE REPAID. Sprint PCS has
agreed that it will not permit any person other than us or a successor
manager to be a manager or operator for Sprint PCS in our markets until
UbiquiTel Operating Company's obligations under the credit facility are
satisfied in full. Similarly, Sprint PCS has agreed that it will not own,
operate, build or manage another wireless mobility communications network in
our markets unless it is permitted under the management agreement or the
management agreement is terminated in accordance with the consent, and, in
each case, until UbiquiTel Operating Company's obligations under the credit
facility are satisfied in full. While the credit facility is outstanding,
Sprint PCS may, however, sell PCS services through its national accounts,
permit resellers and build new geographical areas within our markets for
which we have chosen not to exercise our rights of first refusal, all as
provided in the management agreement.
ASSIGNMENTS AND CHANGE OF CONTROL TO PARIBAS. Sprint PCS has agreed
not to apply the restrictions on assignment of the Sprint PCS agreements and
changes in control of our ownership to Paribas. The assignment and change of
control provisions in the Sprint PCS agreements will apply if the assignment
or change of control is to someone other than Paribas, or is not otherwise
permitted under the consent.
REDIRECTION OF PAYMENTS FROM SPRINT PCS TO PARIBAS. Sprint PCS has
agreed to make all payments due from Sprint PCS to UbiquiTel Operating
Company under the Sprint PCS agreements directly to Paribas if Paribas so
requests and provides Sprint PCS with notice that an event of default has
occurred and is continuing under the credit facility. Payments to Paribas
would cease upon the cure of the event of default or certain time limitations.
NOTICE OF DEFAULTS. Sprint PCS has agreed to provide to Paribas a
copy of any written notice it sends us regarding an event of termination or
an event that if not cured, or if notice is provided, would be an event of
termination under the Sprint PCS agreements. Sprint PCS also has acknowledged
that notice of an event of termination under the Sprint PCS agreements
constitutes an event of default under UbiquiTel Operating Company's credit
agreement with Paribas. Paribas has agreed to provide Sprint PCS with a copy
of any written notice sent to us or UbiquiTel Operating Company regarding an
event of default or default under the credit agreement with Paribas.
RIGHT TO CURE. Under the terms of the consent, Paribas has the
right, but not the obligation, to cure a breach by us of our management
agreement with Sprint PCS. Additionally, Sprint PCS has the right, but not
the obligation, to cure certain defaults by UbiquiTel Operating Company of
its obligations under the credit agreement with Paribas.
RIGHTS UPON DEFAULT
Besides modifying the rights and remedies available to Sprint PCS
upon an event of termination under our management agreement, the consent
grants Paribas certain rights in the event that UbiquiTel Operating Company
defaults on its obligations under the credit facility. Paribas' rights and
remedies vary based on whether:
- UbiquiTel Operating Company has defaulted on its obligations
under the credit facility but no event of termination has
occurred under the management agreement; or
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- we have breached the management agreement with Sprint PCS.
The consent generally permits, without stockholder approval the
appointment of a person to run our business under the Sprint PCS agreements
on an interim basis and establishes a process for the sale of the business.
The person designated to operate our business on an interim basis is
permitted to collect a reasonable management fee. If Sprint PCS or a related
party is the interim operator, the amount of the fee shall not exceed the
amount of direct expenses of its employees to operate the business plus
out-of-pocket expenses. Sprint PCS shall collect its fee by setoff against
the amounts owed to us under the Sprint PCS agreements.
CREDIT AGREEMENT DEFAULT WITHOUT A MANAGEMENT AGREEMENT BREACH. If
UbiquiTel Operating Company defaults on its obligations to Paribas under the
credit facility, and there is no default under our management agreement with
Sprint PCS, then Paribas may take any of the following actions:
- allow us to continue to operate the business under the Sprint PCS
agreements;
- appoint Sprint PCS to operate the business on an interim basis;
or
- appoint a person other than Sprint PCS to operate the business on
an interim basis.
APPOINTMENT BY PARIBAS OF SPRINT PCS OR A THIRD PARTY DESIGNEE TO
OPERATE BUSINESS. If Paribas appoints Sprint PCS to operate the business,
Sprint PCS must accept the appointment within 14 days or designate another
person to operate the business. Sprint PCS' designee may be an affiliate of
Sprint PCS (other than us) or another person acceptable to Paribas. Sprint
PCS or its designee must agree to operate the business for up to six months.
At the end of the six months, the period may be extended by Paribas for an
additional six months (or an additional 12 months if the aggregate population
served by all of Sprint PCS' affiliates is less than 40 million). During the
initial six-month period, Sprint PCS may not receive reimbursement for
amounts expended to cure a breach until UbiquiTel Operating Company's
obligations to Paribas under the credit facility have been satisfied in full.
If the term is extended beyond the initial six-month period, we will be
required to reimburse Sprint PCS or its designee for amounts previously
expended and to be incurred as interim manager to cure a default up to an
aggregate amount that is equal to 5% of the sum of our stockholders' equity
value plus the outstanding amount of our long term debt. Sprint PCS or its
designated person is not required to incur expenses beyond this 5% limit. At
the end of the initial six-month interim term, Paribas has the right to
appoint a successor to the interim manager subject to the requirements set
forth below.
APPOINTMENT OF THIRD PARTY BY PARIBAS TO OPERATE BUSINESS. If
Paribas appoints a person other than Sprint PCS to operate the business on an
interim basis the third party must:
- agree to serve for six months unless terminated by Sprint PCS or
Paribas;
- meet the requirements for a successor manager specified in the
consent, and not be challenged by Sprint PCS for failing to meet
these requirements within 20 days after Paribas provides Sprint
PCS with information on the third party; and
- agree to comply with the terms of the Sprint PCS agreements.
The third party is required to operate the Sprint PCS network in our
markets, but is not required to assume our existing liabilities. If the third
party materially breaches the Sprint PCS agreements, this breach will be
treated as an event of default under the management agreement with Sprint PCS.
MANAGEMENT AGREEMENT BREACH. If we breach the Sprint PCS agreements
and this breach causes a default under the credit agreement with Paribas,
Sprint PCS has the right to designate who will operate our business on an
interim basis. Sprint PCS has the right to:
- allow us to continue to operate the business under the Sprint PCS
agreements (if Paribas consents);
- operate our PCS business as an interim manager for up to six
months; or
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- appoint a Sprint PCS affiliate or another person that is
acceptable to Paribas to operate our PCS business on an interim
basis.
If Sprint PCS elects not to operate the business or designate a
third party to operate the business on an interim basis, Paribas may do so.
ELECTION OF SPRINT PCS TO SERVE OR DESIGNATE A THIRD PARTY TO
OPERATE BUSINESS. If Sprint PCS elects to operate the business on an interim
basis or designate a third party to operate the business on an interim basis,
Sprint PCS or the third party may operate the business for up to six months
at the discretion of Sprint PCS. At the end of the six months, the period may
be extended for an additional six months (or an additional 12 months if the
aggregate population served by us and all other affiliates of Sprint PCS is
less than 40 million). During the initial six month period, Sprint PCS may
not receive reimbursement for amounts expended to cure a breach until
UbiquiTel Operating Company's obligations to Paribas under the credit
facility have been satisfied in full. If the term is extended beyond the
initial six month period, we will be required to reimburse Sprint PCS or its
third party designee for amounts previously expended and to be incurred as
interim manager to cure a default up to an aggregate amount that is equal to
5% of the sum of our shareholder's equity value plus the outstanding amount
of our long term debt. Sprint PCS or its third party designee is not required
to incur expenses beyond this 5% limit. At the end of the initial six month
period, Sprint PCS, subject to the approval of Paribas, has the right to
appoint a successor to the interim manager.
APPOINTMENT OF THIRD PARTY BY PARIBAS TO OPERATE BUSINESS. If Sprint
PCS gives Paribas notice of a breach of the management agreement, UbiquiTel
Operating Company's obligations under the credit agreement are accelerated
and Sprint PCS does not agree to operate the business or is unable to find a
designee, then Paribas may designate a third party to operate the business.
Paribas has this same right if Sprint PCS or its designee is not replaced
within 30 days of the end of its term as interim manager. The third party
selected by Paribas must:
- agree to serve for six months unless terminated by Sprint PCS or
Paribas;
- meet the requirements for a successor manager specified in the
consent and not be challenged by Sprint PCS for failing to meet
the requirements within 20 days after Paribas provides Sprint PCS
with information on the third party; and
- agree to comply with the terms of the Sprint PCS agreements.
The third party may continue to operate the business after the six
month period at Paribas' discretion, so long as the third party continues to
satisfy the requirements to be a successor manager and does not breach the
terms of the Sprint PCS agreements.
PURCHASE AND SALE OF OPERATING ASSETS
The consent establishes a process for the sale of our operating
assets, without approval of our stockholders, in the event that UbiquiTel
Operating Company defaults on its obligations to Paribas under the credit
facility and Paribas accelerates the maturity of those obligations.
SPRINT PCS' RIGHT TO PURCHASE ON ACCELERATION OF DEBT. Upon notice
of an acceleration, Sprint PCS has the right, without stockholder approval,
to purchase our operating assets or capital stock under the following terms:
- The purchase price will be the greater of:
- 72% of our Entire Business Value; or
- the aggregate amount of UbiquiTel Operating Company's
obligations under the credit agreement;
- Sprint PCS must notify Paribas of its intention to exercise the
purchase right within 60 days of receipt of the notice of
acceleration;
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- Once Sprint PCS has given notice of its intention to exercise the
purchase right, Paribas is prohibited from enforcing its security
interests until the earlier of 120 days after the acceleration or
until Sprint PCS rescinds its intention to purchase;
- If, after the 120-day period after the acceleration date, we
receive a written offer to purchase our operating assets or
capital stock that we confirm in writing to be acceptable to us,
Sprint PCS has the right to purchase our operating assets or our
stock on terms and conditions at least as favorable to us as the
offer we receive. Sprint PCS must agree to purchase the operating
assets or capital stock within 14 business days of its receipt of
the offer, on acceptable conditions, and in an amount of time
acceptable to us and Paribas;
- Upon completion of the sale to Sprint PCS and satisfaction in
full of UbiquiTel Operating Company's obligations under the
credit agreement, Paribas must release its security interests.
SALE OF OPERATING ASSETS OR CAPITAL STOCK TO THIRD PARTIES. If Sprint
PCS does not purchase the operating assets or capital stock, following an
acceleration by Paribas of UbiquiTel Operating Company's obligations under the
credit agreement, Paribas may sell our operating assets or stock. In that event,
Paribas has two options:
- to sell the assets or stock to an entity that meets the
requirements of a qualified successor under the Sprint PCS
agreements; or
- to sell the assets or stock to any third party, subject to
specified conditions.
SALE OF ASSETS OR CAPITAL STOCK TO QUALIFIED SUCCESSOR. Paribas may
sell the operating assets or capital stock and assign the agreements to entities
that meet the following requirements to succeed us:
- the person has not materially breached a material agreement with
Sprint PCS or its related parties that has resulted in the
exercise of a termination right or in the initiation of judicial
or arbitration proceedings during the past three years;
- the person is not named by Sprint PCS as a prohibited successor
and listed on Schedule 13 to the consent;
- the person has reasonably demonstrated its credit worthiness and
can demonstrate the ability to service the indebtedness and meet
the requirements of the build-out plan; and
- the person agrees to be bound by the Sprint PCS agreements.
Paribas is required to provide Sprint PCS with information necessary
to determine if a buyer meets the requirements to succeed us as manager.
Sprint PCS has 20 days after its receipt of this information to object to the
qualifications of the proposed successor manager. If Sprint PCS does not
object to the buyer's qualifications, the buyer can purchase the assets and
assume our rights and responsibilities under the Sprint PCS agreements. The
consent will remain in full force and effect for the benefit of the buyer and
its lenders. The buyer also has a period to cure any defaults under our
Sprint PCS agreements.
SALE OF ASSETS OR CAPITAL STOCK TO NON-SUCCESSOR. Paribas may sell,
without stockholder approval, our assets or stock to a party that does not
meet the requirements to succeed us. If such a sale is made:
- Sprint PCS may terminate the Sprint PCS agreements;
- the buyer may purchase from Sprint PCS 5, 7.5 or 10 MHz of the
PCS spectrum licensed to Sprint PCS in our territories under
specified terms;
- if the buyer controls, is controlled by or is under common
control with an entity that owns a license to provide wireless
service to at least 50% of the population in a basic trading area
where the buyer proposes to purchase the spectrum from Sprint
PCS, the buyer may only buy 5 MHz of spectrum;
- the price to purchase the spectrum is equal to the sum of the
original cost of the license to Sprint PCS pro rated on a
population and a spectrum basis, plus the cost paid by Sprint PCS
for microwave
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relocation costs attributable to clearing in the spectrum
ultimately acquired by the buyer of our assets and the amount of
carrying costs attributable to the license and microwave
relocation costs from the date of the consent until the closing
of the sale, based on a rate of 12% per annum;
- the buyer will receive from Sprint PCS the customers with the
mobile identification number assigned to the market area covered
by the purchased spectrum except for customers of national
accounts and resellers;
- with limited exceptions, Sprint PCS will not solicit for six
months the customers transferred to the buyer with the mobile
identification number assigned to the market area;
- the buyer and Sprint PCS will enter into a mutual roaming
agreement with prices equal to the lesser of the most favored
pricing provided by buyer to third parties roaming in the
geographic area and the national average paid by Sprint PCS to
third parties; and
- Sprint PCS will have the right to resell the buyer's wireless
services at most favored nation pricing.
DEFERRAL OF COLLECTED REVENUES. For a period of up to two years
after an acceleration by Paribas of UbiquiTel Operating Company's obligations
under the credit facility, Sprint PCS may only retain one-half of the amount
of collected revenues from our operation of the Sprint PCS Network in our
territories that it would otherwise be entitled to under the management
agreement. The balance must be forwarded to us, or to Paribas if Paribas has
elected to redirect payments as provided in the consent. If Sprint PCS is not
serving as the interim manager at the end of the first year following the
acceleration, then Sprint PCS will retain all of the collected revenues to
which it is entitled under the management agreement (the remainder to be paid
to Sprint PCS under an unsecured deferred note).
RIGHT TO PURCHASE DEBT OBLIGATIONS. Following the acceleration of
UbiquiTel Operating Company's obligations under the credit facility, and
until the 60-day anniversary of the filing of a bankruptcy petition, Sprint
PCS has the right to purchase the obligations to Paribas under the credit
facility.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following are summaries of the material provisions of our senior
credit facility and the indenture governing the senior subordinated discount
notes of our subsidiary, UbiquiTel Operating Company.
SENIOR CREDIT FACILITY
On March 31, 2000, UbiquiTel Operating Company entered into a $250.0
million senior secured credit facility with Paribas.
The credit facility provides for:
- an aggregate of $120,000,000 of senior secured A term loans,
which may be drawn at any time until April 2002, and which mature
in October 2007;
- an aggregate of $75,000,000 of senior secured B term loans, which
were drawn down in full on April 11, 2000 and funded into an
escrow account, and which mature in October 2008; and
- a $55,000,000 senior secured revolving credit facility which
matures in October 2007 and includes a $5,000,000 subfacility for
the issuance of letters of credit.
The $75,000,000 million of senior secured B term loans that were
funded into an escrow account will remain the property of our lenders and
will not be released to us if an event of default has occurred under the
credit agreement. Additionally, these funds will not be released to us until
specified conditions have been satisfied. These conditions include, among
others, evidence that we have used all of the proceeds from our sale of
senior subordinated discount notes and from our recent initial public
offering to pay fees and expenses in connection with those offerings, to fund
the build-out of our network or for other general corporate and working
capital purposes. Additional borrowings under our senior credit facility must
be placed into escrow until the conditions to release our initial borrowing
of $75,000,000 have been satisfied.
UbiquiTel Operating Company must repay the A term loans, if
borrowed, in 14 consecutive quarterly installments, beginning in June 2004.
The amount of each of the first four installments is $2,500,000, the amount
of each of the next four installments is $3,750,000, the amount of each of
the next four installments is $16,250,000, and the amount of each of the last
two installments is $15,000,000.
UbiquiTel Operating Company must repay the B term loans in eighteen
consecutive quarterly installments, beginning in June 2004. The amount of
each of the first 12 installments is $187,500, the amount of each of the next
four installments is $2,812,500, and the amount of each of the last two
installments is $30,750,000.
The amount that UbiquiTel Operating Company can borrow and that can
be outstanding under the revolving credit facility reduces in eight quarterly
reductions, beginning in December 2005. The amount of each of the reductions
is $6,875,000.
Until the earlier to occur of the syndication of the senior credit
facility, or August 2000, Paribas may re-allocate the amounts among the A
term loans, B term loans and revolving credit facility at their discretion.
If these amounts are re-allocated by Paribas, the installment payments set
forth above will also be subject to re-allocation.
Interest on the A term loans accrues, at our option, either at:
- the reserve adjusted London interbank offered rate, plus a margin
of between 3.75% and 2.25%; or
- the higher of The Chase Manhattan Bank's prime rate or the
federal funds rate plus 0.5%, plus a margin of between 2.0% and
1.0%.
Interest on the B term loans and the revolving credit loans accrues, at
our option, either at:
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- the reserve adjusted London interbank offered rate, plus an
applicable margin of between 4.25% and 2.75%, depending on the
level of UbiquiTel Operating Company's ratio of debt to earnings
before interest, taxes, depreciation and amortization; or
- the higher of The Chase Manhattan Bank's prime rate or the
federal funds rate plus 0.5%, plus an applicable margin of
between 2.5% and 1.5%, depending on the level of UbiquiTel
Operating Company's ratio of debt to earnings before interest,
taxes, depreciation and amortization.
Interest on any overdue amounts will accrue at a rate per annum
equal to 2.0% plus the rate otherwise applicable to that amount.
The credit facility requires that UbiquiTel Operating Company pay
commitment fees to the lender. Initially, the commitment fee is based on a
percentage of the undrawn amounts of the revolving credit facility and the A
term loan facility. The commitment fees are payable quarterly in arrears and
a separate agent's fee is payable to the administrative agent.
The commitment fee is:
- if 67% or more of the total amount of the facilities is drawn,
the commitment fee is 0.75% of the undrawn amount;
- if less than or equal to 67% and greater than 33% of the total
amount of the facilities is drawn, the commitment fee is 1.125%
of the undrawn amount; or
- if less than or equal to 33% of the total amount of the
facilities is drawn, the commitment fee is 1.375% of the undrawn
amount.
We paid origination fees of $7.0 million in connection with the
credit facility.
We must repay the term loans, and the commitments under the
revolving credit facility will be reduced, in an aggregate amount equal to:
- 50% of excess cash flow in each fiscal year;
- 100% of the net proceeds of specified asset sales outside the
ordinary course of business, in excess of a $1.0 million yearly
threshold;
- 100% of the net cash proceeds of specified incurrences of
indebtedness; and
- 100% of the net cash proceeds of specified issuances of equity
securities, other than proceeds from our initial public offering.
We have guaranteed all of the obligations of UbiquiTel Operating
Company under the credit facility. UbiquiTel Operating Company's obligations
under the credit facility are secured by security interests in substantially
all of its assets, and by a pledge of all of UbiquiTel Operating Company's
capital stock.
The credit facility contains customary covenants, including
covenants limiting indebtedness, dividends and distributions on, and
redemptions and repurchases of, capital stock and other similar payments, and
the acquisition and disposition of assets. The credit facility also requires
that UbiquiTel Operating Company comply with specified financial covenants,
including interest coverage ratios and indebtedness to total capital ratios
and other covenants, including a requirement to cover a specified percentage
of the population in our market areas. We are currently in compliance with
all covenants under the credit facility.
The credit facility provides for customary events of default,
including cross-defaults, judgment defaults and events of bankruptcy. In case
of an event of default, our lender may declare our debt due and payable.
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SENIOR SUBORDINATED DISCOUNT NOTES
On April 11, 2000, UbiquiTel Operating Company issued 300,000 units
consisting of senior subordinated discount notes due 2010 and unit warrants
to purchase 3,579,000 shares of our common stock, which yielded gross
proceeds of $152.3 million. The notes were issued under an indenture, dated
as of April 11, 2000, among us, UbiquiTel Operating Company and American
Stock Transfer & Trust Company, as trustee. The notes:
- mature on April 15, 2010 and are limited to an aggregate
principal amount at maturity of $300.0 million;
- generated gross proceeds to us of $152.3 million;
- are general, unsecured obligations of UbiquiTel Operating
Company, subordinated in right of payment to all senior debt,
including all obligations under the senior credit facility;
- accrue interest at a rate of 14.0% per annum, computed on a
semiannual basis, calculated from April 11, 2000, will not bear
interest payable in cash prior to April 15, 2005, and will bear
interest payable semiannually in cash on each April 15 and
October 15, beginning October 15, 2005; and
- are guaranteed by us.
UbiquiTel Operating Company may elect to redeem all or part of the
notes at any time on or after April 15, 2005 and before maturity, at the
following redemption prices:
<TABLE>
<CAPTION>
YEAR BEGINNING REDEMPTION PRICE
-------------- PER $1,000 OF
PRINCIPAL AMOUNT
----------------
<S> <C>
April 15, 2005................................................................... $1,070.00
April 15, 2006................................................................... 1,046.67
April 15, 2007................................................................... 1,023.33
April 15, 2008 and thereafter.................................................... 1,000.00
</TABLE>
In addition, on or before April 15, 2003, UbiquiTel Operating
Company may redeem up to 35% of the principal amount at maturity of notes
issued under the indenture, at a redemption price equal to $1,140 for each
$1,000 of accreted value of a note to the redemption date, with the net
proceeds of one or more equity offerings (other than the proceeds from this
offering). However, at least 65% of the aggregate principal amount at
maturity of notes issued under the indenture must remain outstanding
immediately after giving effect to the redemption.
If a change of control occurs, each noteholder may require UbiquiTel
Operating Company to repurchase its notes. The repurchase price will be:
- $1,010 per $1,000 of accreted value of the notes, if the
repurchase occurs before April 15, 2005, or
- $1,010 per $1,000 of principal amount of the notes, plus any
accrued interest, if the repurchase occurs on or after April 15,
2005.
A change of control will occur if:
- we sell substantially all of our and our subsidiaries' assets;
- we adopt a plan for our liquidation or dissolution;
- any person or group of persons, other than certain current
stockholders or their affiliates, become the beneficial owner of
more than 50% of the voting power of our stock; or
- a majority of our board of directors no longer consists of
continuing directors, which are directors who were serving on
April 11, 2000, or who were nominated to serve as a director by a
majority of
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the continuing directors at the time. Changes in directors
elected by particular investors, such as holders of our preferred
stock, are ignored for purposes of determining continuing
directors.
The UbiquiTel Operating Company credit facility prohibits the
purchase of outstanding notes before repayment of the borrowings under the
credit facility.
UbiquiTel Operating Company is also required to offer to repurchase
the notes if all or some of the net proceeds of an asset sale are not used to
acquire an entity engaged in a permitted business, to purchase other
long-term assets used or useful in a permitted business or to repay any
senior indebtedness.
We are required, under the terms of a registration rights agreement,
to:
- file an exchange offer registration statement on or before June
26, 2000 covering the exchange of the notes for registered notes;
- use our reasonable best efforts to cause the exchange offer
registration statement to be declared effective under the
Securities Act on or before October 8, 2000;
- use our reasonable best efforts to cause the exchange offer
registration statement to be effective continuously;
- keep the exchange offer open for a period of not less than 20
business days; and
- cause the exchange offer to be consummated no later than the 30th
business day after it is declared effective.
We filed in a timely fashion the exchange offer registration
statement, though we may also be required to file a shelf registration
statement to register for public resale the notes held by any holder who may
not otherwise participate in the exchange offer.
If we fail to file the exchange offer or shelf registration
statement, or fail to cause the exchange offer or shelf registration
statement to become effective, or fail to consummate the exchange offer as
specified above, a registration default shall be deemed to have occurred and
we will be required to pay liquidated damages to each holder of the notes.
The liquidated damages payable to each holder of the notes will be in an
amount equal to $0.05 per week per $1,000 in principal amount of the notes
held by such holder for each week or portion thereof that the registration
default continues for the first 90-day period immediately following the
occurrence of such registration default. This amount will increase by an
additional $0.05 per week per $1,000 in principal amount of the notes with
respect to each subsequent 90-day period, up to a maximum amount equal to
$0.50 per $1,000 in principal amount of the notes. The provision for
liquidated damages will continue until such registration default has been
cured. We will not be required to pay liquidated damages for more than one
registration default at any given time.
The indenture contains restrictive covenants which, among other
things, restrict UbiquiTel Operating Company's and its restricted
subsidiaries' ability to:
- incur additional indebtedness;
- pay dividends, make investments or redeem or retire stock;
- cause encumbrances or restrictions to exist on the ability of its
subsidiaries to pay dividends and make investments in, or
transfer property or assets;
- create liens on their assets;
- sell assets;
- engage in transactions with affiliates;
- engage in businesses other than a permitted business; or
- engage in mergers or consolidations.
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The indenture also provides for customary events of default,
including cross-defaults, judgment defaults and events of bankruptcy. In the
case of an event of default, our trustee or the holders of at least 25% in
principal amount of the outstanding notes may declare the notes immediately
due and payable. We are currently in compliance with all covenants under the
indenture governing the notes.
We paid commitment and other fees to our initial purchasers of the
notes and unit warrants of approximately $6.0 million.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
The following table presents information with respect to our executive
officers, directors and other key employees.
EXECUTIVE OFFICERS AND DIRECTORS:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------------- -------- ------------------------------------------
<S> <C> <C>
Donald A. Harris.............................. 47 Chairman of the Board, President and Chief
Executive Officer
Dean E. Russell............................... 48 Chief Operating Officer
Paul F. Judge................................. 34 Senior Vice President-Corporate Development and
Finance
Andrew W. Buffmire............................ 53 Senior Vice President-Business Development
Robert A. Berlacher........................... 45 Director
Peter Lucas................................... 45 Director
Eve M. Trkla.................................. 37 Director
Joseph N. Walter.............................. 47 Director
OTHER KEY EMPLOYEES:
Debra A. Gerstenberg.......................... 36 Vice President of Human Resources
David L. Zylka................................ 39 Vice President of Engineering
</TABLE>
DONALD A. HARRIS has served as President and Chief Executive Officer
and as a director since our inception and was appointed Chairman of the Board
in May 2000. Mr. Harris has more than 17 years of experience in the
telecommunications industry, and is the former president of Comcast Cellular
Communications, Inc., and a former senior vice president of Comcast
Corporation. He also participated in Comcast's efforts on the board of
Nextel. Mr. Harris managed the build-out of and had operating responsibility
for Comcast's cellular operations in Pennsylvania, New Jersey and Delaware
with over 8 million residents. Mr. Harris was also responsible for Comcast's
PCS experimental trials. Prior to joining Comcast in February, 1992, Mr.
Harris was Vice President/General Manager of PacTel Cellular's Los Angeles
office, the then largest traditional cellular operation in the United States.
He also held several senior management positions with PacTel including Vice
President of Corporate Development, and President and Chief Executive Officer
of the San Francisco Cellular Partnership. Mr. Harris began his career in the
cellular communications industry as a consultant with McKinsey & Company. Mr.
Harris is a graduate of the United States Military Academy at West Point, and
holds a Masters Degree in Business Administration from Columbia University.
DEAN E. RUSSELL has been our Chief Operating Officer since November
1999. He is responsible for overseeing all of the functional areas of our
operations including sales and marketing, network and field operations, and
human resources. Prior to joining us, Mr. Russell was part of the executive
management team of Education Management Corporation from October 1997 to
November 1999. He held various positions with Education Management
Corporation including Director of Operations for the Art Institute of Fort
Lauderdale and President of the Art Institute International at San Francisco.
Previously, Mr. Russell was the General Sales Manager for Comcast Cellular
Communications, Inc. in Atlantic City and Cape May County in New Jersey from
October 1995 to October 1997. Prior to joining Comcast Cellular
Communications, Inc., Mr. Russell served in the United States Army for 20
years before retiring as a Lieutenant Colonel. Mr. Russell has 26 years of
leadership experience including hands on experience managing diverse
operations. Mr. Russell holds a Bachelor of Science Degree in engineering
from the United States Military Academy at West Point and a Masters of
Education Degree from the University of Georgia and a Masters of Business
Administration in International Business from Long Island University.
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PAUL F. JUDGE has been our Senior Vice President of Corporate
Development and Finance since our inception. He is responsible for
acquisition of new markets, business and financial planning, and management
of strategic relationships. Mr. Judge is one of our founders and has more
than 13 years of experience in the wireless telecommunications industry. From
August 1992 until joining us, Mr. Judge served as Director of The Walter
Group, Inc., where he served as a senior member of the consulting firm which
specializes in management services for telecommunications and information
management companies. Before joining The Walter Group, Mr. Judge contributed
to the formation and analysis of telecommunications trade policy within the
Department of Commerce, as well as participated in the development of the
OmniTracs satellite communications system today operated by Qualcomm. Mr.
Judge holds a Bachelor of Science in Business Administration from Pepperdine
University and a Masters of Business Administration in International Business
Finance from George Washington University.
ANDREW W. BUFFMIRE joined the Company in May 2000 as Senior Vice
President Business Development. He is responsible for the development and
negotiation of strategic business transactions. Prior to joining us, Mr.
Buffmire was a Director in the Sprint PCS Affiliates Program. He joined
Sprint PCS in January of 1996 during its initial development stage. At Sprint
PCS he led the state related regulatory compliance, network infra-structure
and interconnection negotiations for the market entry of Sprint PCS and
provided legal counsel for various aspects of the network build-out. Before
joining Sprint PCS, Mr. Buffmire was an attorney in private legal practice in
Salt Lake City, Utah for 16 years, with the exception of two years
(1985-1987), when he was the founder, general counsel and registered
principal of an NASD registered investment banking firm. Mr. Buffmire
interned with the Commission of the European Economic Community (EU) in
Brussels, Belgium. He has a Bachelor of Arts Degree in International
Relations from the University of Southern California, a Juris Doctor Degree
from the University of Utah and a Master of Laws degree from the London
School of Economics and Political Science.
ROBERT A. BERLACHER has been a director since our inception. Mr.
Berlacher is President of LIP Advisors, Inc., the General Partner of
Lancaster Investment Partners, LP, a technology, telecommunications and
healthcare investment partnership based in King of Prussia, Pennsylvania. Mr.
Berlacher is also a co-founder and director of EGE Holdings, Ltd., a holding
company with ownership interests in investment banking, money management and
venture capital. While co-founding EGE Holdings, Ltd., Mr. Berlacher was also
a Managing Director of Boenning & Scattergood, Inc. from January 1997 to
September 1999, and was a Managing Director and shareholder of Pacific Growth
Equities, Inc. from March 1995 to January 1997. Mr. Berlacher graduated from
Cornell University in 1976 with a Bachelor of Science degree in Business
Administration-Finance.
PETER LUCAS has been a director since our inception. Mr. Lucas
served as Chief Financial Officer of WesTower Corporation, a public provider
of telecommunications sites and wireless network services, from April 1997 to
September 1999. Mr. Lucas also served as Chief Financial Officer of Cotton
Valley Resources Corporation, a Dallas-based public oil and gas company, from
August 1995 to April 1997. Mr. Lucas received a Bachelor of Commerce degree
from the University of Alberta.
EVE M. TRKLA has been a director since our inception. Ms. Trkla is
the Co-Founder, Senior Managing Director and Chief Financial Officer of
Brookwood Financial Partners, L.P. and its affiliated companies, Brookwood
Securities Partners, L.P., Brookwood Management Partners, L.P. and Brookwood
Capital Partners, L.P. Ms. Trkla oversees the financial administration of
Brookwood and its affiliates and the origination, evaluation, structuring and
acquisition of real estate and private company investments. Brookwood is a
Boston-based private investment and merchant-banking firm which specializes
in acquiring and managing real estate and in providing equity and bridge
financing to private companies. Since its founding in 1993, Brookwood and its
affiliated entities have acquired real estate and corporate assets with a
realized and current value in excess of $400 million. Prior to co-founding
Brookwood, Ms. Trkla was the Senior Credit Officer at The First National Bank
of Ipswich, where she created and managed the credit administration function
for this $130 million community bank. Ms. Trkla spent the first eight years
of her career at the First National Bank of Boston as a lender specializing
in large corporate acquisition finance. Ms. Trkla is a 1984 CUM LAUDE
graduate of Princeton University.
JOSEPH N. WALTER has been a director since our inception. Mr. Walter
founded The Walter Group, Inc., an international consulting and project
management firm specializing in telecommunications companies, in 1988 and
currently serves as its Chairman and Chief Executive Officer. In January
2000, The Walter Group sold its
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consulting and project management group to Wireless Facilities, Inc. The
Walter Group continues to maintain investments in a variety of
telecommunications-based companies. Prior to establishing The Walter Group,
Mr. Walter served as Senior Vice President for McCaw Cellular Communications,
Inc. and was responsible for the corporate headquarters group of the company.
During his tenure at McCaw Cellular, Mr. Walter was also responsible for
establishing McCaw Space Technologies, Inc. and McCaw Government Services,
Inc. He served with McCaw Cellular from 1983 to 1988. Mr. Walter holds
undergraduate degrees in biological science and social ecology from the
University of California, Irvine and a Masters in Business Administration
from the University of Washington.
DEBRA A. GERSTENBERG has been our Vice President of Human Resources
since January 2000. She reports to our Chief Operating Officer and is
responsible for implementing and directing the functions of employee
relations, compensation, benefits, training, equal employment opportunity,
staffing and payroll. Prior to joining us, Ms. Gerstenberg worked for the
wireless division of Southwestern Bell Corporation from July 1999 to January
2000 as the Director of Human Resources for their Philadelphia Region. She
provided human resources support to the President with full responsibility
for the strategic and operational management of the human resources function.
Prior to the acquisition of Comcast Cellular Communications by Southwestern
Bell, she held various senior human resource management positions at Comcast
Cellular from February 1995 to July 1999, including Director of Human
Resources. Her previous experience included various human resource management
positions as well as customer service and training management positions in
the banking industry. Ms. Gerstenberg attended the University of Delaware's
School of Human Resources in Newark, Delaware.
DAVID L. ZYLKA has been our Vice President of Engineering since
January 2000. He reports to our Chief Operating Officer and is responsible
for the quality and technical performance of all network operations. Mr.
Zylka has 10 years experience in the telecommunications industry. From
January 1999 to December 1999, he served as the Vice President of Engineering
for Frontier Cellular Communications in Rochester, NY where he developed and
executed a $59 million CDMA network expansion plan. Before he joined Frontier
Cellular Communications, Mr. Zylka held various positions at Comcast Cellular
Communications in Philadelphia, Pennsylvania from May 1991 to November 1998,
including Vice President of Systems Performance. He was responsible for the
operational and performance engineering for the Comcast Cellular network. Mr.
Zylka holds a Bachelor of Science in Electrical Engineering from the United
States Military Academy at West Point and a Masters of Science in Information
Systems Management from Golden Gate University.
BOARD OF DIRECTORS
The board of directors is currently fixed at nine members. The five
directors currently comprising our board of directors were all elected
pursuant to our stockholders agreement. Currently there are four vacancies on
the board. By September 11, 2000, we expect to fill the vacancies with at
least three outside directors and one designee of DLJ Merchant Banking
pursuant to the terms of our stockholders agreement. We expect the outside
directors to be experienced leaders in the telecommunications and business
communities with direct experience managing and advising public companies. As
of June 12, 2000, the closing of our initial public offering, our
stockholders agreements were terminated and our directors were divided into
three classes. Mr. Lucas and two of the additional directors to be named to
the board will serve as the Class I directors, and their terms will expire at
our 2001 annual stockholders' meeting. Ms. Trkla and two of the three
additional directors to be named to the board will serve as the Class II
directors, and their terms will expire at our 2002 annual stockholders'
meeting. Messrs. Harris, Berlacher and Walter will serve as the Class III
directors, and their terms will expire at our 2003 annual stockholders'
meeting. At each annual meeting, the successors to the directors whose terms
expire will be elected to serve three-year terms.
By September 11, 2000, the board of directors will establish an
audit committee, one of whose members shall be the designee of DLJ Merchant
Banking pursuant to our stockholders agreement, and a compensation committee.
The audit committee will be responsible for recommending to the
board of directors the engagement of our independent auditors and reviewing
with the independent auditors the scope and results of the audits, our
internal accounting controls, audit practices and the professional services
furnished by the independent auditors.
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The compensation committee will be responsible for reviewing and
approving all compensation arrangements for our officers, and is also
responsible for administering the equity incentive plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee during the year ended December 31, 1999,
consisted of the board of directors. During 1999, Donald A. Harris served as
both an executive officer and a director and has continued to serve in those
capacities in 2000. Mr. Harris participated in deliberations of the board of
directors concerning compensation of executive officers. None of the
executive officers served as a director or member of the compensation
committee or other board committee performing equivalent functions of another
corporation, one of whose executive officers served on our board of directors.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws limit the liability of
directors to the maximum extent permitted by Delaware law. The limitation on
our directors' liability may not apply to liabilities arising under the
federal securities laws. Our certificate of incorporation and bylaws provide
that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and agents and other agents to the
fullest extent permitted by law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to our directors
and executive officers pursuant to our certificate of incorporation and
bylaws, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving
any of our directors, officers, employees or agents where indemnification
will be required or permitted. We are not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table presents summary information with respect to the
compensation paid to our Chief Executive Officer. None of our other executive
officers' salary and bonus exceeded $100,000 during the year ended December
31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
ANNUAL COMPENSATION UNDERLYING
---------------------- OPTION AWARDS ALL OTHER
SALARY ($) BONUS ($) (# OF SHARES) COMPENSATION ($)
<S> <C> <C> <C> <C>
Donald A. Harris...................... 19,231(1) -- 2,550,000(2) 1,193,505(3)
Chairman of the Board, President and
Chief Executive Officer
</TABLE>
------------------
(1) Mr. Harris' annualized salary was $200,000 for 1999. However, he did not
begin to draw any salary until December 1999.
(2) In December 1999, we granted Mr. Harris stock options to purchase up to
2,550,000 shares of our common stock at an exercise price of $0.50 per
share. Subject to earlier vesting upon a change of control, the options
vest in three equal annual installments beginning on November 29, 2000.
(3) Of such amount, $993,505 represents non-cash compensation expense recorded
by us in connection with issuing shares of our non-voting common stock to
Mr. Harris under the founders stock agreement. The remaining $200,000
represents a payment by us to Mr. Harris for services rendered prior to our
incorporation.
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In November 1999, we entered into an employment agreement with our
President and Chief Executive Officer that provides for an annual base salary
of $200,000 for a three year term. See "Employment Agreements." Our Chief
Operating Officer will receive an annual base salary of $165,000 in 2000. Our
Senior Vice President--Corporate Development and Finance will receive an
annual base salary of $125,000 in 2000. We are currently conducting a search
for a Chief Financial Officer and expect to provide annual compensation
customary for a position of this type within our industry.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options to
acquire shares of our common stock made during the fiscal year ended December
31, 1999 to each of the named executive officers. No stock appreciation
rights were granted to these individuals during that year.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(IN THOUSANDS)
EXCEPT PER SHARE DATA
--------------------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS REALIZABLE AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO EXERCISE OFFERING VALUE OF STOCK PRICE APPRECIATION
UNEXERCISED EMPLOYEES OR BASE PRICE TO OFFERING FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE PUBLIC EXPIRATION PRICE TO ---------------------------
NAME GRANTED(1) YEAR ($)/(SH)(2) ($)/(SH)(3) DATE PUBLIC(3) 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald A. Harris... 2,550,000 80% $0.50 $8.00 11/29/09 $19,125,000 $24,761,112 $31,579,404
</TABLE>
------------------
(1) Subject to earlier vesting upon a change of control, the options granted to
Mr. Harris vest annually in three equal installments beginning November 29,
2000.
(2) Prior to our initial public offering, there had been no public market for
our common stock. The exercise price of each of these options is equal to
the fair market value of our common stock on the date of grant as
determined by our board of directors.
(3) Potential realizable value is based on the product of our initial public
offering price minus the exercise price multiplied by the number of shares
underlying the options.
(4) Potential realizable value is based on the assumption that the common stock
price appreciates at the annual rate shown, compounded annually, from the
date of grant until the end of the option term. The amounts have been
calculated based on the assumed appreciation rates shown in the table,
assuming a per share market price equal to our initial public offering
price of $8.00 per share. The actual value, if any, a named executive
officer may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised, if the executive were
to sell the shares on the date of exercise, so there is no assurance that
the value realized will be equal to or near the potential realizable value
as calculated in this table.
AGGREGATED 1999 FISCAL YEAR-END OPTION VALUES
The following table provides summary information regarding options
held by each of 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 our
initial public offering price of $8.00 per share less the exercise price
payable for such shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL
SHARES ACQUIRED VALUE AT FISCAL YEAR-END(#) YEAR-END
NAME ON EXERCISE(#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
---- --------------- -------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Donald A. Harris...... - - 0/2,550,000 $0/$19,125,000
</TABLE>
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OPTION GRANTS IN FISCAL YEAR 2000
None of our executive officers or directors have been granted stock
options or stock appreciation rights in fiscal 2000 through the date of this
prospectus, except for 75,000 options priced at our initial public offering
price of $8.00 per share granted to Andrew W. Buffmire.
COMPENSATION OF DIRECTORS
Currently, we do not compensate our directors. We do reimburse
directors for their expenses of attendance at board meetings. As of June 12,
2000, the closing of our initial public offering, each of our independent
directors who is not an employee of ours or a board designee of one of our
current stockholders will receive an annual fee of $12,000 for serving on our
board, plus a $1,000 fee for each regularly scheduled meeting he or she
attends and a $1,000 fee for each special meeting and each committee meeting
he or she attends. In addition, each of these directors, upon joining our
board, receives an option to purchase 20,000 shares of our common stock at an
exercise price equal to the fair market value of the stock on the date of
grant. These options will typically vest over three years.
EMPLOYMENT AGREEMENTS
In November 1999, we entered into an employment agreement with
Donald A. Harris, our Chairman of the Board, President and Chief Executive
Officer. Mr. Harris' employment agreement is for a three-year term and
provides for an annual base salary of $200,000, with a guaranteed annual
increase of 5% over the next two years. In addition to his base salary, Mr.
Harris is eligible to receive bonuses in such amounts and at such times as
determined by the disinterested members of our Board of Directors. Under the
employment agreement, we granted Mr. Harris stock options to purchase
2,550,000 shares of our common stock at a purchase price of $0.50 per share.
Mr. Harris' stock options vest in three equal installments over a period of
three years. In the event of a defined change of control, all of these
options will become fully exercisable.
The employment agreement provides that Mr. Harris' employment may be
terminated by us with or without cause, as defined in the agreement, at any
time or by Mr. Harris for any reason at any time upon thirty days' written
notice to us. If Mr. Harris' employment is terminated by us without cause, he
is entitled to receive one year's base salary and benefits, and all his
unvested stock options will immediately vest on the date of termination. If
Mr. Harris's employment is terminated by us for cause, he is not entitled to
any compensation or benefits other than unpaid salary and benefits and
unreimbursed expenses incurred by him through the date of termination. If Mr.
Harris voluntarily terminates his employment, he is entitled to unpaid salary
and benefits and unreimbursed expenses incurred by him through the date of
termination. Under the employment agreement, Mr. Harris agreed not to compete
in the business of wireless telecommunications either directly or indirectly
in our present and future markets during his employment and for a period of
one year after his employment is terminated. In addition, Mr. Harris agreed
not to disclose any of our confidential information and not to solicit any of
our customers or employees during his employment and for a period of one year
after his employment is terminated.
2000 EQUITY INCENTIVE PLAN
Our board of directors has adopted, and our stockholders have
approved, the UbiquiTel Inc. 2000 Equity Incentive Plan. Under the equity
incentive plan, stock options and other equity-based awards may be granted to
our and our subsidiaries' directors, officers, selected employees and
consultants. A committee of our board of directors administers the equity
incentive plan.
The committee may grant stock options, stock appreciation rights and
other equity-based awards to eligible persons. In no event, however, may the
committee grant awards relating to more than 4,080,000 shares of our common
stock pursuant to the equity incentive plan. Shares subject to awards that
expire or are terminated or canceled prior to exercise or payment, or
forfeited or reacquired by us pursuant to rights reserved upon issuance, may
be issued again under the equity incentive plan. Awards paid in cash are not
counted against the number of shares that may be issued under the equity
incentive plan.
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Awards may be satisfied by the delivery of either authorized but
unissued common stock or issued common stock held as treasury shares. The
committee may grant one or more types of awards in any combination to a
particular participant in a particular year. Subject to earlier termination
by our board of directors, the equity incentive plan will remain in effect
until all awards have been satisfied in stock or in cash or terminated under
the terms of the equity incentive plan and all restrictions imposed on stock
in connection with its issuance under the equity incentive plan have lapsed.
Except in the case of an award of stock to a participant as additional
compensation for services to us or our subsidiaries, each award will be
confirmed by, and is subject to the terms of, an agreement executed by the
participant and us.
Following is a description of each type of award or grant in respect
of our common stock that may be made under the equity incentive plan.
STOCK OPTIONS
Stock options may be incentive stock options that comply with the
requirements of Section 422 of the Internal Revenue Code or nonqualified
stock options that do not comply with Section 422 of the Internal Revenue
Code. The board will determine the exercise price and other terms and
conditions of options.
The exercise price for an option may be paid in shares of common
stock valued at their then fair market value if the shares have been held by
the optionee for at least six months. To the extent permitted by the board,
the exercise price for an option may be paid in shares of common stock that
have not been held for six months, or in any other manner.
All incentive options expire no later than 10 years after the date
of grant. Incentive options may not be granted to any participant who, at the
time of the grant, would own (as determined by the Internal Revenue Code)
more than 10% of the total combined voting power of all classes of our stock
or of any of our subsidiaries.
STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
A stock appreciation right is a right to receive, without payment to
us, a number of shares of stock, cash or a combination thereof, as determined
by a formula. A limited stock appreciation right is a right to receive,
without payment to us, cash in amount determined by a formula upon specified
change in control events. Stock appreciation rights may be granted in
conjunction with all or any part of a stock option or independently. Upon the
exercise of a stock appreciation right, the participant will be entitled to
receive, for each share of common stock to which the exercised stock
appreciation right relates, the excess of the fair market value per share of
common stock on the date of exercise over the grant price of the stock
appreciation right. Stock appreciation rights shall have such terms and
conditions as may be established by the board. Upon the exercise of a limited
stock appreciation right, the participant will be entitled to receive a cash
payment, for each share of common stock to which the exercised limited stock
appreciation right relates, equal to the excess of the defined change of
control value over the grant price of the limited stock appreciation right.
OTHER STOCK-BASED AWARDS
The committee has the authority under the equity incentive plan to
make other awards that are valued in whole or in part by reference to, or are
payable in or otherwise based upon, shares of common stock, including awards
valued by reference to our performance or the performance of our
subsidiaries. The committee will determine the participants to whom and the
times at which these awards will be made, the number of shares of common
stock to be awarded and all other terms and conditions of the awards.
If, with respect to the common stock, there is any recapitalization,
reclassification, stock dividend, stock split, combination of stock or other
similar change in stock, the number of shares of common stock issuable or
issued under the equity incentive plan, including stock subject to
restrictions, options or achievement of performance objectives, shall be
adjusted in proportion to the change in the number of outstanding shares of
common stock. In the event of any of these adjustments, the board will
adjust, to the extent appropriate, the
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purchase price of any option, the performance objectives of any award and the
stock issuable pursuant to any award to provide participants with the same
relative rights before and after the adjustment.
In the event of a defined change of control, all outstanding
options, including incentive options, stock appreciation rights and limited
stock appreciation rights granted pursuant to the equity incentive plan, will
become fully exercisable, all restrictions or limitations on any award under
the equity incentive plan will lapse, and all performance criteria and other
conditions relating to the payment of awards will be deemed achieved or
waived by us without further action.
The equity incentive plan may be amended or terminated at any time
by our board of directors, except that no amendment may be made without
stockholder approval if such approval is necessary to comply with any tax or
regulatory requirement.
The equity incentive plan is not subject to any provision of ERISA
and is not qualified under Section 401(a) of the Internal Revenue Code.
We have granted an aggregate of 1,215,000 non-qualified options
pursuant to our equity incentive plan of which 650,000 were granted in 1999
and the balance of 565,000 were granted in January 2000. We granted an
additional 2,550,000 non-qualified options in 1999.
NONCOMPETITION AGREEMENTS
In connection with the granting of any stock options or equity-based
awards under our equity incentive plan to any of our employees, each employee
is required to enter into a noncompetition agreement. These agreements will
provide that for so long as the employee works for us, and for a period of
one year after the employee's termination for any reason, the employee may
not disclose in any way any confidential information. The agreements also
provide that for so long as the employee works for us and for a period of one
year after the employee's termination for any reason, the employee is
prohibited from:
- engaging in the same business or in a similar capacity in our
markets;
- soliciting business in competition with us; and
- hiring any of our employees or directly or indirectly causing any
of our employees to leave their employment to work for another
employer.
In the event of a breach of the noncompetition agreement by an
employee, we have the option to repurchase any and all shares held by the
employee at the employee's exercise price. We may also pursue any other
remedies provided by law or in equity.
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PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial
ownership of our common stock as of May 31, 2000, by the following
individuals or groups:
- each person or entity who is known by us to own beneficially
more than 5.0% of our common stock;
- each of our named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of our common stock that
are subject to warrants or stock options that are presently exercisable or
exercisable within 60 days of May 31, 2000 are deemed to be outstanding and
beneficially owned by the person holding the warrants or stock options for
the purpose of computing the percentage of ownership of that person, but are
not treated as outstanding for the purpose of computing the percentage of any
other person.
Unless indicated otherwise below, the address of our directors and
officers is c/o UbiquiTel Inc., 1 Bala Plaza, Suite 402, Bala Cynwyd,
Pennsylvania 19004. Except as indicated below, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNERSHIP(11)
----------------------------------------------------------- --------------------- ------------------
<S> <C> <C>
Eve M. Trkla(1)..................................... 9,338,000 14.9%
Brookwood UbiquiTel Investors, LLC
Peter Lucas(2)...................................... 5,402,700 8.6
CBT Wireless Investments, L.L.C.
BET Associates, L.P.(3)............................. 4,978,150 7.9
Donaldson, Lufkin & Jenrette Merchant Banking Partners
II, L.P.(4)...................................... 4,297,696 6.8
Donald A. Harris(5)................................. 4,029,802 6.4
New Ventures, L.L.C.(6)............................. 4,002,000 6.4
SpectraSite Communications, Inc.(7)................. 3,335,000 5.3
Stephen C. Marcus(8)................................ 3,001,800 4.8
Joseph N. Walter(9)................................. 2,614,034 4.2
The Walter Group, Inc.
Robert A. Berlacher(10)............................. 2,701,050 4.3
Lancaster Investment Partners....................
Paul F. Judge....................................... 819,324 1.3
All officers and directors as a group (7 persons)... 7,550,176 12.0
</TABLE>
-----------
(1) The address of Brookwood UbiquiTel Investors, LLC, is 55 Tozer Road,
Beverly, Massachusetts 01915. Ms. Trkla, a director of ours, is a principal
of Brookwood UbiquiTel Investors and may be deemed to be the beneficial
owner of the shares held by Brookwood UbiquiTel Investors, LLC. Ms. Trkla
disclaims beneficial ownership of such shares.
(2) The address of CBT Wireless Investments, L.L.C., is 1733 H Street,
#330-141, Blaine, Washington 98230. Peter Lucas, a director of ours, serves
as the general manager of CBT Wireless Investment and has investment power
over its shares as to which Mr. Lucas disclaims beneficial ownership.
(3) The address of BET Associates, L.P., is 3103 Philmont Avenue, Huntington
Valley, Pennsylvania 19006.
(4) The address of DLJ Merchant Banking Partners II, L.P. is 277 Park Avenue,
New York, New York 10172. A board designee of DLJ Merchant Banking Partners
II, L.P. is yet to be named pursuant to the terms of our stockholder
agreement.
88
<PAGE>
(5) Includes 240,000 shares held by the Harris Family Trust as to which shares
Mr. Harris disclaims beneficial ownership. Mr. Harris serves as our
Chairman of the Board, President and Chief Executive Officer and as a
director.
(6) The address of New Ventures, L.L.C., is 211 North Union Street, Suite 300,
Alexandria, Virginia 22314.
(7) The address of SpectraSite Communications is 160 Regency Forest Drive,
Suite 400, Cary, North Carolina 27511.
(8) The address of Stephen Marcus is 915 Exeter Crest, Villanova, Pennsylvania
19085.
(9) The address of The Walter Group, Inc., is 120 Lakeside Avenue, Suite 310,
Seattle, Washington 98122-6578. Joseph N. Walter, a director of ours, is a
principal of The Walter Group, Inc. and may be deemed to beneficially owner
of the shares held by The Walter Group, Inc. Mr. Walter disclaims
beneficial ownership of such shares.
(10) Includes 2,001,000 shares held of record by Lancaster Investment Partners,
L.P. Robert A. Berlacher, a director of ours, is President of LIP Advisors,
Inc., the general partner of Lancaster Investor Partners, L.P. The address
of Mr. Berlacher and Lancaster Investment Partners, L.P. is 1150 First
Avenue, Suite 600, King of Prussia, Pennsylvania 19406.
(11) Based on 62,763,604 outstanding shares of common stock, after giving effect
to our initial public offering in June 2000.
89
<PAGE>
CERTAIN TRANSACTIONS
UbiquiTel and its management and security holders and their
respective affiliates engage in a variety of transactions between or among
each other in the ordinary course of their respective businesses. All of
these related party transactions that are material to UbiquiTel are described
below. As a general rule, we have not retained an independent third party to
evaluate these transactions, and there has been no independent committee of
our board of directors to evaluate these transactions. Notwithstanding this
fact, we believe that the terms and conditions of these transactions,
including the fees or other amounts paid by us, took into account
transactions of a similar nature entered into by us with unaffiliated third
parties and/or market transactions of a similar nature entered into by
unaffiliated third parties. There can be no assurance that we could not have
obtained more favorable terms from an unaffiliated third party.
COMMON STOCK ISSUANCES
The following tables set forth, as of May 31, 2000, all shares of
our voting and non-voting common stock that have been issued to our
stockholders. All of these amounts have been adjusted to give effect to the
two-for-one stock split that was effected in connection with our initial
public offering.
ISSUANCES OF VOTING COMMON STOCK IN NOVEMBER 1999 AND APRIL 2000:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------------- --------------------
<S> <C> <C>
The Walter Group, Inc.................... 2,614,034 $1,281
Donald A. Harris......................... 2,028,802 994
James Parsons............................ 905,158 444
Paul F. Judge............................ 819,324 402
US Bancorp............................... 603,440 296
---------------------- --------------------
Totals................................ 6,970,758 $3,417
---------------------- --------------------
</TABLE>
These amounts include shares that were issued in April 2000, at no
additional costs, to our founding stockholders to maintain certain specified
stock percentages. These additional shares were issued as a result of our
contractual obligations under a founders stock agreement. See
"--Stockholders' Agreements" below.
ISSUANCES OF NON-VOTING COMMON STOCK IN NOVEMBER 1999:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- ---------------------- --------------------
<S> <C> <C>
The Walter Group......................... 12,000,320 $6,000
James Parsons............................ 4,155,200 2,078
Donald A. Harris......................... 9,313,280 4,657
US Bancorp............................... 2,770,240 1,385
Paul F. Judge............................ 3,760,960 1,880
---------------------- --------------------
Totals................................ 32,000,000 $16,000
---------------------- --------------------
</TABLE>
The shares of non-voting common stock were issued to the holders
pursuant to the terms of a founders stock agreement. All outstanding shares
of our non-voting common stock were canceled as of June 12, 2000, the closing
of our initial public offering, for nominal value. The holders of these
shares of non-voting common stock were not entitled to equity participation
rights, such as rights to receive dividends or other distributions in the
event we are sold, merged or liquidated.
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<PAGE>
PREFERRED STOCK ISSUANCES
The following tables set forth, as of May 31, 2000, shares of our
preferred stock that have been issued to our stockholders that are deemed to
beneficially own, as of April 12, 2000, more than 5% of our common stock, or
who serve as our executive officers or directors. All shares of preferred
stock were converted into shares of our common stock on June 12, 2000, the
closing of our initial public offering. The amounts listed below in the
tables have been adjusted to reflect the number of shares of our common
stock, after giving effect to the two-for-one stock split, that the preferred
stock was automatically converted into as a result of our initial public
offering.
ISSUANCES OF SERIES A PREFERRED STOCK IN NOVEMBER 1999:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- --------------------- --------------------
<S> <C> <C>
Brookwood UbiquiTel Investors, L.L.C......................... 9,338,000 $4,669,000
CBT Wireless Investments, L.L.C.............................. 5,402,700 2,701,350
New Ventures, L.L.C.......................................... 4,002,000 2,001,000
Stephen C. Marcus............................................ 3,001,800 1,500,900
SpectraSite Communications, Inc.............................. 3,335,000 1,667,500
Donald A. Harris............................................. 2,001,000 1,000,500
Lancaster Investment Partners................................ 2,001,000 1,000,500
Robert A. Berlacher.......................................... 700,050 350,025
--------------------- --------------------
Totals.................................................... 29,781,550 $14,890,775
--------------------- --------------------
</TABLE>
Our director, Ms. Trkla, is affiliated with Brookwood UbiquiTel
Investors, L.L.C. Our director, Peter Lucas, is affiliated with CBT Wireless
Investments, L.L.C. Our director, Mr. Berlacher, is affiliated with Lancaster
Investment Partners.
ISSUANCES OF SERIES B PREFERRED STOCK IN FEBRUARY 2000 AND APRIL 2000:
<TABLE>
<CAPTION>
TOTAL
NAME NUMBER OF SHARES PURCHASE PRICE
---- --------------------- --------------------
<S> <C> <C>
DLJ Merchant Banking..................... 4,297,696 $25,000,000
</TABLE>
This amount includes shares that were issued in April 2000, at no
additional cost, to DLJ Merchant Banking, to maintain certain specified stock
percentages. These additional shares were issued as a result of our
contractual obligations under a preferred stock purchase agreement with DLJ
Merchant Banking. These anti-dilution rights granted to DLJ Merchant Banking
expired upon the closing of our initial public offering.
TERMS OF PREFERRED STOCK
The holders of our preferred stock were entitled to the number of
votes equal to the number of shares of common stock into which they could
have been converted. The holders of our preferred stock were also entitled to
receive dividends at a rate of 7% per year and dividends accrued if not paid.
No dividends were paid to the holders of the preferred stock prior to the
completion of our initial public offering. Upon completion of our initial
public offering, the shares of preferred stock automatically converted into
shares of our common stock on a one-for-one basis and the following cash
dividends were paid to satisfy outstanding dividend arrearages to the holders
of preferred stock that are listed in the tables above as follows:
91
<PAGE>
<TABLE>
<CAPTION>
NAME AMOUNT OF CASH DIVIDEND
---- ------------------------------
<S> <C>
Brookwood UbiquiTel Investors, L.L.C............... $143,338
CBT Wireless Investments, L.L.C.................... 81,892
New Ventures, L.L.C................................ 61,431
Stephen C. Marcus.................................. 45,479
SpectraSite Communications, Inc.................... 51,192
Donald A. Harris................................... 30,715
Lancaster Investment Partners...................... 30,715
Robert A. Berlacher................................ 10,606
DLJ Merchant Banking............................... 493,836
</TABLE>
STOCKHOLDERS' AGREEMENTS
In connection with the issuance of our common stock to founders in
November 1999, we entered into a founders stock agreement. The founders stock
agreement provides, among other things, that the founding stockholders will
become vested in shares of our voting common stock to maintain certain
specified percentages of voting common stock. As a result of the founders
stock agreement, our founding stockholders vested, at no additional costs to
the founding stockholders, in a total of 136,758 shares of our voting common
stock in April 2000. These shares are reflected in the tables set forth
above. Our founding stockholders have also entered into a co-sale agreement,
which provides certain co-sale rights if a founding stockholder desires to
sell our shares.
In connection with the issuance of our preferred stock, we entered
into stockholders' agreements. The stockholders' agreements include
provisions relating to the election of our directors, as well as tag-along,
bring-along, preemptive and first offer rights.
All of these agreements terminated upon the closing of our initial
public offering.
REGISTRATION RIGHTS AGREEMENTS
We have also granted registration rights to all of the persons who
were our stockholders prior to our initial public offering. Under these
agreements, we are required to register shares of common stock upon request.
The registration rights agreements survived the closing of our initial public
offering. See "Description of Capital Stock--Registration Rights."
WARRANTS
In December 1999, we borrowed $8.0 million from BET Associates and
issued BET Associates a warrant to purchase 2,489,175 shares of our common
stock. On April 12, 2000, BET Associates exercised the warrant for a purchase
price of $24,891 and was issued 2,489,175 shares of our common stock, which
were converted into 4,978,150 shares as a result of a two-for-one stock split
in connection with our initial public offering. We agreed to certain
repurchase provisions relating to the common stock issued to BET Associates
under the warrant. The repurchase provisions terminated upon the closing of
our initial public offering.
Upon the closing of our senior subordinated note offering, we issued
to Donaldson, Lufkin & Jenrette Securities Corporation warrants to purchase
shares of our common stock. These warrants were cancelled prior to the
closing of our initial public offering and we issued new warrants to
Donaldson, Lufkin & Jenrette Securities Corporation to purchase up to 86,183
shares of our common stock at an exercise price equal to the initial public
offering price of $8.00 per share. These warrants will be exercisable at any
time after the first anniversary of our initial public offering and expire on
the fifth anniversary of our initial public offering.
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<PAGE>
LOAN WITH STOCKHOLDER
In December 1999, we borrowed $8.0 million from BET Associates. The
note evidencing the borrowing of $8.0 million provided that interest at 12%
would be payable quarterly, commencing April 1, 2000, and would mature on
December 28, 2007. We paid the note in full from the proceeds of our sale of
senior subordinated discount notes on April 11, 2000. The prepayment of the
BET Associates note included unpaid interest of $276,000, and a prepayment
fee of $80,000.
CONTRACTUAL ARRANGEMENTS WITH STOCKHOLDERS
We have a master lease-agreement with SpectraSite Communications.
SpectraSite Communications did not receive any payments under our agreement
during 1999. We recently entered into a new master site agreement with
SpectraSite Communications for its existing towers as well as towers that it
may construct for us on build-to-suit sites that we identify from time to
time under a master design and build agreements between us. Under the master
design and build agreement, SpectraSite Communications has the right of first
refusal to construct and acquire build-to-suit sites and we are entitled to
engage SpectraSite Communications to handle any construction necessary to
install our network equipment on shared facilities that we license or
sublicense from SpectraSite Communications or any third party. The master
design and build agreement has a term of five years unless services have been
performed in markets totaling a covered population of ten million. Under the
master site agreement, we intend to license space on build-to-suit sites or
sublicense space on SpectraSite Communication's existing towers to house our
network equipment. See "Business--Business Strategy--Utilize Other Strategic
Third Party Relationships in Network Build-out--SpectraSite Communications"
for a description of the general terms of the master site agreement. For the
three months ended March 31, 2000, UbiquiTel accrued fees of $773,000 due to
SpectraSite.
We received consulting services from The Walter Group in 1999. We
paid The Walter Group $148,000 for these consulting services in 1999. In
January, 2000, The Walter Group sold certain of its assets to Wireless
Facilities Inc., a wireless engineering and consulting firm. As a result,
consulting services that we previously received from The Walter Group are now
provided by Wireless Facilities, Inc., which is not affiliated with any of
our directors, officers or principal stockholders.
OTHER FEES PAID TO STOCKHOLDERS
An affiliate of Donaldson, Lufkin & Jenrette entered into a
commitment letter with us in February 2000 to provide up to $125.0 million of
senior subordinated increasing rate notes. The commitment letter provided
that the affiliate of Donaldson, Lufkin & Jenrette would be paid a fee upon
the closing of our senior subordinated discount notes offering. We paid the
commitment fee of $531,250 on April 11, 2000. Donaldson, Lufkin & Jenrette
was also one of the initial purchasers under our sale of units of warrants
and senior subordinated discount notes in April 2000, for which they received
approximately $4.5 million for performing these services. Donaldson, Lufkin &
Jenrette Securities Corporation was the lead manager of our initial public
offering and received underwriting compensation of approximately $6.3 million.
During 1999, we paid Mr. Parsons $911,000 and we paid US Bancorp
$604,000 for services provided to us in connection with obtaining,
negotiating and closing of the sale of our preferred stock in November 1999.
We also paid a fee of $1.0 million to an entity affiliated with Mr. Parsons
in April 2000 in connection with the closing of our $250.0 million senior
credit facility.
ASSIGNMENT OF SPRINT PCS AGREEMENT TO US
In October 1998, a limited liability company whose sole member was
The Walter Group entered into a management agreement with Sprint PCS whereby
it became the Sprint PCS affiliate with the exclusive right to provide PCS
services under the Sprint and Sprint PCS brand names in the Reno/Tahoe
market. The limited liability company subsequently changed its name to
UbiquiTel L.L.C. During the period from October 1998 to October 1999,
UbiquiTel L.L.C. attempted unsuccessfully to obtain financing for the
build-out of the Reno/Tahoe market. In November 1999, UbiquiTel L.L.C.
assigned the management and related agreements to us. UbiquiTel L.L.C. had no
operations or financial transactions prior to the assignment of these
agreements to us.
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<PAGE>
WARRANTHOLDERS
Below is information with respect to the number of warrants and
shares of our common stock issuable upon exercise of the warrants owned by
each of the warrantholders. The warrants are being registered to permit
public secondary trading of the warrants and the shares of our common stock
issued upon the exercise of the warrants, and the warrantholders may offer
the warrants and shares of our common stock issued upon the exercise of the
warrants for resale from time to time. See "Plan of Distribution."
We have filed with the SEC a registration statement, of which this
prospectus forms a part, with respect to the resale of the warrants and the
issuance and resale of the shares of our common stock issued upon the
exercise of the warrants from time to time, under Rule 415 under the
Securities Act, in the over-the-counter market, in privately negotiated
transactions, in underwritten offerings or by a combination of these methods
for sale, and have agreed to use our best efforts to keep this registration
statement effective until the date on which all of the warrants or shares of
our common stock issued upon exercise of the warrants have been sold pursuant
to this registration statement or the warrants have expired, though we are
required to keep this registration statement effective so long as any
affiliate of ours holds warrants or shares of our common stock issued upon
exercise of the warrants.
The warrants and the shares of our common stock issued upon the
exercise of the warrants offered by this prospectus may be offered from time
to time by the persons or entities named below:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS OWNED PERCENTAGE
PRIOR TO THE OFFERING OF
PERCENTAGE OF ------------------------------- OUTSTANDING
OUTSTANDING NUMBER OF SHARES COMMON
COMMON STOCK ISSUABLE UPON STOCK OWNED
OWNED PRIOR NUMBER OF EXERCISE OF AFTER
NAME AND ADDRESS OF HOLDER TO OFFERING WARRANTS WARRANTS OFFERING
------------------------------------------- --------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
American Express Trust Company -- 4,500 53,685 --
3922 AXP Financial Center
Minneapolis, MN 55474
The Bank of New York -- 5,730 68,359 --
925 Patterson Plank Road
Secaucus, NJ 07094
Bankers Trust Company -- 2,725 32,509 --
648 Grassmere Park Drive
Nashville, TN 37211
Bank One Trust Company, N.A. -- 170 2,028 --
1900 Polaris Parkway
Columbus, OH 43240
Boston Safe Deposit and Trust Company -- 8,715 103,970 --
c/o Mellon Bank, N.A.
Pittsburgh, PA 15259
Brown Brothers Harriman & Co. -- 201 2,398 --
63 Wall Street, 8th Floor
New York, NY 10005
Chase Bank of Texas, N.A. -- 14,000 167,020 --
P.O. Box 2558
Houston, TX 77252
<PAGE>
NUMBER OF WARRANTS OWNED PERCENTAGE
PRIOR TO THE OFFERING OF
PERCENTAGE OF ------------------------------- OUTSTANDING
OUTSTANDING NUMBER OF SHARES COMMON
COMMON STOCK ISSUABLE UPON STOCK OWNED
OWNED PRIOR NUMBER OF EXERCISE OF AFTER
NAME AND ADDRESS OF HOLDER TO OFFERING WARRANTS WARRANTS OFFERING
------------------------------------------- --------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Chase Manhattan Bank -- 20,655 246,414 --
4 New York Plaza
New York, NY 10004
Chase Manhattan Bank Trust -- 30,000 357,900 --
4 New York Plaza
New York, NY 10004
Citibank, N.A. -- 40,006 477,271 --
3800 Citicorp. Center Tampa
Tampa, FL 33610
Donaldson, Lufkin and Jenrette 6.8%(1) 37,430 446,540 6.8%(1)
Securities Corporation
1 Pershing Plaza
Jersey City, NJ 07399
Donaldson, Lufkin and Jenrette 6.8%(1) 86,183(2) 86,183 6.8%(1)
Securities Corporation
1 Pershing Plaza
Jersey City, NJ 07399
FirStar Bank, N.A. -- 5,000 59,650 --
425 Walnut Street
Cincinnati, OH 45201
Investors Bank & Trust -- 125 1,491 --
200 Claredon Street
Boston, MA 02116
<PAGE>
NUMBER OF WARRANTS OWNED PERCENTAGE
PRIOR TO THE OFFERING OF
PERCENTAGE OF ------------------------------- OUTSTANDING
OUTSTANDING NUMBER OF SHARES COMMON
COMMON STOCK ISSUABLE UPON STOCK OWNED
OWNED PRIOR NUMBER OF EXERCISE OF AFTER
NAME AND ADDRESS OF HOLDER TO OFFERING WARRANTS WARRANTS OFFERING
------------------------------------------- --------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Investors Bank & Trust -- 13,500 161,055 --
200 Claredon Street
Boston, MA 02116
Mercantile - Safe Deposit & Trust Company -- 1,085 12,944 --
766 Old Hammonds Ferry Road
Linthicum, MD 21090
Northern Trust Company -- 1,890 22,548 --
801 S. Canal
Chicago, IL 60607
PNC Bank, National Association -- 9,710 115,840 --
8800 Tinicum Boulevard
Philadelphia, PA 19153
Salomon Smith Barney Inc. -- 165 1,968 --
333 W. 34th Street
New York, NY 10001
State Street Bank and Trust Company -- 84,053 1,002,752 --
1776 Heritage Drive
North Quincy, MA 02171
C.I.S. Bank, National Association -- 20,340 242,656 --
601 Second Avenue South
Minneapolis, MN 55402
</TABLE>
----------------
(1) Includes shares of our common stock held by the named holder's affiliate
Donaldson, Lufkin & Jenrette Merchant Banking Partners II, L.P.
(2) Represents DLJ warrants.
None of the holders named above has, or since our inception
(September 29, 1999) had, any position, office or other material relationship
with us or any of our affiliates, except Donaldson, Lufkin & Jenrette
Securities Corporation and one of its affiliates, which are disclosed under the
heading "Certain Transactions--Preferred Stock Issuances and --Other Fees Paid
to Stockholders."
Because the selling holders may, under this prospectus, offer all or
some portion of the warrants or the common stock issued upon exercise of the
warrants, no estimate can be given as to the number of the warrants or shares
of common stock issued upon exercise of the warrants that will be held by the
selling holders upon termination of any sales. In addition, the selling
holders above may have sold, transferred or otherwise disposed of all or any
portion of their warrants, since the date on which they provided the
information regarding their warrants, in transactions exempt form the
registration requirements of the Securities Act. See "Plan of Distribution."
Only selling holders identified above who beneficially own the
securities set forth opposite each selling holder's name in the table above
on the effective date of the registration statement of which this prospectus
forms a part may sell those securities under the registration statement.
Prior to any use of this prospectus in connection with an offering of the
warrants and/or the shares of our common stock issued upon exercise of the
warrants by any holder not identified above this prospectus will be
supplemented to set forth the name and number of warrants and/or shares of
our common stock beneficially owned by the selling securityholder intending
to sell such warrants and/or shares of common stock, and the number of
warrants and/or shares of common stock to be offered. The prospectus
supplement will also disclose whether any selling securityholder selling in
connection with the prospectus supplement has held any position or office
with, been employed by or otherwise has had a material relationship with, us
or any of our subsidiaries or affiliates during the three years prior to the
date of the prospectus supplement if this information has not been disclosed
in this prospectus.
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<PAGE>
REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The Federal Communications Commission, commonly referred to as the
FCC, regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States. The FCC has promulgated, and is in the process of
promulgating, a series of rules, regulations and policies to, among other
things:
- grant or deny licenses for PCS frequencies;
- grant or deny PCS license renewals;
- rule on assignments and/or transfers of control of PCS licenses;
- govern the interconnection of PCS networks with other wireless
and wireline carriers;
- establish access and universal service funding provisions;
- impose fines and forfeitures for violations of any of the FCC's
rules; and
- regulate the technical standards of PCS networks. The FCC
currently prohibits a single entity from having a total
attributable interest (20% or greater interest in any license) in
broadband PCS, cellular and SMR licenses totaling more than 45
MHz in all geographic areas except rural areas. In rural areas,
the so-called "spectrum cap" is 55 MHz.
TRANSFERS AND ASSIGNMENTS OF PCS LICENSES
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license.
Non-controlling interests in an entity that holds a PCS license or operates
PCS networks generally may be bought or sold without prior FCC approval. In
addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.
CONDITIONS OF PCS LICENSES
All PCS licenses are granted for 10-year terms conditioned upon
timely compliance with the FCC's build-out requirements. Pursuant to the
FCC's build-out requirements, all 30 MHz broadband PCS licensees must
construct facilities that offer coverage to one-third of the population
within 5 years and to two-thirds of the population within 10 years, and all
10 MHz broadband, PCS licensees (and 15 MHz licensees resulting from
disaggregation of MHz spectrum blocks) must construct facilities that offer
coverage to at least one-quarter of the population within 5 years or make a
showing of "substantial service" within that 5 year period. Rule violations
could result in the forfeiture of the affected license and an inability to
regain the license. The FCC also requires licensees to maintain a certain
degree of control over their licenses. The Sprint PCS agreements reflect an
alliance that the parties believe meets the FCC requirements for licensee
control of licensed spectrum. If the FCC were to determine that our
agreements with Sprint PCS need to be modified to increase the level of
licensee control, the Sprint PCS agreements may be modified to cure any
purported deficiency regarding licensee control of the licensed spectrum. If
the agreements cannot be modified, they may be terminated. As a result, it
would be extremely difficult for us to conduct our business. In addition to
revoking licenses, the FCC could impose monetary penalties on us.
PCS LICENSE RENEWAL
PCS licensees can renew their licenses for additional 10 year terms.
PCS renewal applications are not subject to auctions. However, under the
FCC's rules, third parties may oppose renewal applications and/or file
competing applications. If one or more competing applications are filed, a
renewal application will be subject to a comparative renewal hearing. The
FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is
applicable if the PCS renewal applicant has provided "substantial service"
during its license term and substantially complied with all applicable laws
and FCC rules and policies. The FCC's
95
<PAGE>
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 likely that Sprint PCS will retain its PCS
licenses managed by us in the foreseeable future.
INTERCONNECTION
The FCC has the authority to order interconnection between
commercial mobile radio service providers and any other common carrier. The
FCC has ordered local telephone companies to provide reciprocal compensation
to commercial mobile radio service providers for the termination of traffic.
Using these rules, we will negotiate interconnection agreements for the
Sprint PCS Network in our market area with all of the major regional Bell
operating companies, GTE and several smaller independent local telephone
companies. We will seek to negotiate interconnection agreements on a regional
or state-wide basis where possible. If an agreement cannot be reached, under
certain circumstances, 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 telephone companies and other
telecommunications carriers.
OTHER FCC REQUIREMENTS
In June 1996, the FCC adopted rules that prohibit broadband PCS
providers from unreasonably restricting or disallowing resale of their
services or unreasonably discriminating against resellers. Resale obligations
will automatically expire on November 24, 2002, although wireless carriers
will still face a statutory obligation to provide their interstate services
on a non-discriminatory basis. The FCC is also considering whether wireless
providers should be required to offer unbundled communications capacity to
resellers who intend to operate their own switching facilities.
The FCC also adopted rules in June 1996 that require local telephone
companies and most commercial mobile radio service carriers to program their
networks to allow customers to change service providers without changing
telephone numbers, which is referred to as service provider number
portability. Initially, the FCC required that most commercial mobile radio
service providers be able to deliver calls from their networks to ported
numbers anywhere in the country by December 31, 1998. In response to a
Cellular Telephone Industry Association petition for forbearance, the FCC has
extended until November 24, 2002 the deadline to implement local number
portability. The FCC has required that commercial mobile radio service
providers must be able to offer their own customers number portability in
their switches in the 100 largest metropolitan areas, including the ability
to support nationwide roaming, by March 31, 2000. Additionally, carriers were
required to request number portability capability in the 100 largest
metropolitan areas by June 30, 1999. Commencing in 1999, all carriers were
required to begin contributing to the Local Number Portability fund.
The FCC has adopted rules permitting broadband PCS and other
commercial mobile radio service providers to provide traditional telephone
services based on wireless technology and other fixed services that would
directly compete with the wireline services of local telephone companies. The
FCC currently is undertaking a rulemaking proceeding in which it is
considering actions to help ensure that competitive telecommunications
providers have reasonable and non-discriminatory access to rights-of-way,
buildings, rooftops and facilities in multiple tenant environments. In June
1996, the FCC adopted rules requiring broadband PCS and other commercial
mobile radio service providers to implement enhanced emergency 911
capabilities within 18 months after the effective date of the FCC's rules.
The FCC revised these rules to extend the compliance deadline for phase I
(requiring carriers to transmit a caller's phone number and general location
to a Public Safety Answering Point until January 1, 1999 and for phase II
(requiring more precise location information be provided to the Public Safety
Answering Point until October 1, 2001. Carriers are required to begin selling
and activating Automatic Location Identification capable handsets no later
than March 1, 2001. Further waivers of the enhanced emergency 911 capability
requirements may be obtained by individual carriers by filing a waiver
request. Congress recently enacted
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legislation that extends to wireless carriers the same level of immunity from
lawsuits that is enjoyed by traditional telephone companies regarding their
transmission of emergency calls. Wireless carriers also face certain
statutory and regulatory requirements regarding accessibility of wireless
services to persons with disabilities.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT
The Communications Assistance for Law Enforcement Act, enacted in
1994 to preserve electronic surveillance capabilities authorized by Federal
and state law, requires telecommunications carriers to meet certain
"assistance capability requirements" by October 25, 1998. However, the FCC
granted a blanket extension of that deadline until June 30, 2000, because the
Communications Assistance for Law Enforcement Act compliant equipment is not
yet available. The Communications Assistance for Law Enforcement Act provides
that a telecommunications carrier meeting industry Communications Assistance
for Law Enforcement Act standards shall have safe harbor for purposes of
compliance with the act. Toward the end of 1997 telecommunications industry
standard-setting organizations agreed to a joint standard to implement the
act's capability requirements, known as J-STD-025. Although we will be able
to offer traditional electronic surveillance capabilities to law enforcement,
it, as well as the other participants in the wireless industry, may not meet
the requirements of J-STD-025 by June 30, 2000, given hardware changes that
are yet to be developed and implemented by switch manufacturers. For
commercial mobile radio service carriers, implementation of a packet-mode
capability and six Department of Justice/Federal Bureau of Investigation
"punch list" capabilities must be completed by September 30, 2001.
In addition, the FCC is considering petitions from numerous parties
to establish and implement technical compliance standards pursuant to the
Communications Assistance for Law Enforcement Act requirements. The
capability and capacity requirements of the Communications Assistance for Law
Enforcement Act are likely to impose some additional switching and network
costs upon us, Sprint PCS and other wireless entities. However, it is
possible that some of these costs will be reduced or delayed if current law
enforcement or legislative initiatives are adopted and implemented during
2000 or thereafter.
OTHER FEDERAL REGULATIONS
Wireless systems must comply with certain FCC and Federal Aviation
Administration regulations regarding the siting, lighting and construction of
transmitter towers and antennas. In addition, certain FCC environmental
regulations may cause certain radio communications site locations to become
subject to regulation under the National Environmental Policy Act. The FCC is
required to implement the act by requiring carriers to meet certain land use
and radio frequency standards.
REVIEW OF UNIVERSAL SERVICE REQUIREMENTS
The FCC and the states are required to establish a "universal
service" program to ensure that affordable, quality telecommunications
services are available to all Americans. Sprint PCS is required to contribute
to the federal universal service program as well as existing state programs.
The FCC has determined that the Sprint PCS' "contribution" to the federal
universal service program is a variable percentage of "end-user
telecommunications revenues." Although many states are likely to adopt a
similar assessment methodology, the states are free to calculate
telecommunications service provider contributions in any manner they choose
as long as the process is not inconsistent with the FCC's rules. At the
present time it is not possible to predict the extent of the Sprint PCS total
federal and state universal service assessments or its ability to recover
from the universal service fund.
PARTITIONING; DISAGGREGATION
The FCC has modified its rules to allow broadband PCS licensees to
partition their market areas and/or to disaggregate their assigned spectrum
and to transfer partial market areas or spectrum assignments to eligible
third parties.
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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 such services. In addition, so long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate
the placement, construction or operation of wireless facilities. These rules
are designed to make it possible for us, Sprint PCS and other wireless
entities to acquire necessary tower sites in the face of local zoning
opposition and delays. The FCC is considering numerous requests for
preemption of local actions affecting wireless facilities siting.
EQUAL ACCESS
Wireless providers are not required to provide equal access to
common carriers for toll services. This enables us and Sprint PCS to generate
additional revenues by reselling the toll services of Sprint PCS and other
long-distance carriers from whom we can obtain favorable volume discounts.
However, the FCC is authorized to require unblocked access to toll carriers
subject to certain conditions.
STATE REGULATION OF WIRELESS SERVICE
Section 332 of the Communications Act preempts states from
regulating the rates and entry of commercial mobile radio service providers.
However, states may petition the FCC to regulate such providers. The FCC may
grant such petition if the state demonstrates that:
- market conditions fail to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably
discriminatory; or
- when commercial mobile radio service is a replacement for
traditional telephone service within the state.
To date, the FCC has granted no such petition. To the extent we
provide fixed wireless service, we may be subject to additional state
regulation. These standards and rulings have prevented states from delaying
the entry of wireless personal communications services and other wireless
carriers into their jurisdictions via certifications and similar
requirements, and from delaying or inhibiting aggressive or flexible wireless
price competition after entry.
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DESCRIPTION OF THE WARRANTS
We issued the unit warrants pursuant to a warrant agreement with
American Stock Transfer & Trust Company as warrant agent and we issued the
DLJ warrants pursuant to a warrant agreement with Donaldson, Lufkin &
Jenrette Securities Corporation. The following description is a summary of
the material provisions of the warrant agreement governing the unit warrants
and the warrant agreement governing the DLJ warrants. This summary is not
complete and is qualified in its entirety by reference to the warrant
agreements, which are filed as exhibits to the registration statement of
which this prospectus is a part.
THE UNIT WARRANTS
GENERAL
Each unit warrant, when exercised, will entitle you to receive 11.93
fully paid and nonassessable shares of our common stock (the "unit warrant
shares"), at an exercise price of $11.37 per share, subject to adjustment
(the "unit warrant exercise price"). The unit warrant exercise price and the
number of unit warrant shares issuable upon the exercise of a unit warrant
are both subject to adjustment in the cases referred to below. The holders of
the unit warrants would be entitled, in the aggregate, to purchase shares of
our common stock currently representing approximately 5% of the issued and
outstanding shares of our common stock on a fully diluted basis, assuming
exercise of all currently outstanding warrants.
The unit warrants will be exercisable at any time on or after April
15, 2001. Unless exercised, the unit warrants will automatically expire at
5:00 p.m., New York City time on April 15, 2010 (the "unit warrant expiration
date"). We will give notice of expiration not less than 90 nor more that 120
days before the unit warrant expiration date to the registered holders of the
then outstanding unit warrants. If we fail to give the notice when required,
the unit warrants will not expire until 90 days after notice is given.
The unit warrants may be exercised by surrendering the warrant
certificates evidencing the unit warrants to be exercised with the
accompanying form of election to purchase that is properly completed and
executed, together with payment of the unit warrant exercise price. The unit
warrant exercise price may be paid:
(1) in cash in United States dollars by wire transfer or by
certified or official bank check to the order of UbiquiTel Inc.; or
(2) without payment of cash (the "unit warrant cashless exercise
price"), by reducing the number of shares of common stock that would be
obtainable upon the exercise of a unit warrant and payment of the unit
warrant exercise price in cash so as to yield a number of shares of common
stock that would yield a number of shares of common stock upon the exercise
of the unit warrant equal to the product of (a) the number of shares of
common stock for which the unit warrant is exercisable as of the date of
exercise (if the unit warrant exercise price were being paid in cash) and (b)
the cashless exercise ratio.
The "cashless exercise ratio" shall equal a fraction, the numerator
of which is the excess of the fair market value (as defined below) per share
of common stock on the exercise date over the unit warrant exercise price per
share as of the exercise date and the denominator of which is the fair market
value per share of the common stock on the exercise date. When a holder
surrenders a warrant certificate representing more than one unit warrant in
connection with such holder's option to elect a cashless exercise, the number
of shares of common stock deliverable upon a cashless exercise shall be equal
to the number of shares of common stock issuable upon the exercise of unit
warrants that the holder specifies to be exercised pursuant to a cashless
exercise multiplied by the cashless exercise ratio. All provisions of the
warrant agreement governing the unit warrants shall be applicable with
respect to a surrender of a warrant certificate pursuant to a cashless
exercise for less than the full number of unit warrants represented thereby.
Upon surrender of the warrant certificate and payment of the unit
warrant exercise price or election of a cashless exercise, we will deliver or
cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of whole unit warrant shares to which
the holder is entitled. If less than all of
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the unit warrants evidenced by a warrant certificate are to be exercised, a
new warrant certificate will be issued for the remaining number of unit
warrants. Holders of unit warrants will be able to exercise their unit
warrants only if a registration statement relating to the unit warrant shares
underlying the unit warrants is then in effect, or the exercise of such unit
warrants is exempt from the registration requirements of the Securities Act,
and such securities are qualified for sale or exempt from qualification under
securities laws of the states in which the various holders of unit warrants
or other persons to whom it is proposed that unit warrant shares be issued on
exercise of the unit warrants reside.
No fractional unit warrant shares will be issued upon exercise of
the unit warrants. We will pay to the holders of the unit warrant at the time
of exercise an amount in cash equal to the fair market value (as defined
below) of any such fractional unit warrant shares less a corresponding
fraction of the unit warrant exercise price.
In the event of a taxable distribution to holders of our common
stock that results in an adjustment to the number of Warrant Shares or other
consideration for which a warrant may be exercised, the holders of the
warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain U.S. Federal Tax Considerations--Tax Treatment of Registered
Warrants."
Certificates for unit warrants will be issued in fully registered
form only. No service charge will be made for registration of transfer or
exchange upon surrender of any unit warrant at the office of the warrant
agent maintained for that purpose. We may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of unit warrants.
In the event a bankruptcy or reorganization is commenced by or
against us, a bankruptcy court may hold that unexercised unit warrants are
executory contracts that may be subject to rejection by us with approval of
the bankruptcy court. As a result, the holders of the unit warrants may, even
if sufficient funds are available, receive no consideration or a lesser
amount of consideration then they would be entitled to receive if they had
exercised their unit warrants prior to the commencement of any such
bankruptcy or reorganization.
NO RIGHTS AS STOCKHOLDERS
The holders of unexercised unit warrants will have no right to vote
on matters submitted to our stockholders and will have no right to receive
dividends. The holders of the unit warrants will not be entitled to share in
our assets in the event of our liquidation, dissolution or winding up.
ADJUSTMENTS
The number of unit warrant shares issuable upon exercise of the unit
warrants and the unit warrant exercise price will be subject to adjustment in
several circumstances including the following:
(1) if we (A) pay a dividend or make a distribution on our common
stock in shares of our capital stock (whether shares of common
stock or of capital stock of any other class), (B) subdivide
our outstanding shares of common stock, (C) combine our
outstanding shares of common stock into a smaller number of
shares, or (D) issue by reclassification of our shares of
common stock any shares of our capital stock;
(2) in case of any reclassification or change of outstanding
shares of common stock issuable upon exercise of the unit
warrants (other than as set forth in clause (1) and other than
a change in par value, or from par value to no par value, or
from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of
us with or into another corporation (other than a merger or
acquisition in which we are the continuing corporation and
which does not result in any reclassification or change of the
then outstanding shares of common stock or other capital stock
issuable upon exercise of the unit warrants) or in case of any
sale or conveyance to another corporation of our property as
an entirety or substantially as an entirety;
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(3) in the event we issue, sell, distribute or otherwise grant in
any manner (including by assumption) to all holders of our
common stock any rights to subscribe for or to purchase, or
any warrants or options for the purchase of, common stock or
any stock or securities convertible into or exchangeable for
common stock or any convertible securities (other than upon
exercise of any option), at a price per share less than the
fair market value per share of our common stock;
(4) in the event we distribute to all the holders of our common
stock any dividend or other distribution of cash, evidences of
our indebtedness, other securities or other properties or
assets (in each case other than (i) dividends payable in
common stock, options or convertible securities and (ii) any
cash dividend or other cash distributions from current or
retained earnings), or any options, warrants or other rights
to subscribe for or purchase any of the foregoing; and
(5) if we sell any common stock or any securities convertible into
or exchangeable or exercisable for common stock (other than
(i) pursuant to the exercise of the unit warrants, (ii) any
security convertible into, or exchangeable or exercisable for,
the common stock as to which the issuance thereof has
previously been the subject of any required adjustment
pursuant to the warrant agreement or (iii) the issuance of
common stock upon the conversion, exchange or exercise of any
of our convertible, exchangeable or exercisable securities
outstanding on the date of the warrant agreement (to the
extent in accordance with the terms of such securities as in
effect on the date of the warrant agreement)) at a price per
share less than the fair market value per share of our common
stock.
The events described above are subject to certain exceptions
described in the warrant agreement governing the unit warrants including,
without limitation,
- exercises or conversions of any options or convertible securities
or other obligations to issue our capital stock outstanding on the
date of the warrant agreement,
- issuances of options, convertible securities or common stock to
any of our employees, directors or consultants or those of any of
our subsidiaries pursuant to a plan approved by our board of
directors,
- rights to purchase common stock pursuant to plan for reinvestment
of dividends or interest,
- issuances of options, convertible securities or common stock in
certain bona fide public offerings or private placements,
issuances of options, convertible securities or common stock in
connection with the establishment of commercial bank facilities,
capital lease obligations or other issuances of primarily debt
obligations or securities, or
- issuances of common stock, options or convertible securities in
connection with mergers and acquisitions with non-affiliated third
parties.
"FAIR MARKET VALUE" for any share of our common stock means (x) for
purposes of payment for fractional shares of common stock, the closing price
on the business day immediately prior to the exercise of the applicable unit
warrant and (y) in all other cases, the average of the daily closing prices
for the shorter of (i) the 20 consecutive trading days ending on the last
full trading day on the exchange or market specified in the second succeeding
sentence prior to the time of determination (as defined below) and (ii) the
period commencing on the date next succeeding the first public announcement
of the issuance, sale, distribution or granting in question through such last
full trading day prior to the time of determination. The term "time of
determination" as used herein shall be the time and date of the earlier to
occur of (A) the date as of which the fair market value is to be computed and
(B) the last full trading day on such exchange or market before the
commencement of "ex-dividend" trading in the common stock relating to the
event giving rise to the adjustment required by the terms of the warrant
agreement. The closing price for any day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices regular way for such class,
in each case (1) on the principal national securities exchange on which the
shares of common stock are listed or to which such shares are admitted to
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trading or (2) if the common stock is not listed or admitted to trading on a
national securities exchange, in the over-the-counter market as reported by
the Nasdaq National Market or any comparable system or (3) if the common
stock is not quoted on the Nasdaq National Market or a comparable system, as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time in good faith by our board of directors for
that purpose. In the absence of all of the foregoing, or if for any other
reason the fair market value per share cannot be determined pursuant to the
foregoing provisions, the fair market value per share shall be the fair
market value thereof as determined in good faith by our board of directors.
RESERVATION OF SHARES
We have authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of its common stock as will
be issuable upon the exercise of all outstanding unit warrants. Such shares
of common stock, when issued and paid for in accordance with the warrant
agreement, will be duly and validly issued, fully paid and nonassessable,
free of preemptive rights and free from all taxes, liens, charges and
security interests created by or through us.
AMENDMENT
From time to time, we and the warrant agent, without the consent of
the holders of the unit warrants, may amend or supplement the warrant
agreement for several purposes, including curing defects or inconsistencies
or making any change that does not adversely affect the legal rights of any
holder. Any amendment or supplement to the warrant agreement that adversely
affects the legal rights of the holders of the unit warrants will require the
written consent of the holders of a majority of the then outstanding unit
warrants, excluding unit warrants held by us or any of our affiliates. The
consent of each holder of the unit warrants affected will be required for any
amendment pursuant to which the unit warrant exercise price would be
increased or the number of unit warrant shares issuable upon exercise of unit
warrants would be decreased, other than pursuant to adjustments provided in
the warrant agreement, or the exercise period with respect to the unit
warrants would be shortened.
REPORTS
So long as any of the unit warrants remain outstanding, we will,
upon request, furnish to the registered holders of the unit warrants, all
quarterly and annual financial information that would be required to be
contained in a filing with the Securities and Exchange Commission on Forms
10-Q and 10-K as if we were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
thereon by our certified independent accountants; and all current reports
that would be required to be filed with the Securities and Exchange
Commission, on Form 8-K as if we were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Securities and Exchange Commission, we will file a copy of all such
information and reports with the Securities and Exchange Commission for
public availability (unless the Securities and Exchange Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
REGISTRATION OF THE UNIT WARRANT SHARES
Under the terms of a warrant registration rights agreement dated
April 11, 2000, we agreed file the registration statement of which this
prospectus is a part and to use our reasonable best efforts to cause the
shelf registration statement to be declared effective under the Securities
Act on or before October 8, 2000 and keep the shelf registration statement
continuously effective until the date on which all of the warrants or shares
of common stock issuable thereunder have been sold pursuant to the shelf
registration statement or the warrants have expired, though we are required
to keep the registration statement effective so long as any affiliate of ours
holds unit warrants or unit warrant shares.
We may suspend the effectiveness of any shelf registration statement
or amendment thereto, suspend the use of any prospectus and shall not be
required to amend or supplement the shelf registration statement, any related
prospectus or any document incorporated therein by reference other than an
effective registration statement being used for an underwritten offering in
the event that, and for periods (each a "suspension period"), not to exceed 60
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consecutive days and no more than two times in any calendar year if (1) an
event or circumstance occurs and is continuing as a result of which the shelf
registration statement, any related prospectus or any document incorporated
therein by reference as then amended or supplemented or proposed to be filed
would, in our good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and (2)(a) we determine in our good faith judgment that
the disclosure of such event at such time would have a material adverse
effect on our business, operations, or prospects or (b) the disclosure
otherwise relate; to a material business transaction or development which has
not yet been publicly disclosed.
Each holder of unit warrants or unit warrant shares that sells such
unit warrants or unit warrant shares pursuant to the shelf registration
statement generally will:
(1) be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to the
purchaser;
(2) be subject to certain of the civil liability provisions under
the Securities Act in connection with such shares;
(3) be bound by certain provisions of the warrant agreement which
are applicable to such holder, including certain
indemnification obligations; and
(4) be required to deliver information to be used in connection
with the shelf registration statement in order to have its
unit warrants or unit warrant shares included in the shelf
registration statement.
LIQUIDATED DAMAGES
The warrant registration rights agreement provides that if we fail to:
(1) file a shelf registration statement with respect to the common
stock underlying the unit warrants on or before June 26, 2000,
(2) use our reasonable best efforts to have the Securities and
Exchange Commission declare the shelf registration statement
effective on or before October 8, 2000,
(3) keep the shelf registration statement continuously effective
until the date on which all of the unit warrants or shares of
common stock issuable thereunder have been sold pursuant the
registration statement or the unit warrants have expired, then
in each case above (each such event referred to in clauses (1)
through (3) above a "unit warrant registration default"), we
will be required to pay liquidated damages to each holder of a
unit warrant which shall accrue from the first such unit
warrant registration default.
If we fail to file the registration statement, or fail to cause the
registration statement to become effective, or fail to maintain its
effectiveness as specified above, a unit warrant registration default shall
be deemed to have occurred and we will be required to pay liquidated damages
to each holder of a unit warrant. The liquidated damages payable to each
holder of a unit warrant will be in an amount equal to $0.03 per week per
unit warrant held by such holder for each week or portion thereof that the
unit warrant registration default continues for the first 90-day period
immediately following the occurrence of such unit warrant registration
default. This amount will increase by an additional $0.02 per week per unit
warrant with respect to each subsequent 90-day period, up to a maximum amount
equal to $0.07 per week per unit warrant. The provision for liquidated
damages will continue until such unit warrant registration default has been
cured. We will not be required to pay liquidated damages for more than one
unit warrant registration default at any given time.
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THE DLJ WARRANTS
GENERAL
In connection with the units offering, we issued to Donaldson, Lufkin &
Jenrette Securities Corporation warrants to purchase an aggregate of 655,804
shares of our common stock. We recently canceled those warrants and issued the
DLJ warrants to Donaldson, Lufkin & Jenrette Securities Corporation to purchase
an aggregate of 86,183 shares (the "DLJ warrant shares") at an exercise price
equal to our initial public offering price of $8.00 per share (the "DLJ warrant
exercise price"). The DLJ warrants become exercisable on June 12, 2001 and will
expire on June 12, 2005. We will give notice of expiration not less than 90 days
before the DLJ warrant expiration date to the registered holders of the then
outstanding DLJ warrants. If we fail to give the notice when required, the DLJ
warrants will not expire until 90 days after notice is given.
The DLJ warrants may be exercised by surrendering the warrant
certificates evidencing the DLJ warrants to be exercised with the accompanying
form of election to purchase that is properly completed and executed, together
with payment of the DLJ warrant exercise price. The unit warrant exercise price
may be paid in cash in United States dollars by wire transfer or by certified or
official bank check to the order of UbiquiTel Inc.
Upon surrender of the warrant certificate and payment of the DLJ
warrant exercise, we will deliver or cause to be delivered, to or upon the
written order of such holder, stock certificates representing the number of
whole DLJ warrant shares to which the holder is entitled. If less than all of
the DLJ warrants evidenced by a warrant certificate are to be exercised, a new
warrant certificate will be issued for the remaining number of DLJ warrants.
Holders of DLJ warrants will be able to exercise their DLJ warrants only if a
registration statement relating to the DLJ warrant shares underlying the DLJ
warrants is then in effect, or the exercise of such DLJ warrants is exempt from
the registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under securities laws of the
states in which the various holders of DLJ warrants or other persons to whom it
is proposed that DLJ warrant shares be issued on exercise of the DLJ warrants
reside.
No fractional DLJ warrant shares will be issued upon exercise of the
DLJ warrants. We will pay to the holders of the DLJ warrant at the time of
exercise an amount in cash equal to the fair market value (as defined below) of
any such fractional DLJ warrant shares less a corresponding fraction of the DLJ
warrant exercise price.
In the event of a taxable distribution to holders of our common stock
that results in an adjustment to the number of Warrant Shares or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain U.S. Federal Tax
Considerations--Tax Treatment of Registered Warrants."
Certificates for unit warrants will be issued in fully registered form
only. No service charge will be made for registration of transfer or exchange
upon surrender of any DLJ warrant at our office. We may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of DLJ warrants.
In the event a bankruptcy or reorganization is commenced by or against
us, a bankruptcy court may hold that unexercised DLJ warrants are executory
contracts that may be subject to rejection by us with approval of the bankruptcy
court. As a result, the holders of the DLJ warrants may, even if sufficient
funds are available, receive no consideration or a lesser amount of
consideration then they would be entitled to receive if they had exercised their
DLJ warrants prior to the commencement of any such bankruptcy or reorganization.
NO RIGHTS AS STOCKHOLDERS
The holders of unexercised DLJ warrants will have no right to vote on
matters submitted to our stockholders and will have no right to receive
dividends. The holders of the DLJ warrants will not be entitled to share in our
assets in the event of our liquidation, dissolution or winding up.
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ADJUSTMENTS
The number of DLJ warrant shares issuable upon exercise of the DLJ
warrants and the DLJ warrant exercise price will be subject to adjustment in
several circumstances including the following:
(1) if we (A) pay a dividend or make a distribution on our common
stock in shares of our capital stock (whether shares of common
stock or of capital stock of any other class), (B) subdivide
our outstanding shares of common stock, (C) combine our
outstanding shares of common stock into a smaller number of
shares, or (D) issue by reclassification of our shares of
common stock any shares of our capital stock;
(2) in case of any reclassification or change of outstanding
shares of common stock issuable upon exercise of the DLJ
warrants (other than as set forth in clause (1) and other than
a change in par value, or from par value to no par value, or
from no par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or merger of
us with or into another corporation (other than a merger or
acquisition in which we are the continuing corporation and
which does not result in any reclassification or change of the
then outstanding shares of common stock or other capital stock
issuable upon exercise of the DLJ warrants) or in case of any
sale or conveyance to another corporation of our property as
an entirety or substantially as an entirety;
(3) in the event we issue, sell, distribute or otherwise grant in
any manner (including by assumption) to all holders of our
common stock any rights to subscribe for or to purchase, or
any warrants or options for the purchase of, common stock or
any stock or securities convertible into or exchangeable for
common stock or any convertible securities (other than upon
exercise of any option), at a price per share less than the
fair market value per share of our common stock;
(4) in the event we distribute to all the holders of our common
stock any dividend or other distribution of cash, evidences of
our indebtedness, other securities or other properties or
assets (in each case other than (i) dividends payable in
common stock, options or convertible securities as to which
adjustments have been made according to (1) and (3) above, and
(ii) any cash dividend or other cash distributions from
current or retained earnings), or any options, warrants or
other rights to subscribe for or purchase any of the
foregoing.
The events described above are subject to certain exceptions described
in the warrant agreement governing the DLJ warrants including, without
limitation,
- exercises or conversions of any options or convertible securities
or other obligations to issue our capital stock outstanding on the
date of the warrant agreement,
- issuances of options, convertible securities or common stock to
any of our employees, directors or consultants or those of any of
our subsidiaries pursuant to a plan approved by our board of
directors,
- rights to purchase common stock pursuant to plan for reinvestment
of dividends or interest,
- issuances of options, convertible securities or common stock in
certain bona fide public offerings or private placements,
issuances of options, convertible securities or common stock in
connection with the establishment of commercial bank facilities,
capital lease obligations or other issuances of primarily debt
obligations or securities, or
- issuances of common stock, options or convertible securities in
connection with mergers and acquisitions with non-affiliated third
parties.
"FAIR MARKET VALUE" for any share of our common stock means (x) for
purposes of payment for fractional shares of common stock, the closing price on
the business day immediately prior to the exercise of the applicable unit
warrant and (y) in all other cases, the average of the daily closing prices for
the shorter of (i) the 20 consecutive
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trading days ending on the last full trading day on the exchange or market
specified in the second succeeding sentence prior to the time of determination
(as defined below) and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution or granting in
question through such last full trading day prior to the time of determination.
The term "time of determination" as used herein shall be the time and date of
the earlier to occur of (A) the date as of which the fair market value is to be
computed and (B) the last full trading day on such exchange or market before the
commencement of "ex-dividend" trading in the common stock relating to the event
giving rise to the adjustment required by the terms of the warrant agreement.
The closing price for any day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such class, in each case (1) on the
principal national securities exchange on which the shares of common stock are
listed or to which such shares are admitted to trading or (2) if the common
stock is not listed or admitted to trading on a national securities exchange, in
the over-the-counter market as reported by the Nasdaq National Market or any
comparable system or (3) if the common stock is not quoted on the Nasdaq
National Market or a comparable system, as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time in
good faith by our board of directors for that purpose. In the absence of all of
the foregoing, or if for any other reason the fair market value per share cannot
be determined pursuant to the foregoing provisions, the fair market value per
share shall be the fair market value thereof as determined in good faith by our
board of directors.
RESERVATION OF SHARES
We have authorized and reserved for issuance and will at all times
reserve and keep available such number of shares of its common stock as will be
issuable upon the exercise of all outstanding DLJ warrants. Such shares of
common stock, when issued and paid for in accordance with the warrant agreement,
will be duly and validly issued, fully paid and nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
created by or through us.
AMENDMENT
Any amendment or supplement to the warrant agreement governing the DLJ
warrants requires the written consent of us and the holders of a majority of the
then outstanding DLJ warrants. The consent of each holder of the DLJ warrants
affected will be required for any amendment pursuant to which the DLJ warrant
exercise price would be increased or the number of DLJ warrant shares issuable
upon exercise of DLJ warrants would be decreased, other than pursuant to
adjustments provided in the warrant agreement, or the exercise period with
respect to the unit warrants would be shortened.
REPORTS
So long as any of the DLJ warrants remain outstanding, we will, upon
request, furnish to the registered holders of the DLJ warrants, all quarterly
and annual financial information that would be required to be contained in a
filing with the Securities and Exchange Commission on Forms 10-Q and 10-K as if
we were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by our certified independent
accountants; and all current reports that would be required to be filed with the
Securities and Exchange Commission, on Form 8-K as if we were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Securities and Exchange Commission, we will file a copy of all such
information and reports with the Securities and Exchange Commission for public
availability (unless the Securities and Exchange Commission will not accept such
a filing) and make such information available to securities analysts and
prospective investors upon request.
REGISTRATION OF THE DLJ WARRANT SHARES
Under the terms of a warrant registration rights agreement dated June
12, 2000, we agreed to file the registration statement of which this prospectus
is a part and to use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act on or before
December 9, 2000 and keep the shelf registration statement continuously
effective for a period of up to five years, subject to certain exceptions.
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We may suspend the effectiveness of any shelf registration statement or
amendment thereto, suspend the use of any prospectus and shall not be required
to amend or supplement the shelf registration statement, any related prospectus
or any document incorporated therein by reference other than an effective
registration statement being used for an underwritten offering in the event
that, and for periods (each a "suspension period"), not to exceed 60 consecutive
days and no more than two times in any calendar year if (1) an event or
circumstance occurs and is continuing as a result of which the shelf
registration statement, any related prospectus or any document incorporated
therein by reference as then amended or supplemented or proposed to be filed
would, in our good faith judgment, contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (2)(a) we determine in our good faith judgment that the
disclosure of such event at such time would have a material adverse effect on
our business, operations, or prospects or (b) the disclosure otherwise relate;
to a material business transaction or development which has not yet been
publicly disclosed.
Each holder of DLJ warrants or DLJ warrant shares that sells such DLJ
warrants or DLJ warrant shares pursuant to the shelf registration statement
generally will:
(1) be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to the
purchaser;
(2) be subject to certain of the civil liability provisions under
the Securities Act in connection with such shares;
(3) be bound by certain provisions of the warrant agreement which
are applicable to such holder, including certain
indemnification obligations; and
(4) be required to deliver information to be used in connection
with the shelf registration statement in order to have its DLJ
warrants or DLJ warrant shares included in the shelf
registration statement.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes all of the material terms and provisions of
the our capital stock. It does not purport to be complete, however, and is
qualified in its entirety by the actual terms and provisions contained in our
amended and restated certificate of incorporation.
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of:
- 100,000,000 shares of common stock, par value $0.001 per share,
of which 62,763,604 shares are outstanding; and
- 10,000,000 shares of preferred stock, par value $0.001 per share,
of which no shares are outstanding.
STOCK RESERVED FOR ISSUANCE
We have reserved 3,765,000 shares of common stock for issuance upon
exercise of outstanding stock options and 4,813,987 shares for issuance upon
exercise of outstanding warrants. We have not reserved any shares of preferred
stock for issuance.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our stockholders and do not
have any cumulative rights. Subject to the rights of the holders of any series
of preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. Holders of shares of common stock have no preemptive,
conversion, redemption, subscription or similar rights. If we liquidate,
dissolve or wind up, the holders of shares of common stock are entitled to share
ratably in the assets which are legally available for distribution, if any,
remaining after the payment or provision for the payment of all debts and other
liabilities and the payment and setting aside for payment of any preferential
amount due to the holders of shares of any series of preferred stock.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, the board
of directors is authorized, subject to certain limitations prescribed by law,
without further stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of preferred stock. The preferred stock may be
issued in one or more series. Each series may have different rights, preferences
and designations and qualifications, limitations and restrictions that may be
established by our board of directors without approval from the stockholders.
These rights, designations and preferences include:
- number of shares to be issued;
- dividend rights;
- dividend rates;
- right to convert the preferred shares into a different type of
security;
- voting rights attributable to the preferred shares;
- liquidation preferences; and
- terms of redemption.
If our board of directors decides to issue any preferred stock, it may
discourage or make more difficult a merger, tender offer, business combination
or proxy contest, assumption of control by a holder of a large block of
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our securities or the removal of incumbent management, even if these events were
favorable to the interests of stockholders. The board of directors, without
stockholder approval, may issue preferred stock with voting and conversion
rights and dividend and liquidation preferences which may adversely affect the
holders of common stock.
OTHER WARRANTS
In addition to the unit warrants and the DLJ warrants, we currently
have outstanding warrants to purchase 1,148,804 shares of our common stock. We
issued warrants to purchase 1,148,804 shares of our common stock to Paribas in
connection with our prior $25.0 million credit facility. These warrants are
exercisable at a price of $.005 per share and may be exercised at any time on or
before December 28, 2009. Holders of these warrants are entitled to dividends
that are paid with respect to the common stock even if the warrants have not yet
been exercised. We have the option to repurchase all of the warrants held by
Paribas or all of the shares of common stock issued upon the exercise of these
warrants beginning on the sixth anniversary of the date the warrants were
issued. If we exercise this right, we must repurchase the warrants or shares at
price equal to 120% of the market price of our common stock as of the date we
repurchase the warrants or shares.
REGISTRATION RIGHTS
We have granted registration rights to all of the persons who were our
stockholders prior to our initial public offering under a registration rights
agreement. Under these agreements, we are required to register their shares of
common stock, upon request. In addition, if we register any of our securities
under the Securities Act for our own account or for the account of another
person, these stockholders are entitled to notice of the registration and are
entitled to include their shares of common stock in the registration subject to
limitations in the case of an underwritten offering. These stockholders have
agreed to waive their registration rights in connection with any registration
statements that we file on behalf of the holders of the unit warrants or the
senior subordinated discount notes. In most circumstances, we will be required
to pay the expense of registering these stockholders' shares. This registration
rights agreement survived the closing of our initial public offering.
ANTITAKEOVER EFFECTS OF DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware law.
Subject to certain exceptions, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a certain period of time. That period is three years after the
date of the transaction in which the person became an interested stockholder,
unless the interested stockholder attained that status with the approval of the
board of directors or unless the business combination is approved in a
prescribed manner. A "business combination" includes certain mergers, asset
sales and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with his or her affiliates and associates, owns, or owned
within three years prior, 15% or more of the corporation's voting stock. The
existence of this provision may have an antitakeover effect with respect
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
shares of common stock held by stockholders.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS THAT MAY PREVENT
TAKEOVERS
Our amended and restated certificate of incorporation contains
provisions that may delay, defer or prevent a change in control of us and make
removal of our management more difficult.
Our amended and restated certificate of incorporation provides for the
division of the board of directors into three classes, as nearly equal in size
as possible, with each class beginning its three year term in a different year.
The certificate of incorporation also provides that only the board of directors
may fix the number of directors. Our bylaws provide that a stockholder may
nominate directors only if the stockholder delivers written notice to us not
less than 45 days or more than 75 days before the first anniversary of the date
on which we first mailed our proxy materials for the preceding year's annual
meeting. If the date of the annual meeting is advanced more than 30 days before
or delayed more than 30 days after the anniversary of the preceding year's
annual meeting, then we must
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receive the stockholder's notice not after the later of the ninetieth day before
the annual meeting or the tenth day after the day the public announcement of the
date of the annual meeting is made.
Our amended and restated certificate of incorporation provides that any
newly created directorship resulting from an increase in the number of directors
or a vacancy on the board of directors may be filled only by vote of a majority
of the remaining directors then in office, even if less than a quorum. Under no
circumstances will our stockholders fill any newly created directorships.
Directors elected to fill vacancy or by reason of an increase in the number of
directors will hold office until the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires. Directors
may be removed from office only for cause and only by the affirmative vote of
80% of the then outstanding shares of stock entitled to vote on the matter.
Our amended and restated certificate of incorporation provides that any
action required or permitted to be taken by our stockholders may be taken only
at a duly called annual or special meeting of the stockholders, and may not be
taken by written consent of the stockholders. Special meetings may be called
only by the Chairman of the board of directors, if there is one, the President
or by a majority of the board of directors. These provisions could have the
effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities. These provisions may also discourage another person or entity from
making an offer to stockholders for the common stock. This is because the person
or entity making the offer, even if it acquired a majority of our outstanding
voting securities, would be unable to call a special meeting of the stockholders
and would further be unable in most situations to obtain unanimous written
consent of the stockholders. As a result, any meeting as to matters they
endorse, including the election of new directors or the approval of a merger,
would have to wait for the next duly called stockholders meeting.
Our bylaws provide that a stockholder may raise new business at an
annual stockholder meeting only if the stockholder delivers written notice to us
not after the later of ninety days prior to the date of the annual meeting or
the tenth day after the day the public announcement of the date of the annual
meeting is made. The stockholder's notice must provide us with certain
information concerning the nature of the new business, and must disclose certain
information about the stockholder and the stockholder's interest, if any, in the
proposed business matter.
Delaware Law provides that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless the corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. Our
amended and restated certificate of incorporation requires the affirmative vote
of the holders of at least 80% of the outstanding voting stock to amend or
repeal any of the provisions of the amended and restated certificate of
incorporation or bylaws described above. Except as otherwise provided by law,
holders of our common stock are not entitled to vote on any amendment to our
amended and restated certificate of incorporation that changes the powers,
preferences, rights or other terms of an outstanding series of our preferred
stock, if the holders of the affected series of preferred stock are entitled to
vote on the proposed amendment. The bylaws may be amended or repealed by the
board of directors, except if the bylaw provisions affect provisions of the
amended and restated certificate of incorporation or bylaws described above,
then the affirmative vote of the holders of at least 80% of the then outstanding
voting stock is required. The 80% stockholder vote would be in addition to any
separate vote that each class of preferred stock is entitled to that might in
the future be required in accordance with the terms of any preferred stock that
might be outstanding at the time any amendments are submitted to stockholders.
The foregoing provisions, together with the ability of the board of
directors to issue preferred stock without further stockholder action, may delay
or frustrate the removal of incumbent directors or the completion of
transactions that would be beneficial, in the short term, to our stockholders.
The provisions may also discourage or make more difficult a merger, tender
offer, other business combination or proxy contest, the assumption of control by
a holder of a large block of our securities or the removal of incumbent
management, even if these events would be favorable to the interests of our
stockholders.
Our amended and restated certificate of incorporation requires us to
indemnify our directors and officers to the fullest extent permitted by law. In
addition, as permitted by Delaware law, the certificate of incorporation
provides that no director will be liable to us or our stockholders for monetary
damages for breach of certain fiduciary duties as a director. The effect of this
provision is to restrict our rights and the rights of our stockholders in
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derivative suits to recover monetary damages against a director for breach of
certain fiduciary duties as a director, except that a director will be
personally liable for:
- acts or omissions not in good faith for which involve intentional
misconduct or a knowing violation of law;
- the payment of dividends or the redemption or purchase of stock
in violation of Delaware law;
- any breach of the duty of loyalty to us or our stockholders; or
- any transaction from which the director derived an improper
personal benefit.
CERTAIN PROVISIONS OF THE SPRINT PCS AGREEMENTS
Pursuant to our management agreements with the Sprint PCS, under
specific circumstances and without further stockholder approval, Sprint PCS may
purchase our operating assets or capital stock for 72% or 80% of the "entire
business value" of UbiquiTel, which includes the value of our right to use the
spectrum licenses, our business operations and other assets more fully described
in "The Sprint PCS Agreements--The Management Agreement." In addition, Sprint
PCS must approve any change of control of our ownership and consent to any
assignment of our management agreements with Sprint PCS. Sprint PCS has a right
of first refusal if we decide to sell our operating assets to a third party. We
are also subject to a number of restrictions on the transfer of our business
including a prohibition on the sale of UbiquiTel or our operating assets to
competitors of Sprint or Sprint PCS. These restrictions and other restrictions
in our management agreements with Sprint PCS may limit our ability to sell the
business and may have a substantial anti-takeover effect.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
LISTING
Our common stock is listed on the Nasdaq National Market under the
symbol "UPCS."
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
This general discussion of certain U.S. federal income and estate
tax considerations with respect to the acquisition, ownership and disposition
of a registered warrant, and of a share of common stock acquired upon
exercise of a registered warrant, applies to you if you acquire a registered
warrant in exchange for an original warrant and if you acquired the original
warrant for cash on its original issuance at the issue price of the unit
consisting of an original note and original warrants and if you hold the
original warrant and the registered warrant and any common stock acquired on
exercise of the registered warrant as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended.
This discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, each of which is subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal income
and estate taxation that may be relevant to a particular taxpayer in light of
its personal circumstances or to persons who are otherwise subject to special
tax treatment. For example, special rules not discussed here may apply to you
if you are:
- a bank or a broker-dealer
- an insurance company;
- a pension or other employee benefit plan;
- a tax exempt organization or entity;
- a U.S. expatriate;
- a trader in securities that elects mark-to-market accounting
treatment;
- a person holding registered warrants or common stock as a part of
a hedging or conversion transaction or a straddle;
- a hybrid entity or an owner of interests therein; or
- a holder whose functional currency is not the U.S. dollar.
In addition, this discussion does not address the effect of any
applicable foreign, state, local or other tax laws. We have not sought and
will not seek any rulings from the Internal Revenue Service concerning the
tax consequences of the acquisition, ownership or disposition of a registered
warrant or a share of common stock acquired on exercise of a registered
warrant and, accordingly, we cannot assure you that the Internal Revenue
Service will not successfully challenge the tax consequences described below.
WE URGE YOU TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL
INCOME AND ESTATE TAX CONSIDERATIONS RELEVANT TO HOLDING AND DISPOSING OF A
REGISTERED WARRANT OR A SHARE OF COMMON STOCK AS WELL AS ANY TAX
CONSIDERATIONS APPLICABLE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR
OTHER TAXING JURISDICTION.
U.S. HOLDERS
If you are a "U.S. Holder," as defined below, this section applies
to you. Otherwise, the section "Non-U.S. Holders" applies to you. You are a
U.S. Holder if you are the beneficial owner of a registered warrant or share
of common stock acquired on exercise of a registered warrant and you are:
- a citizen or resident of the United States, including an
individual deemed to be a resident alien under the "substantial
presence" test of Section 7701(b) of the Code;
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- a corporation or partnership, including an entity treated as a
corporation or partnership for U.S. federal income tax purposes,
created or organized in the United States or under the laws of the
United States or of any state thereof or the District of Columbia,
unless, in the case of a partnership, Treasury regulations provide
otherwise;
- an estate whose income is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision
of a U.S. court and which has one or more U.S. persons who have
the authority to control all substantial decisions of the trust.
Notwithstanding the preceding clause, to the extent provided in
Treasury regulations, certain trusts in existence on August 20,
1996, and treated as U.S. persons prior to that date that elect to
continue to be treated as U.S. persons, shall also be considered
U.S. persons.
TAX TREATMENT OF REGISTERED WARRANTS. A U.S. Holder will recognize
gain or loss upon a sale, redemption, lapse or other taxable disposition of a
registered warrant in an amount equal to the difference between the sum of
the amount of cash and the fair market value of any property received for the
registered warrant and the U.S. Holder's tax basis in the registered warrant.
A U.S. Holder's tax basis in a registered warrant will equal that portion of
the issue price of a unit consisting of an original note and an original
warrant that was allocated to the original warrant based upon the relative
fair market values of the original note and the original warrants comprising
the unit. Because the unit was issued for money, the "issue price" of the
unit was the first price at which a substantial amount of the units was sold
for money. For purposes of determining the issue price of the units, sales to
bond houses, brokers, or similar persons or organizations acting in the
capacity as underwriters, placement agents or wholesalers are ignored. Under
Treasury regulations, we have allocated the issue price of the units between
the original notes and the original warrants. That allocation will be binding
on all holders of units, unless a holder explicitly discloses (on a form
prescribed by the IRS and attached to the holder's timely-filed U.S. federal
income tax return for the taxable year that includes the acquisition date of
the unit) that its allocation of the issue price of a unit is different from
the issuer's allocation. Our allocation is not, however, binding on the IRS.
Based on our allocation, the initial tax basis of each original warrant was
$54.34. The gain or loss upon a sale, redemption, lapse or other taxable
disposition of a registered warrant will be capital gain or loss if the
common stock to which the registered warrant relates would be a capital asset
in the hands of the warrant holder and will be long-term capital gain or loss
if the holding period for the registered warrant exceeds one year.
The cash exercise of a registered warrant will not, and the cashless
exercise of a registered warrant should not, be a taxable event for the
exercising U.S. Holder, except with respect to cash, if any, received in lieu
of a fractional share. The Internal Revenue Service may argue, however, that
the surrender of one or more registered warrants in payment of the exercise
price of another registered warrant upon a cashless exercise results in
taxable gain or loss to the exercising U.S. Holder in an amount equal to the
difference between the exercise price deemed paid and the tax basis in the
registered warrants surrendered as a payment of the exercise price. A U.S.
Holder will have a tax basis in the shares of common stock received upon
exercise of a registered warrant equal to the U.S. Holder's tax basis in the
registered warrant surrendered, plus any gain recognized upon a cashless
exercise or the amount of cash paid for the exercise price, as adjusted for
any fractional share for which cash is received. A U.S. Holder generally will
have a holding period in shares of common stock acquired upon exercise of a
registered warrant that commences on the date of exercise of the registered
warrant. With respect to a cashless exercise of a registered warrant, it is
possible a U.S. Holder would have a holding period in shares of common stock
received in exchange for the surrender of one or more registered warrants
that includes the holding period of the registered warrants so surrendered.
An adjustment to the exercise price of the registered warrants, or
the failure to make an adjustment, in certain circumstances, may result in a
constructive distribution to the holders of the registered warrant that could
be taxable as a dividend under Section 305 of the Code. In that event, a
holder's tax basis in the registered warrant would increase by the amount of
the dividend.
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TAX TREATMENT OF COMMON STOCK ACQUIRED ON EXERCISE OF A REGISTERED
WARRANT. Cash distributed on commons tock will be treated as a dividend to
the extent of our current and accumulated earnings and profits attributable
to the distribution as determined under U.S. federal income tax principles.
If the amount of a distribution exceeds our current and accumulated earnings
and profits attributable to the distribution, the distribution next will be
treated as a nontaxable return of capital and will be applied against and
reduce your adjusted tax basis in the common stock, but not below zero. If
the distribution exceeds both our current and accumulated earnings and
profits attributable to the distribution and your adjusted tax basis in your
common stock, the excess will be treated as capital gain and will be either
long-term or short-term capital gain depending on whether your holding period
for that common stock is or not more than one year.
Holders of common stock generally should be eligible for the 70%
dividends-received deduction with respect to the portion of any distribution
on the stock taxable as a dividend. However, corporate investors should
consider certain provisions that may limit the availability of a
dividends-received deduction, including but not limited to the holding period
rules of section 246(c) of the Internal Revenue Code, the rules of section
246A that reduce the dividends-received deduction on dividends on certain
debt-financed stock, and the rules in section 1059 of the Internal Revenue
Code that reduce the basis of stock (and may require recognition of taxable
gain) in respect of certain extraordinary dividends, as well as the effect of
the dividends-received deduction on the determination of alternative minimum
tax liability.
If you sell or dispose of your common stock in a taxable
transaction, you will recognize capital gain or loss equal to the difference
between the sum of the cash and the fair market value of any property
received and your tax basis in the common stock. A U.S. Holder's tax basis in
shares of common stock acquired upon exercise of a registered warrant will be
determined in the manner set forth in "--U.S. Holders --Tax Treatment of
Registered Warrants" above. The gain or loss will be long-term capital gain
or loss if your holding period for your stock exceeds one year. For corporate
taxpayers, long-term capital gains are taxed at the same rate as ordinary
income. For individual taxpayers, net capital gains -- the excess of the
taxpayer's net long-term capital gains over short-term capital losses -- are
subject to a maximum tax rate of 20%. The deductibility of capital losses is
restricted and generally may be used only to reduce capital gains to the
extent thereof.
INFORMATION REPORTING; BACKUP WITHHOLDING. We are required to
furnish to record holders of common stock, other than corporations and other
exempt holders, and to the Internal Revenue Service, information with respect
to dividends paid on the common stock.
Certain U.S. Holders may be subject to backup withholding at the
rate of 31% with respect to dividends paid on common stock or with respect to
proceeds received from a disposition of a registered warrant or a share of
common stock. Generally, backup withholding applies only if:
- the payee fails to furnish a correct taxpayer identification
number to the payor in the manner required or fails to demonstrate
that it otherwise qualifies for an exemption;
- the Internal Revenue Service notifies the payor that the taxpayer
identification number furnished by the payee is incorrect;
- the payee has failed to report properly the receipt of a
"reportable payment" on one or more occasions, and the Internal
Revenue Service has notified the payor that withholding is
required; or
- the payee fails (in certain circumstances) to provide a certified
statement, signed under penalties of perjury, that the taxpayer
identification number furnished is the correct number and that the
holder is not subject to backup withholding.
Backup withholding is not an additional tax but, rather, is a method
of tax collection. A U.S. Holder will be entitled to credit any amount
withheld under the backup withholding rules against its actual tax liability,
provided the required information is furnished to the Internal Revenue
Service.
114
<PAGE>
NON-U.S. HOLDERS
The following discussion is limited to U.S. federal income and
estate tax consequences relevant to a Non-U.S. Holder. As used herein, a
"Non-U.S. Holder" is a beneficial owner of a registered warrant, or share of
common stock acquired on exercise of a warrant, that, for U.S. federal income
tax purposes, is
- a nonresident alien individual;
- a corporation or partnership (or an entity treated as a
corporation or partnership) created or organized in or under the
law of a country (or a political subdivision thereof) other than
the United States; or
- a foreign estate or trust, which generally is an estate or trust
that is not a U.S. Holder.
For purposes of the withholding tax discussed below (other than
backup withholding), a Non-U.S. Holder includes a nonresident fiduciary of an
estate or trust. This discussion does not address tax consequences relevant
to an expatriate or former long-term resident of the United States or to a
person who holds a registered warrant or share of common stock through a
partnership. A person who holds a registered warrant or share of common stock
through a hybrid entity (that is, an entity that is fiscally transparent for
U.S. federal income tax purposes but not for foreign tax purposes) may not be
entitled to the benefits of a tax treaty. For example, a person who is a
partner in a foreign partnership or beneficiary of a foreign trust or estate
and who is subject to U.S. federal income tax because of his own status, for
example, as a U.S. resident or a foreign person engaged in trade or business
in the United States, may be subject to U.S. federal income tax even though
the foreign partnership, trust or estate is not itself subject to U.S.
federal income tax. For purposes of the following discussion, "U.S. trade or
business income" of a Non-U.S. Holder generally means a dividend on common
stock or gain on a sale, exchange or retirement of a registered warrant or
share of common stock if the dividend or gain is (i) effectively connected
with trade or business conducted by the Non-U.S. Holder within the United
States or (ii) in most cases of a resident of a country with which the United
States has an income tax treaty, attributable to a permanent establishment
(or fixed base) of the Non-U.S. Holder in the United States.
TAX TREATMENT OF REGISTERED WARRANTS. The cash exercise of a
registered warrant will not, and the cashless exercise of a registered
warrant should not, be a taxable disposition of the registered warrant for
the exercising Non-U.S. Holder, except with respect to cash, if any, received
in lieu of a fractional share. The Internal Revenue Service may argue,
however, that the surrender of one or more registered warrants in payment of
the exercise price of another warrant upon a cashless exercise results in a
taxable disposition to the exercising Non-U.S. Holder in an amount equal to
the difference between the exercise price deemed paid and the tax basis in
the registered warrants surrendered as a payment of the exercise price. In
general, a Non-U.S. Holder will not be subject to U.S. federal income tax
upon a taxable disposition of a registered warrant, except as described in
"Certain U.S. Federal Tax Consequences --Non-U.S. Holders --Taxable
Disposition of a Registered Warrant or Share of Common Stock" below.
An adjustment to the exercise price of the registered warrants, or
the failure to make an adjustment, in certain circumstances may result in a
constructive distribution to the holders of the registered warrants that
could be taxable as a dividend under Section 305 of the Code. In that event,
a holder's tax basis in the registered warrant would increase by the amount
of the dividend.
DIVIDENDS ON COMMON STOCK. If a registered warrant is exercised, a
Non-U.S. Holder of common stock generally will be subject to withholding of
U.S. federal income tax on actual or deemed dividend distributions at a 30%
rate or a lower rate that an applicable income tax treaty may specify.
Non-U.S. Holders should consult their tax advisors on their entitlement to
benefits under a relevant income tax treaty. For dividends paid after
December 31, 2000, a Non-U.S. Holder of common stock that claims the benefit
of an income tax treaty rate generally will be required to satisfy applicable
certification and other requirements. A Non-U.S. Holder of common stock that
is eligible for a reduced rate of U.S. withholding tax under an income tax
treaty may obtain a refund or credit of any excess amounts withheld by filing
an appropriate claim for a refund with the IRS.
115
<PAGE>
Dividends that are U.S. trade or business income are generally
subject to U.S. federal income tax on a net income basis at graduated rates
in the same manner that a U.S. taxpayer is subject to tax and will be exempt
from the withholding tax described above. In the case of a Non-U.S. Holder
that is a corporation, U.S. trade or business income under circumstances also
will be subject to an additional branch profits tax at a 30% rate (or, if
applicable, a lower treaty rate). To claim an exemption from withholding
because a dividend is U.S. trade or business income, a Non-U.S. Holder must
satisfy applicable certification and other requirements.
TAXABLE DISPOSITION OF A REGISTERED WARRANT OR SHARE OF COMMON
STOCK. Subject to the discussion below of backup withholding, you generally
will not be subject to U.S. federal income tax on any gain recognized upon a
sale, redemption, lapse or other taxable disposition of a registered warrant
or upon a sale, exchange or other taxable disposition of our common stock.
However, you will be subject to federal income tax on the gain if:
- the gain is U.S. trade or business income (in which case, if you
are a foreign corporation (or a foreign entity treated as a
corporation), you may also be subject to the branch profits tax at
a 30% rate (or, if applicable, a lower treaty rate));
- you are a non-resident alien individual, you are present in the
United States for 183 or more days in the taxable year of
disposition and either (a) you have a "tax home" in the United
States for U.S. federal income tax purposes or (b) the gain is
attributable to an office or other fixed place of business you
maintain in the United States; or
- we are a "United States real property holding corporation" within
the meaning of section 897(c) of the Internal Revenue Code, or we
have been a United States real property holding corporation at any
time during the shorter of the five year period ending on the date
of your sale or other disposition and the period you have held the
registered warrant or common stock that is sold or otherwise
disposed of. We believe that we currently are not a United States
real property holding corporation, and we do not anticipate
becoming one. No assurance, however, can be provided that we will
not become a United States real property holding corporation in
the future.
A Non-U.S. Holder's tax basis in a registered warrant will be equal to the
portion of the holder's tax basis in a unit that is allocated to the note and
the warrant as described in "Certain U.S. Federal Tax Consequences -- U.S.
Holders -- Tax Treatment of Warrants" above. A Non-U.S. Holder's tax basis in
shares of common stock acquired upon exercise of a warrant will be determined
in the manner set forth in "--U.S. Holders -- Tax Treatment of Warrants"
above.
FEDERAL ESTATE TAX. In the case of an individual who is not a
citizen of the United States and who is not domiciled in the United States at
the time of death,
- a warrant that is owned, or treated as owned, at the time of death
may be subject to U.S. federal estate tax, except as an applicable
estate tax treaty provides to the contrary; and
- a share of our common stock will be subject to U.S. federal estate
tax, except as an applicable estate tax treaty provides to the
contrary.
In the case of an individual who is not a citizen of the United
States but who is domiciled in the United States at the time of death, a
warrant and a share of our common stock will be subject to U.S. federal
estate tax, regardless of whether the individual is not a resident of the
United States, except as an applicable estate tax treaty provides to the
contrary.
INFORMATION REPORTING; BACKUP WITHHOLDING. Under specific
circumstances, the IRS requires information reporting and backup withholding
at a rate of 31% on dividends paid after December 31, 2000 to a Non-U.S.
Holder of common stock that is required to certify its Non-U.S. Holder status
but fails to do so. The proceeds of a disposition of a registered warrant or
a share of our common stock by a Non-U.S. Holder to or through a foreign
office of a broker will not be subject to backup withholding. However,
information reporting will apply in the case
116
<PAGE>
of a "U.S. related broker" unless the broker has documentary evidence in its
files of the Non-U.S. Holder's foreign status and has no actual knowledge to
the contrary or unless the Non-U.S. Holder otherwise establishes an
exemption. A broker is a "U.S. related broker" if the broker is a United
States person, a controlled foreign corporation for U.S. federal income tax
purposes, a foreign person 50% or more of whose income from all sources for a
designated period is from activities that are effectively connected with the
conduct of trade or business within the United States or, with respect to
payments made on or after January 1, 2001, a foreign partnership that, at any
time during its taxable year, is owned 50% or more (by income or capital
interest) by United States persons or is engaged in the conduct of trade or
business in the United States. The new regulations provide certain
presumptions under which a Non-U.S. Holder will be subject to backup
withholding and information reporting unless the Non-U.S. Holder provides a
certification as to its status as a Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a
payment to a Non-U.S. Holder will be allowed as a refund or as a credit
against the Non-U.S. Holder's U.S. federal income tax liability, provided the
requisite procedures are followed.
117
<PAGE>
PLAN OF DISTRIBUTION
The warrants and the shares of our common stock issued upon the
exercise of the warrants offered hereby may be sold by the warrantholders from
time to time in:
- transactions in the over-the-counter market;
- negotiated transactions;
- underwritten offerings; or
- a combination of such methods of sale.
The warrantholders may sell the warrants and the shares of our common
stock issued upon the exercise of the warrants at:
- fixed prices which may be changed;
- market prices prevailing at the time of sale;
- prices related to prevailing market prices; or
- negotiated prices.
The warrantholders may effect these transactions by selling the
warrants and shares of our common stock issued upon the exercise of the
warrants to or through broker-dealers, and these broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
warrantholders and/or the purchasers of the warrants for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
We are required to keep this registration statement effective so
long as any affiliate of ours holds warrants or shares of our common stock
issued upon exercise of the warrants.
In order to comply with the securities laws of particular states, if
applicable, the warrants and shares of our common stock will be sold in the
jurisdictions only through registered or licensed brokers or dealers. In
addition, in particular states, the warrants and shares of our common stock
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The warrantholders and any broker-dealers or agents that participate
with the warrantholders in the distribution of the warrants or the shares of
our common stock issued upon the exercise of the warrants may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, and any
commissions received by them and any profit on the resale of the warrants or
the shares of our common stock issued upon the exercise of the warrants
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act of 1933.
Each warrantholder will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations thereunder,
which provisions may limit the timing of purchases and sales of shares of our
common stock by the warrantholders.
We will pay for all costs of the registration of the warrants,
including, without limitation, SEC filing fees and expenses of compliance
with state securities or "blue sky" laws; except that, the selling holders
will pay all underwriting discounts and selling commissions, if any. We have
agreed to indemnify the selling holders against particular civil liabilities,
including some liabilities under the Securities Act of 1933, or we will
compensate them for some of these liabilities incurred in connection
therewith.
118
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the periodic reporting and other informational
requirements of the Exchange Act. We will file annual, quarterly and special
reports and other information with the SEC. In addition, we have agreed under
the warrant agreement that, whether or not we are required to do so by the
rules and regulations of the SEC, for so long as any of the warrants remain
outstanding, we will furnish to the holders of any of the warrants and file
with the SEC, unless the SEC will not accept such a filing, (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the SEC on Forms 10-Q and 10-K if we were required to file such
forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by our certified independent public
accountants and (ii) all reports that would be required to be filed with the
SEC on Form 8-K if we were required to file such reports.
We have filed a registration statement on Form S-1 with the SEC to
register under the Securities Act the warrants and shares of our common stock
issuable upon exercise of the warrants. This prospectus constitutes a part of
that registration statement. As allowed by the SEC's rules, this prospectus
does not contain all the information set forth in the registration statement,
certain parts of which have been omitted in accordance with the rules and
regulations of the SEC. Please refer to the registration statement and
related exhibits and schedules filed therewith for further information with
respect to us and the registered notes offered hereby. Statements contained
herein concerning the provisions of any document are not necessarily complete
and, in each instance, reference is made to the copy of such document filed
as an exhibit to the registration statement or otherwise filed by us with the
SEC and each such statement is qualified in its entirety by such reference.
You may read and copy any document we file at the SEC's public
reference rooms located at 450 5th Street, N.W., Washington, D.C. 20549, at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from commercial document retrieval services and at the web site
maintained by the SEC at: http://www.sec.gov. This information is available
without charge upon written or oral request to:
UbiquiTel Inc.
1 Bala Plaza, Suite 402
Bala Cynwyd, Pennsylvania 19004
Attention: Investor Relations
(610) 660-9510
You should rely only on the information provided in this prospectus
or any prospectus supplement. We have not authorized anyone else to provide
you with different information. We may not make an offer of the warrants and
the shares of our common stock issuable upon exercise of the warrants in any
state where the offer is not permitted. The delivery of this prospectus does
not, under any circumstances, mean that there has not been a change in our
affairs since the date of this prospectus. It also does not mean that the
information in this prospectus is correct after this date.
LEGAL MATTERS
The validity of the warrants and shares of our common stock issuable
upon the exercise of the warrants offered hereby will be passed upon by
Greenberg Traurig, P.A., Miami, Florida. Members of Greenberg Traurig
beneficially own in the aggregate 63,200 shares of our common stock.
EXPERTS
The audited consolidated balance sheet of UbiquiTel Inc. and
Subsidiaries as of December 31, 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the period from
inception (September 29, 1999) to December 31, 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants as indicated in their
report
119
<PAGE>
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving such reports.
The financial statements of the Spokane District (wholly owned by
Sprint Spectrum L.P.) as of December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
120
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES AND PREDECESSORS
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UBIQUITEL INC. AND SUBSIDIARIES-CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants....................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000 (unaudited)............. F-3
Consolidated Statements of Operations for the period from inception to December 31, 1999 and
for the three months ended March 31, 2000 (unaudited)........................................ F-4
Consolidated Statements of Stockholders' Equity for the period from inception to December 31,
1999 and for the three months ended March 31, 2000 (unaudited)............................... F-5
Consolidated Statements of Cash Flows for the period from inception to December 31, 1999 and
for the three months ended March 31, 2000 (unaudited)........................................ F-6
Notes to Consolidated Financial Statements..................................................... F-7
SPOKANE DISTRICT - FINANCIAL STATEMENTS
Report of Independent Auditors................................................................. F-25
Statements of Assets to be Sold as of December 31, 1999 and 1998 and March
31, 2000 (unaudited) ........................................................................ F-26
Statements of Revenues and Expenses for the years ended December 31, 1999,
1998 and 1997 and for the three months ended March 31, 2000 and 1999
(unaudited).................................................................................. F-27
Notes to Statements of Assets to be Sold and Statements of Revenues and Expenses............... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UbiquiTel Inc.:
We have audited the accompanying consolidated balance sheet of
UbiquiTel Inc. and Subsidiaries (a Delaware Corporation, formerly known as
UbiquiTel Holdings, Inc. (see Note 16)) as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from inception (September 29, 1999) to December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
UbiquiTel Inc. and Subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the period from inception
(September 29, 1999) to December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
New York, New York
March 8, 2000 (except for Notes 15 and 16 which are dated April 12, 2000)
F-2
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 23,959,190 $ 33,729,232
Accounts receivable................................ - 12,181
Inventory.......................................... - 49,649
Due from Sprint PCS................................ - 514,500
Prepaid expenses and other assets.................. 35,636 1,490,343
----------------- --------------
Total current assets............................ 23,994,826 35,795,905
PROPERTY AND EQUIPMENT................................ - 1,765,949
CONSTRUCTION IN PROGRESS.............................. 4,085,942 7,255,779
DEFERRED FINANCING COSTS, net......................... 2,110,642 7,362,835
OTHER ASSETS.......................................... - 182,390
----------------- --------------
Total assets....................................... $ 30,191,410 $ 52,362,858
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............. $ 577,216 $ 1,356,443
Due to shareholders................................ 1,663,441 1,213,747
Due to Lucent Technologies, Inc.................... 3,883,419 2,488,463
Due to SpectraSite Communications, Inc............. - 773,330
Accrued interest................................... 10,521 -
Dividends payable.................................. 9,030 473,671
----------------- --------------
Total current liabilities....................... 6,143,627 6,305,654
----------------- --------------
LONG-TERM DEBT........................................ 5,811,869 5,811,869
----------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE WARRANTS................................... 2,758,154 2,758,154
----------------- --------------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value,
$0.001 per share; 90,000,000 shares authorized;
17,008,500 shares issued and outstanding......... 17,009 17,009
Series B convertible preferred stock, par value,
$0.001 per share; 35,000,000 shares authorized;
2,110,347 shares issued and outstanding.......... - 2,110
300,000,000 shares of voting common stock, par
value, $0.0005 authorized; 6,834,000 shares
issued and outstanding........................... 3,417 3,417
32,000,000 shares of nonvoting common stock, par
value, $0.0005 authorized; all shares are issued
and outstanding.................................. 16,000 16,000
Additional paid-in-capital.......................... 17,428,425 51,310,958
Accumulated deficit during the development stage.... (1,987,091) (13,862,313)
----------------- --------------
Total stockholders' equity...................... 15,477,760 37,487,181
----------------- --------------
Total liabilities and stockholders' equity.......... $ 30,191,410 $ 52,362,858
================= ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED BALANCE SHEETS.
F-3
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM THE
INCEPTION THREE MONTHS PERIOD FROM INCEPTION
(SEPTEMBER 29, 1999) ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
-------------------- -------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES............................ $ - $ 68,519 $ 68,519
COST OF REVENUES.................... - - -
-------------------- -------------- -----------------
Gross profit..................... - 68,519 68,519
OPERATING EXPENSES
General and administrative
expenses excluding non-cash
compensation charges......... 554,430 906,679 1,461,109
Non-cash compensation for
general and administrative
matters...................... 1,394,729 - 1,394,729
Amortization of deferred stock
compensation expense granted
to employees for general and
administrative matters....... - 118,643 118,643
-------------------- -------------- -----------------
Operating loss................ (1,949,159) (956,803) (2,905,962)
INTEREST (EXPENSE) INCOME, NET...... (28,902) 35,101 6,199
-------------------- -------------- -----------------
Loss before Extraordinary
Item........................ (1,978,061) (921,702) (2,899,763)
LESS: PREFERRED STOCK DIVIDENDS
PLUS ACCRETION................... (9,030) (9,230,641) (9,239,671)
-------------------- -------------- -----------------
LOSS AVAILABLE TO COMMON
STOCKHOLDERS..................... (1,987,091) (10,152,343) (12,139,434)
EXTRAORDINARY ITEM - WRITEOFF OF
DEFERRED FINANCING COSTS ON
EARLY EXTINGUISHMENT OF DEBT..... - (1,722,879) (1,722,879)
-------------------- -------------- -----------------
NET LOSS AVAILABLE TO COMMON
STOCKHOLDERS..................... $(1,987,091) $(11,875,222) $(13,862,313)
==================== ============== =================
PRO FORMA NET LOSS AND LOSS PER
SHARE:
HISTORICAL NET LOSS BEFORE
INCOME TAXES................. $(1,987,091) $(11,875,222) $(13,862,313)
PRO FORMA INCOME TAX EFFECTS..... - - -
-------------------- -------------- -----------------
PRO FORMA NET LOSS.................. $(1,987,091) $(11,875,222) $(13,862,313)
==================== ============== =================
PRO FORMA BASIC AND DILUTED LOSS
PER SHARE........................ $(0.04) $(0.24) $(0.28)
PRO FORMA COMMON SHARES OUTSTANDING. 50,263,604 50,263,604 50,263,604
==================== ============== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-4
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------- ------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 29,
1999 (at inception)..... - $ - - $ - $ - $ - $ -
Issuance of voting common
stock................... - - 6,834,000 3,417 - - 3,417
Issuance of non-voting
common stock............ - - 32,000,000 16,000 - - 16,000
Issuance of Series A
convertible preferred
stock, net of offering
costs................... 17,008,500 17,009 - - 15,294,936 - 15,311,945
Non-cash compensation for
general and
administrative matters.. - - - - 1,394,729 - 1,394,729
Non-cash compensation for
general and
administrative matters.. - - - - 738,760 - 738,760
Net loss.................. - - - - - (1,987,091) (1,987,091)
----------- -------- ----------- ------- ----------- ------------- ------------
BALANCE,
December 31, 1999......... 17,008,500 17,009 38,834,000 19,417 17,428,425 (1,987,091) 15,477,760
Issuance of Series B
convertible preferred
stock plus accretion.... 2,110,347 2,110 - - 33,763,890 - 33,766,000
Amortization of deferred
stock compensation
expense granted to
employees for general
and administrative
matters................. - - - - 118,643 - 118,643
Net loss.................. - - - - - (11,875,222) (11,875,222)
----------- -------- ----------- ------- ----------- ------------- -------------
BALANCE,
March 31, 2000 (unaudited) 19,118,847 $19,119 38,834,000 $19,417 $51,310,958 $(13,862,313) $37,487,181
=========== ======== =========== ======= =========== ============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-5
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM THE
INCEPTION PERIOD FROM INCEPTION
(SEPTEMBER 29, 1999) THREE MONTHS ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
-------------------- ------------------ ---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $(1,978,061) $(921,702) $(2,899,763)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred financing
costs............................ 18,381 81,096 99,477
Depreciation....................... - 24,671 24,671
Non-cash compensation for general
and administrative matters....... 1,394,729 - 1,394,729
Non-cash compensation from stock
option granted to employee....... - 118,643 118,643
Changes in operating assets and
liabilities:
Accounts receivable................ - (12,181) (12,181)
Inventory.......................... - (49,649) (49,649)
Due from Sprint PCS................ - (514,500) (514,500)
Other assets....................... - (182,390) (182,390)
Prepaid expenses................... (35,636) (517,435) (553,071)
Accounts payable and accrued
expenses......................... 373,534 (232,638) 140,896
Accrued interest................... 10,521 (10,521) -
-------------------- ------------------ ---------------------
Net cash used in operating
activities..................... (216,532) (2,216,606) (2,433,138)
-------------------- ------------------ ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (10,400) (5,400,852) (5,411,252)
-------------------- ------------------ ---------------------
Net cash used in investing
activities..................... (10,400) (5,400,852) (5,411,252)
-------------------- ------------------ ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior
subordinated notes and
detachable warrants............ 8,000,000 - 8,000,000
Deferred financing cost........... (734,000) (6,762,500) (7,496,500)
Proceeds from issuance of
convertible preferred stock.... 17,008,500 25,000,000 42,008,500
Proceeds from issuance of
common stock................... 19,417 - 19,417
Offering costs.................... (107,795) (850,000) (957,795)
-------------------- ------------------ ---------------------
Net cash provided by financing
activities.................... 24,186,122 17,387,500 41,573,622
-------------------- ------------------ ---------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 23,959,190 9,770,042 33,729,232
CASH AND CASH EQUIVALENTS, beginning
of period........................... - 23,959,190 -
-------------------- ------------------ ---------------------
CASH AND CASH EQUIVALENTS, end of
period.............................. $23,959,190 $33,729,232 $ 33,729,232
==================== ================== =====================
<PAGE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM THE
INCEPTION PERIOD FROM INCEPTION
(SEPTEMBER 29, 1999) THREE MONTHS ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
-------------------- ------------------ ---------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................. $ - $374,684 $374,684
Cash paid for income taxes............. - - -
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Network assets acquired but not
paid............................ 4,075,542 3,635,147 3,635,147
Extraordinary item-write-off of
deferred financing charge....... - 1,722,879 1,722,879
Deferred financing costs incurred
but not paid.................... 825,000 1,118,668 1,118,668
Preferred stock dividends......... 9,030 464,641 464,641
IPO costs incurred but not paid..... - 497,717 497,717
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
F-6
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
UbiquiTel Inc. and Subsidiaries (the "Company") was formed for the
purpose of becoming the exclusive provider of Sprint Personal Communications
Services ("PCS") in midsize and smaller markets in the west and midwestern
United States.
In October 1998, UbiquiTel L.L.C. (a Washington State Limited
Liability Company), whose sole member was The Walter Group entered into an
agreement with Sprint PCS for no consideration given for the exclusive rights
to market Sprint's 100% digital, 100% PCS products and services to the
approximately 1 million residents in the Reno/Tahoe Nevada market. UbiquiTel
L.L.C. had no financial transactions from its inception (August 24, 1998) to
September 29, 1999. On September 29, 1999, UbiquiTel Inc. (formerly
"UbiquiTel Holdings, Inc."), a Delaware Corporation, was incorporated. On
November 1, 1999, the Founders' Agreement was executed and common stock was
issued to a group of five shareholders referred to as "the Founders"
including The Walter Group. In November 1999, UbiquiTel L.L.C. assigned all
of its material contracts including the rights to the Sprint PCS agreements
to UbiquiTel Inc. On December 28, 1999, UbiquiTel Inc. amended its agreement
with Sprint PCS to expand the Company's markets to the Northern California,
Spokane/Montana, Southern Idaho/Utah/Nevada and Southern Indiana/Kentucky
markets which together with the Reno/Tahoe markets contain approximately 7.7
million residents.
On November 9, 1999, UbiquiTel Operating Company, Inc. (a Delaware
Corporation, formerly a Delaware Limited Liability Company), was formed to
serve as the operating company for UbiquiTel Inc. Also, on March 17, 2000,
UbiquiTel Leasing Company, (a Delaware Corporation) was formed to serve as
the leasing company for UbiquiTel Inc.
The consolidated financial statements contain the financial
information of UbiquiTel Inc., its subsidiaries, UbiquiTel Operating Company
and UbiquiTel Leasing Company and its predecessor UbiquiTel L.L.C.
collectively ("the Company"). UbiquiTel L.L.C., did not have any operations
or financial transactions for the period from its inception of August 24,
1998 through December 31, 1999 and no other assets or liabilities existed
other than assets and contingencies under the contracts assigned to UbiquiTel
Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 2000 and for the three
months ended March 31, 2000 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, that are considered
necessary for fair presentation of the Company's financial position at March
31, 2000, and the Company's operations and cash flows for the three months
ended March 31, 2000 in accordance with accounting principles generally
accepted in the United States. Operating results for the three months ended
March 31, 2000 are not necessarily indicative of results that may be expected
for the entire year.
DEVELOPMENT STAGE ENTERPRISE
The Company was established on September 29, 1999 (inception). The
Company has devoted most of its efforts to date on activities such as
preparing business plans, raising capital, and planning the build-out of its
PCS network in the Reno/Tahoe market. From inception through March 31, 2000,
the Company has not generated significant revenues and has incurred expenses
of $4,703,559 including an extraordinary item of in the amount of $1,722,879,
resulting in an accumulated deficit during the development stage of
$13,862,313 as of March 31, 2000 after the preferred stock dividends and
effects of a beneficial conversion on Series B Convertible Preferred Stock.
F-7
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
with original maturities of three months or less.
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets include costs incurred in
connection with the Company's initial public offering (Note 16). As of
December 31, 1999 and March 31, 2000 (unaudited) these costs amounted to $0
and $937,273, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost less accumulated
depreciation. Costs 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.
Property and equipment are depreciated using the straight-line
method based on estimated useful lives of the assets.
Assets lives are as follows:
<TABLE>
<S> <C>
Network equipment......................................... 5-10 years
Computer equipment........................................ 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.
CONSTRUCTION IN PROGRESS
Construction in progress includes equipment engineering and site
development cost in connection with the build out of the Company's PCS
network. The Company will capitalize interest on its construction in progress
activities. The capitalized interest will be recorded as part of the asset to
which it relates and will be amortized over the remaining estimated useful
life. At December 31, 1999 and March 31, 2000 (unaudited), no interest costs
were capitalized.
ADVERTISING COSTS
Adverting costs are expensed as incurred. The Company did not incur
advertising expense for the period from inception to December 31, 1999 and
for three months ended March 31, 2000.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining the Company's senior
subordinated notes and $250.0 million senior secured credit facility are
deferred and will be amortized into interest expense over the term of the
respective financing using the effective interest method. For the period from
inception (September 29, 1999) to December 31, 1999 and for the three months
ended March 31, 2000 (unaudited), amortization amounted to $18,381 and
$81,096 respectively, and was included in interest expense.
F-8
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and
liability approach which requires the recognition of deferred tax assets and
deferred tax liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
assets and liabilities. Valuation allowances will be established when
necessary to reduce deferred tax assets to the amount expected to be realized.
EXTRAORDINARY ITEM
On March 31, 2000, the Company finalized and executed a new $250.0
million senior secured credit facility and terminated the old $25.0 million
credit facility. Deferred financing costs of $1,722,879 relating to the old
facility were expensed as an extraordinary item during the three month period
ended March 31, 2000.
UNAUDITED PRO FORMA NET LOSS PER SHARE
The Company computes net loss per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, unaudited pro forma basic and diluted net
loss per common share is computed by dividing the net loss available to
common shareholders for the period by the weighted average number of shares
of common stock outstanding after giving effect to the conversion of
preferred stock into common stock upon an initial public offering and the
exercise of warrants to purchase 4,978,150 shares of common stock which was
issued in connection with the senior subordinated note. In accordance with
SFAS 128, incremental potential common shares from stock options has been
excluded in the calculation of diluted loss per share since the effect would
be antidilutive. Accordingly, the number of weighted average shares
outstanding as well as the amount of net loss per share are the same for
basic and diluted per share calculations for the period reflected in the
accompanying financial statement.
REVENUE RECOGNITION
The Company will recognize revenue as services are performed. Sprint
PCS will handle the Company's billings and collections and will retain 8% of
collected service revenues from Sprint PCS subscribers based in the Company's
markets and from non-Sprint PCS subscribers who roam onto the Company's
network. The amount retained by Sprint PCS will be recorded as an operating
expense. Revenues generated from the sale of handsets and accessories and
from traveling services provided to Sprint PCS customers who are not based in
the Company's markets are not subject to the 8% service revenue fee for
Sprint.
Sprint PCS will pay the Company a Sprint PCS traveling fee for each
minute that a Sprint PCS subscriber based outside the Company's markets
travels on to the Company's portion of the Sprint PCS Network. Revenue from
these services will be recognized as the services are performed. Similarly,
the Company will pay traveling fees to Sprint PCS, when a Sprint PCS
subscriber based in the Company's markets travels on to the Sprint PCS
Network outside of the Company's markets. These costs will be included as
cost of sales when incurred. Traveling fees of $0 and $68,519 were earned for
the period from inception to December 31, 1999 and for the three months ended
March 31, 2000 (unaudited), respectively.
Product revenues consisting of proceeds from sales of handsets and
accessories will be recorded net of allowance for sales returns. There were
no product revenues or related costs for the period from inception to
December 31, 1999 and for the three months ended March 31, 2000 (unaudited).
F-9
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
RISKS AND UNCERTAINTIES
The Company's profitability 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. If
these and the other risks included under "Risk Factors" in the Company's
Registration Statement on Form S-1 are not properly managed and resolved the
results could have a material adverse impact on the Company's financial
statements.
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 a significant
credit risk associated with deposits in excess of Federally insured amounts.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998 and June 1999, the Financial Accounting Standards
Board, commonly referred to as FASB, issued Statements of Financial
Accounting Standards, No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") and 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 133 will be effective for the Company'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 consolidated
financial results.
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 liabilities, at the date of the financial statements
and the reported amount of expenses during the reporting period. Actual
results could differ from those estimates.
COMPREHENSIVE INCOME
No statement of comprehensive income has been included in the
accompanying financial statements since the Company does not have any other
comprehensive income to report.
F-10
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS
As of December 28, 1999, the Company signed four major agreements
with Sprint and Sprint PCS. They are the management agreement, the services
agreement, the trademark and service mark license agreement with Sprint and
the trademark and service mark license agreement with Sprint PCS. These
agreements allow the Company to exclusively offer Sprint PCS services in the
Company's four markets-Reno/Tahoe/Northern California; Spokane/Montana;
Southern Idaho/Utah/Nevada; and Southern Indiana/Kentucky.
The management agreement has an initial term of 20 years with three
10-year renewals. It can be terminated if either party provides the other
with two years' prior written notice or unless the Company is in material
default of its obligations. The key clauses within the management agreement
are summarized as follows:
(a) EXCLUSIVITY. The Company is designated as the only
person or entity that can manage or operate a PCS
network for Sprint PCS in the Company's markets.
Sprint PCS is prohibited from owning, operating,
building or managing another wireless mobility
communications network in the Company's markets while
the management agreement is in place.
(b) NETWORK BUILD-OUT. The management agreement specifies
the terms of the Sprint PCS affiliation, including
the required network build-out plan. The Company has
agreed on a minimum build-out plan which includes
specific coverage and deployment schedules for the
network planned within its service area and sets a
target date for completion of June 1, 2005.
(c) PRODUCTS AND SERVICES OFFERED FOR SALE. The
management agreement identifies the products and
services that can be offered for sale in the
Company's markets. The Company cannot offer wireless
local loop services specifically designed for the
competitive local market in areas where Sprint owns
the local exchange carrier unless the Sprint owned
local exchange carrier is named as the exclusive
distributor or Sprint PCS approves the terms and
conditions.
(d) SERVICE PRICING. The Company must offer Sprint PCS
subscriber pricing plans designated for national
offerings. The Company is permitted to establish
local price plans for Sprint PCS products and
services only offered in the Company's market. Sprint
PCS will retain 8% of the Company's collected service
revenues but will remit 100% of revenues derived from
traveling and sales of handsets and accessories and
proceeds from sales not in the ordinary course of
business.
(e) TRAVELING. The Company will earn travel revenues when
a Sprint PCS customer from outside of the Company's
markets travels onto the Company's network.
Similarly, the Company will pay Sprint PCS when the
Company's own subscribers use the Sprint PCS
nationwide network outside the Company's markets.
(f) ADVERTISING AND PROMOTION. Sprint PCS is responsible
for all national advertising and promotion of Sprint
PCS products and services. The Company is responsible
for advertising and promotion in the Company's
markets.
(g) PROGRAM REQUIREMENTS INCLUDING TECHNICAL AND CUSTOMER
CARE STANDARDS. The Company will comply with Sprint
PCS' program requirements for technical standards,
customer service standards, national and regional
distribution and national accounts programs.
(h) NON-COMPETITION. The Company may not offer Sprint PCS
products and services outside the Company's markets.
F-11
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS (CONTINUED)
(i) INABILITY TO USE NON-SPRINT PCS BRANDS. The Company
may not market, promote, advertise, distribute, lease
or sell any of the Sprint PCS products 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.
(j) RIGHTS OF FIRST REFUSAL. Sprint PCS has certain
rights of first refusal to buy the Company's assets
upon a proposed sale.
The management agreement can be terminated as a result of a number
of events including an uncured breach of the management agreement or
bankruptcy of either party to the agreement. In the event that the management
agreement is not renewed or terminated, certain formulas apply to the
valuation and disposition of the Company's assets.
The services agreement outlines various support services such as
activation, billing and customer care that will be provided to the Company by
Sprint PCS. These services are available to the Company at established rates.
Sprint PCS can change any or all of the service rates one time in each twelve
month period. The Company may discontinue the use of any service upon three
months written notice. Sprint PCS may discontinue a service provided that it
gives nine months written notice. The services agreement automatically
terminates upon termination of the management agreement.
The trademark and service mark license agreements with Sprint and
Sprint PCS provide the Company with non-transferable, royalty free licenses
to use the Sprint and Sprint PCS brand names, the "diamond" symbol and
several other trademarks and service marks. The Company's use of the licensed
marks is subject to adherence to quality standards determined by Sprint and
Sprint PCS. Sprint and Sprint PCS can terminate the trademark and service
mark license agreements if the Company files for bankruptcy, materially
breaches the agreement or if the management agreement is terminated.
4. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1999 and March 31,
2000 (unaudited) is as follows:
<TABLE>
<S> <C>
12% Senior Subordinated Note............................. $8,000,000
Less: Discount........................................... (2,188,131)
------------------
Long-term debt..................................... $5,811,869
==================
</TABLE>
On November 12, 1999, the Company signed a commitment letter for a
Purchase Agreement with BET Associates, which included an $8,000,000 senior
subordinated note. The Purchase Agreement was finalized and executed on
December 28, 1999. The note bears stated interest at 12% payable quarterly
and matures on December 28, 2007. The first interest payment is due April 1,
2000 for the period from the closing date through March 31, 2000.
BET Associates also received a warrant to purchase 4,978,150 shares
of voting common stock at a par value of $0.0005 per share and an exercise
price of $0.005 per share with an exercise period of ten years. Of the
$8,000,000 in proceeds received under the purchase agreement, $2,188,131 was
allocated to the detachable warrants based on the fair value of the warrants
on the date of issuance as determined using the Black-Scholes Model (Note 8).
The Company also paid a commitment fee of $160,000 that will be amortized
over the term of the loan.
F-12
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
The proceeds of the note are available to fund capital expenditures
related to the construction of the Company's PCS network for the Reno/Tahoe
markets. The loan agreement requires the Company to adhere to specific
financial covenants including limitation on capital expenditures. The Company
is required to prepay the notes with cash received from the sale of assets or
stock or from additional financings. The notes may be prepaid if the Company
completes a private or public offering of debt or equity of at least $100
million plus a premium of 1% of the principal amount paid.
On November 15, 1999, the Company signed a commitment letter for a
$25 million Senior Secured Credit Agreement (the "Facility"), with Paribas,
as Administrative Agent, and certain banks and other financial institutions
party thereto. The Facility was finalized and executed on December 29, 1999
(the "Facility Effective Date"). The Facility provided for (i) a $12.5
million Term Loan Commitment ("Term Loans") which may be drawn in
installments at any time after the Facility Effective Date through the second
anniversary of the Facility Effective Date and (ii) a $12.5 million Revolving
Loan Commitment ("Revolving Loans") which may be drawn in installments after
the date the Term Loans has been repaid through the sixth anniversary of the
Facility Effective Date. No amounts have been drawn under this Facility.
Upon acceptance and delivery of this Facility, the Company incurred
financing costs of $1,264,000. In addition, the Company issued Paribas
detachable warrants to purchase 1,148,804 shares of non-voting common stock
at a par value of $0.0005 per share and an exercise price of $0.005 per share
with an exercise period of ten years. The fair value of the warrants of
$570,023 have been determined using the Black-Scholes Model (Note 8).
On February 22, 2000, UbiquiTel Operating Company, the wholly owned
subsidiary of UbiquiTel Inc. received a commitment letter from Paribas, as
Administrative Agent, and certain banks and other financial institutions
party thereto for a $250.0 million senior secured credit facility. UbiquiTel
Inc. has guaranteed the credit facility which was finalized and executed on
March 31, 2000 and replaces the previous $25.0 million facility. The credit
facility consists of a revolving loan of up to $55.0 million, a term loan A
of $120.0 million and a term loan B of $75.0 million.
The revolving loan and term loan A will mature in October 2007 and
the term loan B will mature in October 2008. The revolving loans are required
to be repaid beginning in February 2002, in eighteen quarterly consecutive
installments. The term loans A and B are required to be repaid beginning in
June 2004 in fourteen and eighteen consecutive quarterly installment,
respectively. The amount of each of the quarterly consecutive installment
increases incrementally in accordance with the credit facility agreement. The
amount that can be borrowed and outstanding under the revolving loans reduces
in eight quarterly reductions of $6.875 million beginning with December 2005.
UbiquiTel Operating Company may borrow funds as either a base rate
loan with an interest rate of prime plus 2.00% for the revolving loans and
term loan A and prime plus 2.50% for term loan B or a Eurodollar Loan with an
interest rate of the London Interbank Offered Rate, commonly referred to as
LIBOR, plus 3.25% for the revolving loans and term loan A and plus 3.75% for
term loan B. In addition, an unused credit facility fee ranging from 0.75% to
1.375% will be charged quarterly on the average unused portion of the
facility.
Initial borrowings of $75.0 million under the term loan B were made
on April 11, 2000. This amount was funded into an escrow account that is
controlled by Paribas and will not be released until specified conditions
have been satisfied. These conditions include, among others, the closing of
the acquisition of the Spokane PCS assets, receipt of $100.0 million in
additional equity financing by July 31, 2000, and evidence that the company
has used all the proceeds from the Notes. Additional borrowings are subject
to these escrow arrangements and will not be provided until the initial
borrowings of $75.0 million has been released.
In conjunction with the closing of this facility, the company
incurred financing fees of $7,056,168 which are being amortized over the term
of the credit facility. Deferred financing fees of $1,722,879 relating to the
old credit facility have been expensed at March 31, 2000 (unaudited) as an
extraordinary item.
F-13
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
The facility contains customary credit covenants including covenants
limiting indebtedness, dividends and distributions on, and redemptions and
repurchases of, capital stock and other similar payments and various
financial maintenance covenants. The credit facility also contains covenants
relating to the population covered by the Company's network and number of
customers and customary representations, warranties, indemnities, conditions
precedent to borrowing, and events of default.
Proceeds under the Facility are available to fund capital
expenditures related to the construction of the Company's PCS network, the
acquisition of related businesses, working capital needs of the Company, and
customer acquisition costs.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, assumptions, and methods used to estimate the
fair value of the Company's financial instruments are made in accordance with
the requirements of Statement of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments" ("SFAS 107"). The
Company has used available information to derive its estimates. However,
because these estimates are made as of a specific point in time, they are not
necessarily indicative of amounts the Company could realize currently. The
use of different assumptions or estimating methods may have a material effect
on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------- ----------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents........................................... $ 23,959,190 $ 33,729,232
Accounts payable and accrued expenses............................... 6,124,076 5,831,983
Accrued interest.................................................... 10,521 -
Long-term debt...................................................... 5,811,869 5,811,869
</TABLE>
The carrying amounts of cash and cash equivalents, accounts payable
and accrued expenses, and accrued interest are a reasonable estimate of their
fair value due to the short-term nature of the instruments. Long-term debt
consists of the senior subordinated notes.
6. UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
Unaudited pro forma basic loss per share amounts are computed by
dividing the net loss by the weighted average number of shares of common
stock outstanding after giving effect to the conversion of preferred stock
into common stock upon an initial public offering and the exercise of
warrants to purchase 4,978,150 shares of common stock which was issued in
connection with the senior subordinated note. Diluted loss per share is
computed by dividing the net loss by the weighted average number of shares of
common stock outstanding after giving effect to the conversion of preferred
stock into common stock upon an initial public offering and the exercise of
warrants to purchase 4,978,150 shares of common stock which was issued in
connection with the senior subordinated note plus the effects of any
potentially dilutive securities. In the accompanying statements of
operations, diluted loss per share does not include the effects of
potentially dilutive securities for all periods presented as they would have
been anti-dilutive in years in which a loss is reported.
The following summarizes the securities outstanding at December 31,
1999 and March 31, 2000 (unaudited) which are excluded from the loss per
share calculation as amounts would have an anti-dilutive effect.
F-14
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Stock options...................................................... 3,200,000 3,520,000
Warrants........................................................... 1,148,804 1,148,804
--------------- ---------------
Total......................................................... 4,348,804 4,668,804
=============== ===============
</TABLE>
7. STOCKHOLDERS' EQUITY
COMMON STOCK
On November 1, 1999, the Company issued 6,834,000 shares of voting
common stock to a group collectively referred to as the Founders at a par
value of $0.0005 per share as compensation for the Founders' efforts prior to
that time and for the assignment of the Sprint PCS Reno/Tahoe agreement. The
fair value at the time of issuance was $0.50 per share. In accordance with
Accounting Principles Board No. 25 "Accounting for Stock Issued to
Employees", the Company recorded compensation of $1,394,729 which is
presented as non-cash compensation for general and administrative matters in
the Company's Statement of Operations. For stock issued to non-employees the
company recorded a charge to additional paid in capital of $738,760 as the
founders were involved in raising equity capital for the Company.
The holders of voting common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders and
do not have any cumulative rights. Subject to the rights of the holders of
any series of preferred stock, holders of voting common stock are entitled to
receive ratably such dividend as may be declared by the board of directors
out of funds legally available. Holders of shares of voting common stock have
no preemptive, conversion, redemption, subscription or similar rights. If the
Company liquidates, dissolves, or winds up, the holders of shares of voting
common stock are entitled to share ratably in the assets which are legally
available for distribution, if any, remaining after the payment or provision
for the payment of all debts and other liabilities and the payment and
setting aside for payment of any preferential amount due to the holders of
shares of any series of preferred stock. The vested, nonvoting common stock
are identical in all respects to the voting common stock except that holders
of shares of nonvoting common stock shall not have the right to vote on any
matters submitted to a vote by the Company's stockholders.
On November 1, 1999, the Company issued 32,000,000 non-vested shares
of non-voting common stock to the Founders at a par value of $0.0005 per
share. These shares were issued to retain the Founders 13.4% ownership
interest in the event the Company issues additional stock and equity
securities. Any non-voting common stock that vests will automatically be
converted to voting common stock. At December 31, 1999 and March 31, 2000
(unaudited) none of the non-voting common stock was vested. Upon completion
of the initial public offering, any remaining non-vested shares of non-voting
common stock will be forfeited.
CONVERTIBLE SERIES A AND SERIES B PREFERRED STOCK
On September 30, 1999, the Company entered into an escrow agreement
with a group of investors intending to subscribe for and purchase a total of
$17,000,000 of the Company's Series A Preferred Stock. The investors agreed
to deposit its subscription amount in escrow pursuant to which the
subscription payments would be held until the closing of the purchase of the
Series A Preferred.
F-15
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
On November 23, 1999, the Company entered into a Series A Preferred
Stock Agreement (the "Agreement") for a total of 17,008,500 shares of Series
A Preferred Stock at a purchase price of $1.00 per share. Subject to the
terms of the Agreement, $1,000,000 of Series A Preferred Stock was purchased
on November 23, 1999 when the Company had firm commitments for at least $33
million in senior and subordinated debt financing, (see Note 4) and the
balance of $16,008,500 of Series A Preferred Stock was purchased on December
23, 1999, prior to the execution of the senior and subordinated debt
financing which occurred by December 31, 1999. Each share of the Series A
Preferred Stock is convertible at any time after the date of issuance into
common stock at an initial conversion price of $0.50 as adjusted for the
2-for-1 stock split subject to adjustments as defined in the Agreement. In
addition, upon the closing of a qualified initial public offering, as defined
in the Agreement, all outstanding shares of Series A Preferred Stock will
automatically convert into voting common stock at the then effective
conversion price.
On February 25, 2000, DLJ Merchant Banking Partners II, L.P.
("DLJ"), an affiliate of Donaldson, Lufkin & Jenrette, one of the Company's
underwriters, entered into a Securities Purchase Agreement whereby it
purchased 2,110,347 shares of 7% Convertible Series B Preferred Stock at a
purchase price of $11.84 per share, or $25 million in aggregate. Each share
of Series B Preferred Stock is convertible at any time after the date of
issuance into common stock at the then effective conversion price. DLJ also
committed to purchase 11,837,024 shares of Convertible Series B Preferred
Stock at a purchase price of $8.46 per share, or $100 million in aggregate,
in the event the Company does not consummate the initial public offering. In
accordance with the EITF 98-5 upon issuance of the Series B Preferred Stock
the Company had a beneficial conversion resulting in a discount of $8,766,000
which is recognized as a return to the preferred shareholder during the three
month period ended March 31, 2000.
DIVIDENDS
Holders of Series A and B Convertible Preferred Stock are entitled
to receive cumulative dividends at a rate of 7% per annum out of any assets
of the Company. The cumulative accrued dividends at March 31, 2000
(unaudited) are $473,671.
The discount of $8,766,000 resulting from the allocation of the
proceeds from the Series B Convertible Preferred Stock to the beneficial
conversion feature is included in preferred stock dividends for the three
months ended March 31, 2000 (unaudited).
8. REDEEMABLE WARRANTS
At December 31, 1999 and March 31, 2000 (unaudited), the Company had
outstanding warrants to purchase 4,978,150 shares of voting common stock and
1,148,804 shares of non-voting common stock. The warrants to purchase
4,978,150 shares of voting common stock were issued to BET Associates in
connection with the issuance of the $8.0 million 12% senior subordinated
note. The voting stock warrants contain repurchase provisions similar to
those of the non-voting stock warrants, but the repurchase provisions will
expire upon the completion of an initial public offering.
The warrants to purchase 1,148,804 shares of non-voting common stock
were issued to Paribas in connection with the $25.0 million credit facility.
All warrants are exercisable at $0.005 per share and have a ten-year life.
Holders of the warrants are entitled to dividends that are paid with respect
to the non-voting common stock even if the warrants have not yet been
exercised. Additionally, beginning on the earlier of the fifth anniversary of
the date the warrants were issued or the date the Company experiences a
change in control, the holder of the warrants may require the Company to
repurchase at market value the warrants or any shares of non-voting common
stock that were issued to the holder upon the exercise of the warrants. The
Company also has the option to repurchase all of the warrants or all of the
shares of non-voting common stock issued upon the exercise of the warrants
beginning on the sixth anniversary of the date the warrants were issued. If
the Company exercises this right, it must repurchase the warrants or shares
at a price equal to 120% of the market price of the non-voting common stock
as of the date the Company repurchases the warrants or shares.
F-16
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE WARRANTS (CONTINUED)
The Company's accounting for these warrants at the time of issuance was
as follows:
- The fair market value of the warrants was $2,758,154 and was
determined by using the Black-Scholes model with the following
assumptions:
- risk free interest rate of 6.4%,
- expected dividend yield of 0%,
- expected life of five years, and
- expected volatility of 70%
9. STOCK OPTION PLAN
On November 29, 1999, the Company entered into an employment
agreement with its Chief Executive Officer. Under the employment agreement,
the company granted stock options for 2,550,000 shares of common stock at a
purchase price of $0.50 per share which the Company believes was the fair
market value of the stock at that time. The options vest in three equal
installments over a period of three years.
In 1999, the Company granted an aggregate of 650,000 non-qualified
options to three employees pursuant to its 2000 Stock Equity Incentive Plan.
These options have an exercise price of $0.50 per share and vest over four
years.
In January 2000, the Company issued an aggregate of 320,000
non-qualified options to employees pursuant to its 2000 Stock Equity
Incentive Plan. 260,000 of these options had an exercise price that was
approximately $7.50 less per share than the fair market value of the common
stock on the date of grant. Accordingly, the Company will recognize
compensation expense of approximately $1,965,600 over the 48 month vesting
period for these options. During the three months ended March 31, 2000
(unaudited), the Company amortized $118,643 of this expense. The remaining
60,000 options will have an exercise price equal to the initial public
offering price per share.
In February 2000, the board of directors approved the 2000 Equity
Incentive Plan (the "Plan"). The purpose of the Plan is to attract, retain
and reward key employees, consultants and non-employee directors. A committee
consisting of members from the board of directors administers the Plan. The
committee may grant stock options, stock appreciation rights and other
equity-based awards to eligible persons, as defined in the Plan. The plan
authorized up to 4,080,000 shares of common stock for issuance under the Plan
and does not include awards paid in cash.
At December 31, 1999 and March 31, 2000 (unaudited), the following is a
summary of the options granted and outstanding:
<TABLE>
<CAPTION>
MARCH 31, 2000
DECEMBER 31, 1999 (UNAUDITED)
---------------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period........... - $ - 3,200,000 $ 0.50
Granted................................. 3,200,000 0.50 320,000 1.91
Exercised............................... - - - -
Forfeited............................... - - - -
--------------- ----------------- ------------ ----------------
Outstanding at end of period................. 3,200,000 $ 0.50 3,520,000 $ 0.63
=============== ============
Options exercisable at end of period......... - - - -
=============== ============
Weighted average fair value of options
granted during period..................... $ 0.19 $ 6.77
</TABLE>
F-17
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options
outstanding at March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING AT WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
RANGE OF MARCH 31, 2000 REMAINING WEIGHTED-AVERAGE MARCH 31, 2000 EXERCISE
EXERCISE PRICES (UNAUDITED) CONTRACTUAL LIFE EXERCISE PRICE (UNAUDITED) PRICE
--------------- -------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.50 3,200,000 8.7 Years $0.50 - $0.50
$0.50-$8.00 320,000 8.0 Years $1.91 - $1.91
</TABLE>
The Company applies Accounting Principles Board No. 25, "Accounting
for Stock Issued to Employees," in accounting for its stock option grants to
employees and directors. Except for the 260,000 options grants discussed
above, no compensation cost has been recognized related to such grants in the
accompanying Statements of Operations for the period from inception through
December 31, 1999 and for the three months ended March 31, 2000 (unaudited).
Had compensation cost for these grants been determined consistent with
Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," the Company's net loss and basic and diluted loss
per share at December 31, 1999 and March 31, 2000 (unaudited) would have
increased as indicated in the following pro forma amounts:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 2000
1999 (UNAUDITED)
-------------------- -----------------------
<S> <C> <C>
Net loss:
As reported.......................................... $ (1,987,091) $ (11,875,222)
Pro forma............................................ $ (2,005,033) $ (11,886,236)
Pro forma basic and diluted loss per share:
As reported.......................................... $ (0.04) $ (0.24)
Pro forma............................................ $ (0.04) $ (0.24)
</TABLE>
The fair value of all of the option grants was estimated on the date of grant
using the Black-Scholes model with the following weighted-average assumptions
used for grants:
- weighted-average risk free interest rates ranging from 5.78% to
6.34%,
- expected dividend yields of 0%,
- expected lives ranging from 1.5 years to 2.0 years and
- expected volatility of 70%.
F-18
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income tax expense (benefit) for the period from inception to December
31, 1999 differed from the amount computed by applying the statutory U.S.
Federal income tax rate of 34% to the loss recorded as a result of the
following:
<TABLE>
<S> <C>
Computed "expected" tax expense....................................................... $(675,611)
State tax, net of Federal benefit..................................................... (43,716)
Equity participation compensation expense............................................. 508,161
Increase in valuation allowance....................................................... 211,166
----------------
Total income tax expense (benefit)................................................. $ 0
================
</TABLE>
Since inception, the Company has generated losses for both book and
tax purposes. The Company has not recorded potential income tax benefits that
may be received and apply current losses to future years in which the Company
has taxable income. Under accounting rules, these benefits can only be
recorded when it is more likely than not that these benefits will be
realized. Since the Company has a limited operating history, an assessment
cannot be determined.
At December 31, 1999, we have net operating loss carryforwards for
federal and state income tax purposes totaling approximately $583,332, which
will expire in 2014. These carryforwards may be limited due to changes in
ownership in accordance with IRS guidelines.
Net deferred tax asset consists of the following amounts of deferred
tax assets and liabilities as of December 31, 1999:
<TABLE>
<S> <C>
Deferred tax asset.................................................................... $ 211,166
Less: Valuation allowance for deferred tax assets..................................... $ (211,166)
-----------
Net deferred tax asset........................................................... -0-
===========
</TABLE>
11. COMMITMENTS
(a) CAPITAL EXPENDITURE
The Company expects to incur capital expenditures of approximately $120
million in 2000.
(b) LEASES
The Company is obligated under a month-to-month operating lease
agreement for office space with a 30-day termination notice. In addition, the
Company is obligated under an operating lease agreement for three cell sites.
Future minimum annual lease payments under these operating lease agreements for
the next five years and in the aggregate at December 31, 1999 are as follows:
YEARS ENDING DECEMBER 31:
<TABLE>
<S> <C>
2000..................................................................................... $62,880
2001..................................................................................... 62,880
2002..................................................................................... 62,880
2003..................................................................................... 62,880
2004..................................................................................... 62,880
Thereafter............................................................................... 628,880
------------
Total future minimum annual lease payments.......................................... $943,280
============
</TABLE>
F-19
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS (CONTINUED)
Rental expense for all operating leases was $10,400 and $19,950 for
the period from inception through December 31, 1999 and the three months
ended March 31, 2000 (unaudited), respectively.
(c) EMPLOYMENT AGREEMENTS
In November 1999, the Company entered into an employment agreement
with its President and Chief Executive Officer. The employment agreement is
for a three-year term and provides for an annual base salary of $200,000,
with a guaranteed annual increase of 5% over the next two years. In addition
to his base salary, the President and Chief Executive Officer is eligible to
receive bonuses in such amounts and at such times as determined by the
disinterested members of the Board of Directors.
Under the employment agreement, the Company granted stock options to
the purchase up to 2,550,000 shares of common stock at a purchase price of
$0.50 per share. The stock options vest in three equal installments over a
period of three years. The employment agreement provides that the President's
employment may be terminated by the Company with or without cause, as defined
in the agreement, at any time or by the President for any reason at any time
upon thirty days' written notice to the Company. If his employment is
terminated by the Company without cause, he is entitled to receive one year's
base salary and benefits, and all his unvested stock options will immediately
vest on the date of termination. If his employment is terminated by the
Company for cause, he is not entitled to any compensation or benefits other
than unpaid salary and benefits and unreimbursed expenses incurred by him
through the date of termination. If he voluntarily terminates his employment,
he is entitled to unpaid salary and benefits and unreimbursed expenses
incurred by him through the date of termination and vested stock options. The
employment agreement also provides that the President will not compete in the
business of wireless telecommunications either directly or indirectly in the
Company's present and future markets and not disclose any of the Company's
confidential information and not solicit any of the Company's customers or
employees during his employment and for a period of one year after his
employment is terminated.
12. DEFERRED FINANCING COSTS
During 1999, the Company incurred fees of $320,000 and $1,809,023 to
secure commitments from lenders related to the 12% senior subordinated note
and the $25.0 million credit facility, respectively. The Company has
classified these charges as deferred financing costs and is amortizing these
costs using the effective interest rate method and the straight-line method,
respectively.
On March 31, 2000, the Company replaced the old $25.0 million
facility with a new $250.0 million senior secured credit facility (Note 4).
An amount of $1,722,879 related to the extinguishment of the old facility was
expensed as an extraordinary item during the first quarter. Costs to secure
the new facility of $7,056,168 are included in deferred financing and will be
amortized on a straight-line basis over the term of the new facility.
Amortization of deferred financing charges amounted to $18,381 and
$81,096 at December 31, 1999 and March 31, 2000 (unaudited), respectively,
and is included in interest expense.
F-20
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS
In 1999 and during the three months ended March 31, 2000
(unaudited), certain shareholders of the Company provided services in
connection with obtaining, negotiating and closing the preferred stock
offering and $250.0 million senior secured credit facility. Fees incurred for
those services amounted to $1,515,000 and $1,000,000, respectively.
In 1999 and the three months ended March 31, 2000 (unaudited), the
Company paid the Walter Group, a shareholder, approximately $148,000 and
$12,896, respectively, for consulting services.
On October 28, 1999, the Company entered into an agreement with a
shareholder, SpectraSite Communications Inc., that owns and operates
communications towers. During 1999, no services were provided to the Company.
For the three months ended March 31, 2000 (unaudited), the Company incurred
costs of $773,330 for capital expenditures made during the period.
14. LITIGATION
On March 9, 2000, a former employee filed a lawsuit alleging breach
of employment contract, tortious interference with contract, fraud,
constructive discharge and specific performance of a contract and is seeking
actual and punitive damages aggregating in excess of $20 million. The Company
will vigorously contest these charges. It is management's opinion that it is
too early in this process to determine the ultimate outcome of this matter.
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
On April 11, 2000, UbiquiTel Operating Company, a wholly owned
subsidiary of UbiquiTel Inc., issued 14% Senior Subordinated Discount Notes
("the Notes") with a maturity value of $300,000,000 and Warrants to purchase
3,579,000 shares of common stock of UbiquiTel Inc. at an exercise price of
$11.37 per share under Rule 144A of the Securities Act of 1933. The notes
were issued at a discount and generated approximately $152,300,000 in gross
proceeds. The proceeds will be used to partially fund capital expenditures
relating to the network build-out, operating losses, working capital, the
acquisition of the Sprint PCS Spokane, Washington assets, repayment of the
$8,000,000 12% Senior Subordinated Note and the related prepayment fee and
other general corporate purposes. The notes have a ten-year maturity and will
accrete in value until April 15, 2005 at an interest rate of 14%. Interest
will become payable semiannually beginning on October 15, 2005. Up to 35% of
the notes will be redeemable on or prior to April 15, 2003 from net proceeds
of one or more public equity offerings, other than UbiquiTel Inc. expected
initial public offering. Any remaining notes will be redeemable on or after
April 15, 2005.
Donaldson, Lufkin and Jenrette Securities Corporation served as one
of the Initial Purchasers of the Notes and received a fee of 3.5% of the
gross proceeds and warrants to purchase 86,183 shares of UbiquiTel Inc.
common stock at an exercise price of $8.00 per share.
UbiquiTel Inc. has unconditionally guaranteed the obligations under
the Notes. Separate audited financial statements for UbiquiTel Operating
Company as issuer of the debt are not provided because it is wholly owned by
UbiquiTel Inc. and the guarantees are full and unconditional. UbiquiTel Inc.
has no operations separate from its investment in UbiquiTel Operating
Company. The summarized financial information of UbiquiTel Operating Company
as of December 31, 1999 and March 31, 2000 (unaudited) and for the period
from November 9, 1999 (inception) to December 31, 1999, and for the three
months ended March 31, 2000 (unaudited) and the cumulative period from
November 9, 1999 (inception) to March 31, 2000 (unaudited) is presented below:
F-21
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
SUMMARIZED BALANCE SHEET DATA DECEMBER 31, 1999 MARCH 31, 2000
----------------------------- ----------------- --------------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and other current assets.......................... $ 23,994,826 $ 34,858,642
Property and equipment................................. -- 1,765,949
Construction in progress............................... 4,085,942 7,255,778
Other assets........................................... -- 182,390
Deferred financing costs............................... 2,110,642 7,362,835
----------------- ----------------
Total assets........................................ $ 30,191,410 $ 51,425,594
================= ================
Liabilities and Equity:
Accounts payable and accrued expenses.................. $ 373,575 $ 1,930,389
Due to Lucent Technologies............................. 3,883,419 2,488,463
Due to related parties................................. 813,441 987,077
Accrued interest....................................... 10,521 --
Advances from parent................................... 19,584,045 43,137,837
Senior subordinated debt............................... 5,811,869 5,811,869
----------------- ----------------
Total liabilities................................... 30,476,870 54,355,635
Equity and Accumulated Deficit...................... (285,460) (2,930,041)
----------------- ----------------
Total liabilities and equity........................ $ 30,191,410 $ 51,425,594
================= ================
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD CUMULATIVE FOR THE
FROM NOVEMBER 9, PERIOD FROM
1999 INCEPTION
(INCEPTION) THREE MONTHS ENDED (NOVEMBER 9, 1999)
SUMMARIZED STATEMENTS OF OPERATIONS DATA TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
------------------------------------------------ --------------------- ------------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues........................................ $ -- $ 68,519 $ 68,519
Less:
General and administrative expenses including
non-cash compensation charges................ 257,558 1,025,322 1,282,880
Interest expense (income)....................... 28,902 (35,101) (6,199)
Extraordinary item -- loss on early
extinguishment of debt....................... -- 1,722,879 1,722,879
--------------------- ------------------ ------------------
Net loss........................................ $ 286,460 $ 2,644,581 $ 2,931,041
===================== ================== ==================
</TABLE>
The Company had previously secured commitments from affiliates of
each of the Initial Purchasers to provide up to $125.0 million of senior
subordinated increasing rate notes. The commitment expired on April 11, 2000
upon the closing of the Senior Subordinated Discount Note offering. A
commitment fee of $625,000 was paid to the Initial Purchasers, of which
$531,250 was paid to an affiliate of Donaldson, Lufkin and Jenrette.
16. SUBSEQUENT EVENTS
In February 2000, the stockholders of the company approved the Board
of Directors decision to change the company's name to UbiquiTel Inc.
The Company has filed a registration statement for equity financing
through an initial public offering. Donaldson, Lufkin & Jenrette Securities
Corporation is the lead underwriter of this offering and will receive a
customary underwriting fee. The Company plans to utilize the proceeds from
the aforementioned offerings to fund the build-out of its expanded network,
operating losses, working capital and other general corporate purposes. The
F-22
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company may have a contingent liability arising out of a possible violation
of Section 5 of the Securities Act of 1933 in connection with the existence
of three hyperlinks on the website to an independent unaffiliated website
that included specific articles regarding the Company and the initial public
offering. The Company does not believe that the existence of this hyperlink
caused a violation of Section 5, and if any such claim were asserted, the
Company would contest the matter, vigorously. Accordingly, the Company does
not believe that its exposure, if any, resulting from the existence of this
hyperlink would be material to its results of operations or financial
condition.
F-23
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
In January 2000, the Company signed an agreement to purchase from
Sprint PCS the Spokane, Washington market's PCS networks and related assets
for approximately $35 million. The Company closed this transaction on April
15, 2000.
On April 11, 2000, upon the closing of the 14% Senior Subordinated
Discount Notes, the Company issued DLJ Merchant Banking 38,501 additional
shares of preferred stock to maintain a specified percentage stock ownership.
Each share of preferred stock will be converted automatically into two shares
of voting common stock upon the closing of the initial public offering after
the effect of the 2-for-1 stock split.
The Founders Agreement provides that the Founders non-voting common
stock will vest and convert to voting common stock to retain their ownership
interest in the event the Company issues additional shares. As a result of
the terms of the Founders Agreement, in April 2000, an aggregate amount of
136,758 shares of founders non-voting common stock vested and converted to
voting common stock. The Founders Agreement will terminate upon the earlier
of the completion of an initial public offering, the sale to DLJ Merchant
Banking of additional preferred stock for $100.0 million, or the closing of a
private or public equity financing of at least $100.0 million or November 23,
2000.
In April 2000, the board of directors approved a 2-for-1 stock split
effective immediately prior to the initial public offering. All common stock
shares data and equity securities data except for the convertible preferred
stock have been retroactively adjusted to reflect this change.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners of Sprint Spectrum L.P.
We have audited the accompanying statements of assets to be sold of
the Spokane District (as described in NOTE 1), which are wholly owned by
Sprint Spectrum L.P. (the Company), as of December 31, 1999 and 1998 and the
related statements of revenues and expenses for each of the three years in
the period ended December 31, 1999. These statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statements' presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in NOTE 2, the accompanying statements were prepared
for inclusion in the Registration Statement on Form S-1 of UbiquiTel for
purposes of complying with the rules and regulations of the Securities and
Exchange Commission in lieu of the full financial statements required by Rule
3-05 of Regulation S-X for the pending transaction between UbiquiTel and the
Company. The statements are not intended to be a complete presentation of the
Spokane District's financial position or results of its operations.
In our opinion, the statements referred to above present fairly, in
all material respects, the assets to be sold of the Spokane District as of
December 31, 1999 and 1998, and the related revenues and expenses for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
Kansas City, Missouri
February 29, 2000
F-25
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
STATEMENTS OF ASSETS TO BE SOLD
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
----------------- -------------------------------
2000 1999 1998
----------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Property, plant and equipment
Network equipment.................................... $29,246,217 $29,038,828 $25,246,441
Other................................................ 235,232 231,661 185,586
Construction work in progress........................ 166,960 211,167 349,480
----------------- ------------- --------------
Total property, plant and equipment..................... 29,648,409 29,481,656 25,781,507
Less: accumulated depreciation....................... 10,716,627 9,785,334 6,314,486
----------------- ------------- --------------
Net property, plant and equipment....................... 18,931,782 19,696,322 19,467,021
Prepaid lease expense...................................... 92,776 87,416 83,767
----------------- ------------- --------------
Total assets to be sold.................................... $19,024,558 $19,783,738 $19,550,788
================= ============= ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
STATEMENTS OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- -----------------------------------
2000 1999 1999 1998 1997
---------- --------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net service revenues.................. $1,413,116 $953,630 $4,761,949 $2,590,169 $679,586
Net equipment revenues................ 160,767 182,327 862,978 690,479 566,595
---------- --------- ---------- ---------- -----------
1,573,883 1,135,597 5,624,927 3,280,648 1,246,181
Expenses:
Cost of services...................... 406,447 258,240 2,349,770 1,724,964 1,372,305
Cost of equipment..................... 372,691 489,257 2,696,646 2,245,459 1,530,300
Selling, general and administrative... 1,213,514 997,380 5,419,104 4,470,494 8,167,807
Depreciation.......................... 931,293 827,503 3,470,848 3,111,511 2,968,406
---------- --------- ---------- ---------- -----------
2,923,945 2,572,380 13,936,368 11,552,428 14,038,818
---------- ---------- ---------- ---------- -----------
Expenses in excess of net revenues....... $1,350,062 $1,436,423 $8,311,441 $8,271,780 $12,792,637
========== ========== ========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND
STATEMENTS OF REVENUES AND EXPENSES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. ASSET PURCHASE AGREEMENT
On December 28, 1999, Sprint Spectrum L.P. (the Company) and
UbiquiTel Inc. (UbiquiTel) entered into an Asset Purchase Agreement (the
Agreement) whereby the Company will sell to UbiquiTel certain assets and
UbiquiTel will assume certain leases as stipulated in the Agreement. Under
the Agreement, the Company agrees to sell to UbiquiTel the assets related to
its wireless mobile telephone services in the Spokane, Washington district
(the Spokane District), which are wholly owned by the Company. The assets to
be sold to UbiquiTel primarily consist of property, plant and equipment
including network assets and retail stores located in the Spokane District.
Not included in the Agreement are PCS licenses currently owned by the Company
or the existing subscriber base and related accounts receivable balances, the
ownership of which will remain with the Company. UbiquiTel will assume
certain operating leases within the Spokane District; however, no deferred
revenue, commission or other similar liabilities will be assumed. Under the
terms of the Agreement, this transaction is expected to close on or before
April 15, 2000.
Following the close of the pending transaction, UbiquiTel will
operate the Spokane District as a Sprint PCS market through a management
agreement with the Company. Under the terms of this agreement, UbiquiTel will
sell wireless mobile telephone services under the Sprint PCS brand name in
exchange for a fee. Also as part of the agreement, the Company will continue
to provide network monitoring, customer service, billing and collection
services to UbiquiTel.
F-28
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND
STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BASIS OF PRESENTATION
Historically, financial statements have not been prepared for the
Spokane District as it has no separate legal status or existence. The
accompanying statements of assets to be sold and statements of revenues and
expenses of the Spokane District have been prepared for inclusion in the
Registration Statement on Form S-1 of UbiquiTel for purposes of complying
with the rules and regulations of the Securities and Exchange Commission in
lieu of the full financial statements required by Rule 3-05 of Regulation S-X
for the pending transaction between UbiquiTel and the Company. These
statements have been derived from the historical accounting records of the
Company and include revenues and expenses directly attributable to the
Spokane District. Certain operating expenses that are indirectly attributable
to the Spokane District have been allocated using the methods set forth
below. As a result, the statements may not be indicative of the financial
position or operating results of the Spokane District had it been operated as
a separate, stand-alone company.
The unaudited interim financial information presented herein has
been prepared according to accounting principles generally accepted in the
United States. In management's opinion, the information presented herein
reflects all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the interim financial position and results of
operations of the Spokane District.
PROPERTY, PLANT & EQUIPMENT
The property, plant and equipment balances included in the
accompanying statements of assets to be sold are assets specifically
identified within the Spokane District and that are to be purchased by
UbiquiTel pursuant to the Agreement.
REVENUES
The service revenues included in the statements of revenues and
expenses are those specifically related to subscribers of the Spokane
District. Allocations have been made of certain unbilled revenue and bad debt
accruals that are recorded by the Company at levels above the district level.
These allocations are based on average subscribers of the Spokane District
relative to total subscribers of the Company.
The equipment revenues included in the statements of revenues and
expenses are those specifically related to equipment sales occurring in the
Company's retail stores located in the Spokane District. Also included are
revenues from equipment sales to third-party retailers located within the
Spokane District.
COST OF SERVICES AND EQUIPMENT
The cost of services expense in the statements of revenues and
expenses includes those expenses directly attributable to the Spokane
District. In addition, allocations have been made of cost of services
incurred at levels above the district level. These allocations are based on
the Spokane District's directly attributable cost of services relative to the
total Company directly attributable cost of services.
The cost of equipment included in the statements of revenues and
expenses are those specifically related to equipment sold in the Company's
retail stores located in the Spokane District. Also included is the cost of
equipment from equipment sales to third-party retailers located within the
Spokane District.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Direct selling, general and administrative expenses are those costs
that were incurred as a result of providing wireless mobile telephone
services in the Spokane District and which will no longer be incurred by the
Company subsequent to consummation of the pending transaction with UbiquiTel.
F-29
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND
STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. BASIS OF PRESENTATION (CONTINUED)
Selling, general and administrative expenses of the Company that are
indirectly associated with the Spokane District's operations were allocated
to the Spokane District's statements of revenues and expenses based on
reasonable allocation methods as discussed below. Management believes these
allocation methodologies are reasonable and represent the most appropriate
methods of determining the expenses of the Spokane District.
Sales and marketing expenses included in allocated selling, general
and administrative expenses represent costs of the Company that have been
identified as indirectly attributable to the Spokane District. Such
allocations have been based on the amount of covered population in the
Spokane District relative to the Company's total covered population.
Included in allocated selling, general and administrative expenses
are costs related to the provisioning of customer care activities. These
expenses represent customer care costs of the Company that have been
identified as indirectly attributable to the Spokane District. Such
allocations have been based on the number of subscribers of the Spokane
District relative to the Company's total subscribers.
DEPRECIATION EXPENSE
The depreciation expense included in the statements of revenues and
expenses is specifically related to the assets identified with the Spokane
District which will be purchased by UbiquiTel pursuant to the Agreement.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes operating revenues as services are rendered
or as equipment is delivered to customers. Operating revenues are recorded
net of an estimate for uncollectible accounts.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of
property, plant and equipment is generally depreciated on a straight-line
basis over estimated economic useful lives ranging from seven to 20 years.
Repair and maintenance costs are expensed as incurred.
ADVERTISING
Advertising costs are expensed when the advertisement occurs. Total
advertising expense amounted to $1,034,861 in 1999, $813,563 in 1998 and
$785,492 in 1997.
USE OF ESTIMATES
The statements of assets to be sold and statements of revenues and
expenses are prepared in conformity with accounting principles generally
accepted in the United States. These principles require management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Also, as discussed in Note 2, the statements of revenues and
expenses include allocations and estimates that are not necessarily
indicative of the costs and expenses that would have resulted if the Spokane
District had been operated as a separate stand-alone company.
F-30
<PAGE>
SPOKANE DISTRICT
(WHOLLY OWNED BY SPRINT SPECTRUM L.P.)
NOTES TO STATEMENTS OF ASSETS TO BE SOLD AND
STATEMENTS OF REVENUES AND EXPENSES
(CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. OPERATING LEASES
The Spokane District's minimum rental commitments at year-end 1999
for all non-cancelable operating leases, consisting mainly of leases for cell
and switch sites, are as follows:
<TABLE>
<S> <C>
2000.............................................................. $262,186
2001.............................................................. 136,436
2002.............................................................. 126,925
2003.............................................................. 129,511
2004.............................................................. 133,581
Thereafter........................................................ 1,816,302
</TABLE>
The table excludes renewal options related to certain cell and
switch site leases. These renewal options generally have five-year terms and
may be exercised from time to time. The Spokane District's gross rental
expense totaled $592,539 in 1999, $588,657 in 1998 and $530,512 in 1997.
5. CASH FLOWS
The Spokane District's primary requirements for cash have been to
fund operating losses and capital expenditures associated with the network
build-out. Capital expenditures of the Spokane District were $166,753 and
$785,463 (unaudited) for the three months ended March 31, 2000 and 1999, and
$5,050,843, $3,368,870 and $19,604,854 for the years ended December 31, 1999,
1998 and 1997, respectively.
6. IMPACT OF YEAR 2000 (UNAUDITED)
During 1999, the Company completed its remediation and testing of
systems related to its Year 2000 readiness. As a result of those efforts, the
Company experienced no significant disruptions in the mission critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. The
Company is not aware of any material problems resulting from Year 2000
issues, either with its equipment, its internal systems, or the equipment and
services of third parties. The Company and UbiquiTel will continue to monitor
the mission critical computer applications of the Spokane District and those
of the Spokane District's suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed
promptly.
7. SUBSEQUENT EVENT (UNAUDITED)
The transaction described in Note 1, whereby the Company was to sell
to UbiquiTel certain assets and UbiquiTel was to assume certain leases as
stipulated in the Agreement, closed on April 15, 2000.
F-31
<PAGE>
================================================================================
[UBIQUITEL LOGO]
UBIQUITEL INC
COMMON STOCK
WARRANTS TO PURCHASE
COMMON STOCK
======================================
PROSPECTUS
======================================
____________, 2000
================================================================================
We have not authorized any dealer, sales representative or any other person to
give any information or to make any representations not contained in this
prospectus or the accompanying letter of transmittal. This prospectus and the
accompanying letter of transmittal do not offer to sell or buy any securities in
any jurisdiction where it is unlawful.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities to be
registered. All of the amounts shown are estimated except for the Securities
and Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 10,925
Legal fees and expenses............................................. $ 50,000
Accounting fees and expenses........................................ $ 25,000
Transfer agent and registrar fees................................... $ 5,000
Miscellaneous expenses.............................................. $ 9,075
----------------
Total............................................................... $100,000
================
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Amended and Restated Certificate of Incorporation of UbiquiTel
Inc. ("UbiquiTel") provides that the liability of the directors and officers
of UbiquiTel to UbiquiTel or any of its stockholders for monetary damages
arising from a breach of their fiduciary duty as directors and officers shall
be limited to the fullest extent permitted by the General Corporation Law of
Delaware. This limitation does not apply with respect to any action in which
a director or officer would be liable under Section 174 of the General
Corporation Law of Delaware, nor does it apply with respect to any liability
in which a director or officer:
- breached his duty of loyalty to UbiquiTel or its stockholders;
- did not act in good faith or, in failing to act, did not act
in good faith;
- acted in a manner involving intentional misconduct or a
knowing violation of law or, in failing to act, shall have
acted in a manner involving intentional misconduct or a
knowing violation of law; or
- derived an improper personal benefit.
UbiquiTel's bylaws provide that UbiquiTel may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
UbiquiTel) by reason of the fact that he is or was a director, officer,
employee, or agent of UbiquiTel, or is or was serving at the request of
UbiquiTel as a director, officer, employee or agent of another corporation,
partnership , joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and
<PAGE>
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to
the best interest, of UbiquiTel and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right
of UbiquiTel as well, but only to the extent of defense and settlement
expenses and not to any satisfaction of a judgment or settlement of the claim
itself and with the further limitation that in such actions no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to UbiquiTel unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply. To the extent that any present or former
director of UbiquiTel has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to above, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
UbiquiTel has purchased directors' and officers' liability insurance
covering its directors and officers in amounts customary for similarly
situated companies.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information set forth in this Item 15 gives effect to a
two-for-one split of the Registrant's outstanding common stock effected June
1, 2000. During the past three years the Registrant has issued the following
unregistered securities:
1. 6,834,000 shares of its Voting Common Stock for an aggregate
purchase price of $3,417. The purchasers of the shares and the amount
purchased are listed on the table below.
<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF SHARES
------------------------------------------------ ----------------------
<S> <C>
The Walter Group, Inc......................... 2,562,750
Donald A. Harris.............................. 1,989,000
James Parsons................................. 887,400
Paul F. Judge................................. 803,250
US Bancorp................................... 591,600
</TABLE>
2. 32,000,000 shares of its Non-Voting Common Stock for an aggregate
purchase price of $16,000. The purchasers of the shares and the amount
purchased are listed on the table below.
<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF SHARES
------------------------------------------------ ----------------------
<S> <C>
The Walter Group, Inc......................... 12,000,320
Donald A. Harris.............................. 9,313,280
James Parsons................................. 4,155,200
Paul F. Judge................................. 3,760,960
US Bancorp................................... 2,770,240
</TABLE>
3. 34,017,000 shares of its Series A Preferred Stock at an aggregate
purchase price of $17,008,500. The purchasers of the shares and the amount
purchased are listed in the table below.
<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF SHARES
------------------------------------------------ ----------------------
<S> <C>
<PAGE>
Brookwood UbiquiTel Investors, L.L.C.......... 9,338,000
CBT Wireless Investments, L.L.C............... 5,402,700
New Ventures, L.L.C........................... 4,002,000
Stephen C. Marcus............................. 3,601,800
SpectraSite Communications, Inc.............. 3,335,000
Lancaster Investment Partners................. 2,001,000
Donald A. Harris.............................. 2,001,000
Porter Partners, L.P.......................... 1,800,900
Ballyshannon Partners, L.P.................... 1,000,500
Mark Buechly.................................. 600,300
Barry Porter.................................. 500,250
Richard C. Walling, Jr........................ 333,500
Robert Berlacher.............................. 100,050
</TABLE>
4. employee stock options to Donald A. Harris to purchase 2,550,000 shares
of Voting Common Stock at $0.50 per share.
5. warrants to Paribas North America, Inc. to purchase 1,148,804 shares of
its Non-Voting Common Stock in connection with a Credit Agreement for a
$25 million line of credit.
6. warrants to BET Associates, L.P. warrants to purchase 4,978,150 shares
of its Voting Common Stock for an aggregate purchase price of $8,000.
7. 4,220,694 shares of its Series B Preferred Stock to DLJ Merchant
Banking Partners II, L.P. for an aggregate purchase price of $25,000,000.
8. 136,758 shares of the 32,000,000 of Non-Voting Common Stock
originally issued in November 1999 vested in April 2000. The holders of these
shares and the amount issued to these holders are listed in the table below.
<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF SHARES
------------------------------------------------ ----------------------
<S> <C>
The Walter Group, Inc......................... 51,284
Donald A. Harris.............................. 39,802
James Parsons................................. 17,758
Paul F. Judge................................. 16,074
US Bancorp................................... 11,840
</TABLE>
9. employee stock options to purchase, in the aggregate, 910,000 shares
of Voting Common Stock at $0.50 per share.
10. employee stock options to purchase 305,000 shares of Voting Common
Stock at $8.00 per share.
11. 14% Senior Subordinated Discount Notes due 2010 and warrants to
purchase 4,234,804 shares of Voting Common Stock at $11.37 per share in
connection with its units offering.
12. cancellation of warrants to purchase 655,804 shares of Voting Common
Stock and issuance of warrants to purchase 86,183 shares of Voting Common
Stock at $8.00 per share.
None of the foregoing transactions involved any public offering. All
sales were made in reliance on Section 4(2) of the Securities Act, Rule 701
promulgated under the Securities Act and/or Regulation D promulgated under
the Securities Act. These sales were made without general solicitation or
advertising. The recipients in each such transaction represented their
intention to acquire the securities for investment only and not with a view
to sell or for
<PAGE>
sale in connection with any distribution thereof. All recipients had adequate
access, through their relationship with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------ ------------------------------------------------------------------------------------------------------
<S> <C>
*** 1.1 Purchase Agreement dated April 4, 2000 between UbiquiTel Inc., UbiquiTel Operating Company and
Donalson, Lufkin & Jenrette Securities Corporation, Paribas Corporation and PNC Capital Markets,
Inc. (10.19)
*** 3.1 Amended and Restated Certificate of Incorporation of UbiquiTel Inc.
*** 3.2 Amended and Restated Bylaws of UbiquiTel Inc.
*** 4.1 Warrant Agreement dated as of April 11, 2000 between UbiquiTel Inc. and American Stock Transfer &
Trust Company. (10.21)
*** 4.2 Warrant Registration Rights Agreement made as of April 11, 2000 by and among UbiquiTel Inc. and
Donalson, Lufkin & Jenrette Securities Corporation, Paribas Corporation and PNC Capital Markets,
Inc. (10.23)
* 4.3 First Amendment, dated as of June 12, 2000, to Warrant Agreement dated as of April 11, 2000 between
UbiquiTel Inc. and American Stock Transfer & Trust Company.
* 4.4 Warrant Agreement dated as of June 12, 2000 by and between UbiquiTel Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation.
* 4.5 Registration Rights Agreement dated as of June 12, 2000 by and between UbiquiTel Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation.
** 5.1 Opinion of Greenberg Traurig, P.A., regarding legality of the Warrants and Common Stock issuable
upon exercise of the Warrants.
+***10.1 Sprint PCS Management Agreement, as amended, dated as of October 15, 1998 by and between Sprint
Spectrum, LP, WirelessCo, LP and UbiquiTel, LLC. (10.1)
+***10.2 Sprint PCS Services Agreement dated as of October 15, 1998 by and between Sprint Spectrum, LP and
UbiquiTel, LLC. (10.2)
***10.3 Sprint Trademark and Service Mark License Agreement dated as of October 15, 1998 by and between
Sprint Communications Company, LP and UbiquiTel, LLC. (10.3)
***10.4 Sprint Spectrum Trademark and Service Mark License Agreement dated as of October 15, 1998 by and
between Sprint Spectrum, LP and UbiquiTel, LLC. (10.4)
+***10.5 Asset Purchase Agreement dated as of December 28, 1999, as amended, by and between Sprint
Spectrum, LP, Sprint Spectrum Equipment Company, LP, Sprint Spectrum Realty Company, LP, Cox
Communications PCS, LP, Cox PCS Leasing Co., LP, Cox PCS Assets, LLC and UbiquiTel Holdings, Inc.
(10.5)
***10.6 Registration Rights Agreement made as of November 23, 1999 by and among UbiquiTel Holdings, Inc.
and the shareholder signatories thereto. (10.6)
***10.7 Amended and Restated Registration Rights Agreement made as of February 16, 2000 by and among
UbiquiTel Holdings, Inc. and the shareholder signatories thereto. (10.7)
<PAGE>
***10.8 Shareholders' Agreement dated as of February 16, 2000 by and among UbiquiTel Holdings, Inc., DLJ
Merchant Banking Partners II, L.P. and the several shareholders named therein. (10.8)
***10.9 Stockholders' Voting Agreement dated November 23, 1999 by and among UbiquiTel Holdings, Inc. and
the shareholder signatories thereto. (10.9)
***10.10 Credit Agreement dated as of December 29, 1999 by and between UbiquiTel Holdings, Inc., UbiquiTel
LLC, the financial institutions party thereto from time to time and Paribas, as agent, for a
$25,000,000 credit facility. (10.10)
***10.11 Amended and Restated Consent and Agreement dated as of April 5, 2000 by and between Sprint
Spectrum, LP, Sprint Communications Company, LP, WirelessCo, LP, Cox Communications PCS, LP,
Cox PCS License, LLC and Paribas. (10.11)
***10.12 Warrant Agreement dated as of December 28, 1999 by and between UbiquiTel Holdings, Inc. and Paribas
North America, Inc. (10.12)
***10.13 Series A Preferred Stock Purchase Agreement dated as of November 23, 1999 by and between UbiquiTel
Holdings, Inc., The Walter Group, Donald A. Harris, Paul F. Judge, James Parsons, U.S. Bancorp and
the individuals listed on Exhibit A thereto. (10.13)
***10.14 Purchase Agreement dated as of December 28, 1999 among UbiquiTel, L.L.C., UbiquiTel Holdings, Inc.
and BET Associates, L.P. relating to $8,000,000 principal amount of UbiquiTel, L.L.C. 12% Senior
Subordinated Notes due 2007 and Warrants to Purchase 9.75% of the Shares of Common Stock of
UbiquiTel Holding Co. (10.14)
***10.15 Preferred Stock Purchase Agreement dated February 16, 2000 between UbiquiTel Holdings, Inc. and DLJ
Merchant Banking Partners II, L.P. (10.15)
***10.16 Form of 2000 Equity Incentive Plan. (10.16)
***10.17 Employment Agreement dated as of November 29, 1999 by and between UbiquiTel Holdings, Inc. and
Donald A. Harris. (10.17)
***10.18 Credit Agreement dated as of March 31, 2000 by and between UbiquiTel Inc., UbiquiTel Operating
Company, the financial institutions party thereto from time to time and Paribas, as agent, for a
$250,000,000 credit facility. (10.18)
***10.19 Indenture dated as of April 11, 2000 between UbiquiTel Operating Company, UbiquiTel Inc. and
American Stock Transfer & Trust Company. (10.20)
***10.20 Registration Rights Agreement made as of April 11, 2000 by and among UbiquiTel Operating Company,
UbiquiTel Inc. and Donalson, Lufkin & Jenrette Securities Corporation, Paribas Corporation and PNC
Capital Markets, Inc. (10.22)
***10.21 Founders Stock Agreement dated as of November 1, 1999 by and among UbiquiTel Holdings, Inc. and
James Parsons, Donald A. Harris, Paul F. Judge, The Walter Group, Inc. and US Bancorp. (10.24)
***10.22 Agreement between LCC International, Inc. and UbiquiTel Holdings, Inc., as amended, dated as of
September 24, 1999. (10.25)
***10.23 Agreement between Lucent Technologies, Inc. and UbiquiTel Holdings, Inc., dated as of December 21,
1999. (10.26)
***10.24 Master Site Agreement between SpectraSite Communications, Inc. and UbiquiTel Leasing Company, dated
as of May 11, 2000. (10.27)
***10.25 Master Design and Build Agreement between SpectraSite Communications, Inc. and UbiquiTel Leasing
Company, dated as of may 23, 2000. (10.30)
***10.26 Note Guarantee of UbiquiTel Inc. (10.28)
<PAGE>
***10.27 Guarantee of UbiquiTel Inc. (10.29)
***21.1 Subsidiaries of UbiquiTel Inc.
**23.1 Consent of Arthur Andersen LLP.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Greenberg Traurig, P.A. (contained in legal opinion filed as Exhibit 5.1).
**24.1 Powers of Attorney (included on signature pages).
</TABLE>
* To be filed by Amendment.
** Filed herewith.
*** Incorporated by reference to the exhibit shown in parentheses and filed
with the Registration Statement on Form S-1 of UbiquiTel Inc. (No.
333-32236).
+ Confidential treatment has been granted on portions of these documents.
(b) Financial Statement Schedules:
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by Alamosa pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
UbiquiTel Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized, in the City of Bala
Cynwyd, State of Pennsylvania, on the 23rd day of June, 2000.
UBIQUITEL INC.
By: Donald A. Harris
------------------------------------------
Donald A. Harris
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Donald A. Harris and Paul F.
Judge his true and lawful attorneys-in-fact, each acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments, including
any post-effective amendments, to this Registration Statement, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorneys-in-fact or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald A. Harris Chairman of the Board, President June 23, 2000
--------------------------------------------------- and Chief Executive Officer
Donald A. Harris (Principal Executive Officer)
/s/ Paul F. Judge Senior Vice President June 23, 2000
--------------------------------------------------- Corporate Development and
Paul F. Judge Finance (Principal Financial
Officer and Accounting Officer)
/s/ Peter Lucas Director June 23, 2000
---------------------------------------------------
Peter Lucas
/s/ Robert Berlacher Director June 23, 2000
---------------------------------------------------
Robert Berlacher
/s/ Eve M. Trkla Director June 23, 2000
---------------------------------------------------
Eve M. Trkla
<PAGE>
/s/ Director June 23, 2000
---------------------------------------------------
Joseph N. Walter
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------ ------------------------------------------------------------------------------------------------------
<S> <C>
5.1 Opinion of Greenberg Traurig, P.A., regarding legality of the Warrants and Common Stock issuable
upon exercise of the Warrants.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
</TABLE>
