<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-39950
PROSPECTUS
$300,000,000
[LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING 14.0% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2010
FOR
REGISTERED 14.0% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2010
------------------
THE REGISTERED NOTES
The terms of the registered notes that we are offering in exchange for the
outstanding notes are substantially identical to the terms of the outstanding
notes, except that certain transfer restrictions and registration rights
relating to the outstanding notes will not apply to the registered notes.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer will expire at 5:00 p.m., New York City time, on
August 10, 2000, unless extended.
- The exchange offer is subject to customary conditions, including the
conditions that the exchange offer not violate applicable law or any
applicable interpretation of the staff of the Securities and Exchange
Commission.
- You may withdraw tenders of outstanding notes at any time before the
exchange offer expires.
- We will exchange all outstanding notes that are validly tendered and not
withdrawn before the exchange offer expires.
- We will issue the registered notes promptly after the exchange offer
expires.
- We believe that the exchange of outstanding notes will not be a taxable
event for federal income tax purposes, but you should read "Certain U.S.
Federal Tax Considerations" on page 153 for more information.
- We will not receive any proceeds from the exchange offer.
- All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933. Each broker-dealer
that receives registered notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the registered notes. The letter of
transmittal accompanying this prospectus states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities
Act. This prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of
registered notes received in exchange for outstanding notes where such
outstanding notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities. We have agreed that
for a period of one year after consummating the exchange offer we will
make this prospectus available to any broker-dealer for use in connection
with any such resale.
- No public market currently exists for the registered notes. We do not
intend to apply for listing of the registered notes on any securities
exchange or to arrange for them to be quoted on any quotation system.
BEFORE PARTICIPATING IN THE EXCHANGE OFFER, PLEASE REFER TO THE SECTION IN
THIS PROSPECTUS ENTITLED "RISK FACTORS" BEGINNING ON PAGE 16.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE REGISTERED NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 7, 2000
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TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements.................................. 1
Prospectus Summary.......................................... 2
Risk Factors................................................ 16
Use of Proceeds............................................. 32
Capitalization.............................................. 33
Unaudited Pro Forma Condensed Consolidated Financial Data... 34
Selected Historical Consolidated Financial and Operating
Data...................................................... 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 45
Business.................................................... 55
The Sprint PCS Agreements................................... 77
Description of the Senior Credit Facility................... 90
Management.................................................. 92
Principal Stockholders...................................... 101
Certain Transactions........................................ 103
Regulation of the Wireless Telecommunications Industry...... 108
Description of Capital Stock................................ 112
The Exchange Offer.......................................... 119
Description of the Registered Notes......................... 129
Certain U.S. Federal Tax Considerations..................... 162
Plan of Distribution........................................ 169
Where You Can Find More Information......................... 169
Legal Matters............................................... 170
Experts..................................................... 170
Index to Consolidated Financial Statements.................. F-1
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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 16.
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.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE BELIEVE IS ESPECIALLY IMPORTANT
CONCERNING OUR BUSINESS AND THE EXCHANGE OFFER. 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 PARTICIPATE IN THE EXCHANGE OFFER.
UNLESS INDICATED OTHERWISE, "UBIQUITEL," "WE," "US" AND "OUR" REFERS TO
UBIQUITEL OPERATING COMPANY, AND ITS PARENT AND SUBSIDIARIES. "UBIQUITEL PARENT"
REFERS ONLY TO OUR CORPORATE PARENT, UBIQUITEL INC. UBIQUITEL PARENT HAS NO
OPERATIONS SEPARATE FROM ITS INVESTMENT IN UBIQUITEL OPERATING COMPANY, AND
UBIQUITEL PARENT HAS FULLY AND UNCONDITIONALLY GUARANTEED THE OBLIGATIONS UNDER
THE REGISTERED NOTES. ACCORDINGLY, WE HAVE PROVIDED OUR FINANCIAL INFORMATION IN
THIS PROSPECTUS ON A CONSOLIDATED BASIS.
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;
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- 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
UbiquiTel Operating Company was organized on November 9, 1999 as a limited
liability company under the laws of Delaware and converted into a corporation
under the laws of Delaware on March 16, 2000. UbiquiTel Parent was organized on
September 29, 1999 as a corporation under the laws of Delaware. Each of our
address and telephone number are 1 Bala Plaza, Suite 402, Cynwyd, Pennsylvania
19004, (610) 660-9510.
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SUMMARY FINANCIAL DATA
(In thousands)
UBIQUITEL
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.
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FROM
SEPTEMBER 29, THREE MONTHS
1999 (INCEPTION) ENDED
TO DECEMBER 31, 1999 MARCH 31, 2000
--------------------- ---------------
(UNAUDITED)
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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)
======= =====
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AS OF
MARCH 31, 2000
---------------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $33,729
Total assets.............................................. 52,363
Long-term debt............................................ 5,812
Total stockholders' equity................................ 37,487
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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.
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THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
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1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
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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
======= ====== ====== ====== ======
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AS OF MARCH 31, 2000
---------------------
(UNAUDITED)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Total assets purchased.................................. $19,025
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UBIQUITEL 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 he 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.
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THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
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(UNAUDITED)
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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)
OTHER DATA:
Deficiency of earnings to fixed charges................... $(45,451) $(22,124)
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<CAPTION>
AS OF
MARCH 31, 2000
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $295,736
Total assets.............................................. 363,340
Total liabilities and stockholders' equity................ 363,340
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THE EXCHANGE OFFER
The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in this prospectus under the section
entitled "The Exchange Offer." The term "registered notes" refers to the
Registered 14.0% Senior Subordinated Discount Notes due 2010 being offered in
the exchange offer. The term "outstanding notes" refers to our currently
outstanding 14.0% Senior Subordinated Discount Notes due 2010 that are
exchangeable for the registered notes. The term "indenture" refers to the
indenture that applies to both the outstanding notes and the registered notes.
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The Exchange Offer........................... We are offering to exchange $1,000 principal
amount of registered notes and integral
multiples of $1,000 in excess thereof which
have been registered under the Securities Act
for each $1,000 principal amount of
outstanding notes and integral multiples of
$1,000 in excess thereof. We issued the
outstanding notes on April 11, 2000 in a
private offering. In order to be exchanged,
an outstanding note must be properly tendered
and accepted before expiration of the
exchange offer. All outstanding notes that
are validly tendered and not validly
withdrawn will be exchanged. We will issue
the registered notes promptly after the
expiration of the exchange offer.
As of the date of this prospectus, there is
outstanding $300 million principal amount of
outstanding notes. Outstanding notes may be
tendered for exchange in whole or in part for
minimum denominations of $1,000 principal
amount and integral multiples of $1,000 in
excess thereof.
Registration Rights Agreement................ Simultaneously with the sale of the
outstanding notes on April 11, 2000, we
entered into a registration rights agreement
under which we committed to conduct the
exchange offer. You are entitled under the
registration rights agreement to exchange
your outstanding notes for registered notes
with substantially identical terms. The
exchange offer is intended to satisfy these
rights. After the exchange offer is complete,
except as set forth in the next paragraph,
you will no longer be entitled to any
exchange or registration rights with respect
to your outstanding notes.
The registration rights agreement requires us
to file a registration statement for a
continuous offering in accordance with Rule
415 under the Securities Act for your benefit
if:
- we are not permitted to consummate the
exchange offer because the exchange offer
is not permitted by applicable law or SEC
policy;
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- you are ineligible to participate in the
exchange offer and indicate that you wish
to have your outstanding notes registered
under the Securities Act; or
- you may not resell registered notes you
have acquired in the exchange offer to the
public without delivering a prospectus and
this prospectus (including any amendment
or supplement thereto) is not appropriate
or available for resales by you.
Resales of the Registered Notes.............. We believe that registered notes to be issued
in the exchange offer in exchange for the
outstanding notes may be offered for resale,
resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the
Securities Act if you meet the following
conditions:
(1) the registered notes are acquired by you
in the ordinary course of your business;
(2) you are not engaging in and do not
intend to engage in a distribution of the
registered notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes; and
(4) you are not an affiliate of ours, as
that term is defined in Rule 405 under the
Securities Act.
However, the SEC has not considered this
exchange offer in the context of a no-action
letter and we cannot be sure that the staff
of the SEC would make the same determination
with respect to the exchange offer as in
other circumstances. Furthermore, if you do
not meet the above conditions, you may incur
liability under the Securities Act if you
transfer any registered note without
delivering a prospectus meeting the
requirements of the Securities Act. We do not
assume, or indemnify you against, that
liability.
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Each broker-dealer that receives registered
notes for its own account in the exchange
offer in exchange for outstanding notes which
that broker-dealer acquired as a result of
market-making activities or other trading
activities must acknowledge that it will
comply with the prospectus delivery
requirements of the Securities Act in
connection with any resale of the registered
notes. Broker-dealers who acquired
outstanding notes directly from us and not as
a result of market-making activities or other
trading activities may not participate in the
exchange offer and must comply with the
prospectus delivery requirements of the
Securities Act in order to resell the
outstanding notes.
Expiration Date.............................. The exchange offer will expire at 5:00 p.m.,
New York City time, on August 10, 2000,
unless we decide to extend the exchange
offer.
Withdrawal................................... You may withdraw the tender of your
outstanding notes at any time prior to 5:00
p.m., New York City time, on the expiration
date.
Conditions to the Exchange Offer............. The only conditions to completing the
exchange offer are that the exchange offer
not violate applicable law or any applicable
interpretation of the staff of the SEC and no
injunction, order or decree has been issued,
or any action or proceeding has been
instituted or threatened that would
reasonably be expected to prohibit, prevent
or materially impair our ability to proceed
with the exchange offer. If any of these
conditions exist prior to the expiration
date, we may take the following actions:
- refuse to accept any outstanding notes and
return all previously tendered outstanding
notes;
- extend the duration of the exchange offer;
or
- waive such conditions to the extent
permissible under applicable law.
Procedures for Tendering Outstanding Notes... We issued the outstanding notes as global
securities in fully registered form without
coupons. Beneficial interests in the
outstanding notes which are held by direct or
indirect participants in The Depository Trust
Company through certificateless depositary
interests are shown on, and transfers of the
outstanding notes can be made only through,
records maintained in book-entry form by DTC
with respect to its participants.
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If you are a holder of an outstanding note
held in the form of a book-entry interest and
you wish to tender your outstanding notes for
exchange pursuant to the exchange offer, you
must transmit to American Stock Transfer &
Trust Company, as exchange agent, on or prior
to the expiration of the exchange offer
either:
- a written or facsimile copy of a properly
completed and executed letter of
transmittal and all other required
documents to the address set forth on the
cover page of the letter of transmittal;
or
- a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal.
The exchange agent must also receive on or
prior to the expiration of the exchange offer
either:
- a timely confirmation of book-entry
transfer of your outstanding notes into the
exchange agent's account at DTC, in
accordance with the procedure for
book-entry transfers described in this
prospectus under the heading "The Exchange
Offer--Book-Entry Transfer," or
- the documents necessary for compliance
with the guaranteed delivery procedures
described below.
A letter of transmittal accompanies this
prospectus. By executing the letter of
transmittal or delivering a
computer-generated message through DTC's
Automated Tender Offer Program system, you
will represent to us that, among other
things:
(1) the registered notes to be acquired by
you in the exchange offer are being acquired
in the ordinary course of your business;
(2) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes;
(3) you do not have an arrangement or
understanding with any person to
participate in the distribution of the
registered notes; and
(4) you are not an affiliate of ours.
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Procedures for Tendering Certificated
Outstanding Notes.......................... If you are a holder of book-entry interests
in the outstanding notes, you are entitled to
receive, in limited circumstances, in
exchange for your book-entry interests,
certificated notes which are in equal
principal amounts to your book-entry
interests. See "The Exchange
Offer--Procedures for Tendering--Book-Entry
Interests." No certificated notes are issued
and outstanding as of the date of this
prospectus. If you acquire certificated
outstanding notes prior to the expiration of
the exchange offer, you must tender your
certificated outstanding notes in accordance
with the procedures described in this
prospectus under the heading "The Exchange
Offer--Procedures for Tendering--Certificated
Outstanding Notes."
Special Procedures for Beneficial Owners..... If you are the beneficial owner of
outstanding notes and they are registered in
the name of a broker, dealer, commercial
bank, trust company or other nominee, and you
wish to tender your outstanding notes, you
should promptly contact the person in whose
name your initial notes are registered and
instruct that person to tender on your
behalf. If you wish to tender on your own
behalf, you must, prior to completing and
executing the letter of transmittal and
delivering your outstanding notes, either
make appropriate arrangements to register
ownership of the outstanding notes in your
name or obtain a properly completed bond
power from the person in whose name your
outstanding notes are registered. The
transfer of registered ownership may take
considerable time and it may not be possible
to complete prior to the expiration date.
Guaranteed Delivery Procedures............... If you wish to tender your outstanding notes
and your outstanding notes are not
immediately available or you cannot deliver
your outstanding notes, the letter of
transmittal or any other documents required
by the letter of transmittal to the exchange
agent, or you cannot complete the procedure
for book-entry transfer, then prior to the
expiration date you must tender your
outstanding notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Procedures for
Tendering--Guaranteed Delivery Procedures."
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Acceptance of Outstanding Notes and Delivery
of Registered Notes........................ Except under the circumstances described
above under "Conditions to the Exchange
Offer," we will accept for exchange any and
all outstanding notes which are properly
tendered in the exchange offer before 5:00
p.m., New York City time, on the expiration
date. We will deliver the registered notes
promptly following the expiration date. If we
do not accept any of your outstanding notes
for exchange we will return them to you as
promptly as practicable after the expiration
or termination of the exchange offer without
any expense to you.
Interest and Accretion on the Registered
Notes and the Outstanding.................. Notes Cash interest will not be paid on the
registered notes prior to April 15, 2005.
Prior to that date, in lieu of cash interest,
the registered notes will accrete in value at
a rate of approximately 14.0%, per annum,
compounded semi-annually. At that time,
interest will begin to accrue and will be
payable in cash semi-annually on April 15 and
October 15 of each year commencing on
October 15, 2005. Interest will not be paid
on outstanding notes that are tendered and
accepted for exchange.
Exchange Agent............................... American Stock Transfer & Trust Company is
serving as the exchange agent in connection
with the exchange offer.
Use of Proceeds.............................. We will not receive any cash proceeds from
the issuance of the registered notes in the
exchange offer.
Consequences of Failure to Exchange.......... Outstanding notes that are not tendered or
that are tendered but not accepted will
continue to be subject to the existing
restrictions on transfer provided in the
outstanding notes and in the indenture.
U.S. Federal Tax Considerations.............. The exchange of the outstanding notes
generally will not be a taxable exchange for
federal income tax purposes.
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TERMS OF THE REGISTERED NOTES
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Issuer....................................... UbiquiTel Operating Company.
Registered Notes Offered..................... $300,000,000 aggregate principal amount of
Registered 14.0% Senior Subordinated Discount
Notes due 2010. The registered notes will
evidence the same debt as the outstanding
notes and will be issued under, and entitled
to the benefits of, the same indenture. The
terms of the registered notes are the same as
the terms of the outstanding notes in all
material respects except that the registered
notes:
- have been registered under the Securities
Act;
- do not include rights to registration
under the Securities Act; and
- do not contain transfer restrictions
applicable to the outstanding notes.
Maturity Date................................ April 15, 2010.
Interest and Accretion....................... The registered notes will accrete in value at
a rate of 14.0% per annum until April 15,
2005, compounded semi-annually. At that time,
interest will begin to accrue and will be
payable in cash semi-annually on April 15 and
October 15 of each year, commencing on
October 15, 2005. The yield to maturity of
the registered notes is 14.0% (computed on a
semi-annual bond-equivalent basis) calculated
from April 11, 2000.
Guarantees................................... Our obligations under the registered notes
will be fully and unconditionally guaranteed
by UbiquiTel Parent and all of UbiquiTel
Operating Company's existing and future
restricted subsidiaries, other than UbiquiTel
Leasing Company, which was incorporated on
March 17, 2000. The guarantees will be
subordinate in right of payment to all
existing and future senior indebtedness of
the guarantors. The guarantees will rank
equal in right of payment to other existing
and future senior subordinated indebtedness
of the guarantors and senior in right of
payment to all of the existing and future
obligations of the guarantors that are
expressly subordinated in right of payment to
the guarantees.
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Ranking...................................... The registered notes will be our general
unsecured obligations and will rank equally
in right of payment to all of our existing
and future senior subordinated indebtedness
and senior in right of payment to existing
and future obligations that are expressly
subordinated in right of payment to the
registered notes. The registered notes will
rank junior to all existing and future Senior
Indebtedness, as defined in the indenture
governing the registered notes.
Optional Redemption.......................... We may redeem the registered notes at our
option, in whole or in part, at any time on
or after April 15, 2005 at the redemption
prices set forth under the heading
"Description of the Registered
Notes--Optional Redemption," plus accrued and
unpaid interest, if any, and liquidated
damages, if any, thereon to the date of
redemption.
In addition, at any time prior to April 15,
2003, we may redeem up to 35% of the
principal amount of the registered notes
originally issued with the net cash proceeds
of specified sales of common equity. In that
case, the redemption price will be equal to
114% of the accreted value as of the date of
redemption, plus liquidated damages, if any,
thereon, to the redemption date. At least 65%
of the aggregate principal amount of the
registered notes originally issued must
remain outstanding following each such
redemption.
Change in Control............................ Upon certain change of control events, we may
be required to repurchase all or any part of
the registered notes. The repurchase will be
in cash at a price equal to 101% of the
accreted value thereof (if the date of
repurchase is prior to April 15, 2005) and
101% of the aggregate principal amount
thereof (if the date of repurchase is on or
after April 15, 2005), plus accrued and
unpaid interest and liquidated damages, if
any, on the registered notes, to the date of
repurchase.
A change of control may be deemed to be a
default under our credit facilities. For this
and other reasons, we cannot assure that in
the event of a change of control we would
have sufficient funds to purchase all
registered notes tendered.
Certain Covenants............................ The indenture contains covenants that limit,
among other things, our ability to:
- pay dividends, redeem capital stock and
make other restricted payments or
investments;
</TABLE>
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<TABLE>
<S> <C>
- incur additional indebtedness or issue
preferred equity interests;
- incur any indebtedness that is subordinate
in right of payment to our Senior
Indebtedness and senior in any respect to
the registered notes;
- merge, consolidate or sell our assets;
- create liens on assets; and
- enter into transactions with affiliates or
related persons. All of these limitations are
subject to a number of important
qualifications described under the
headings "Description of the Registered
Notes--Selected Covenants--Merger,
Consolidation or Sale of Assets."
</TABLE>
RISK FACTORS
We urge you to read carefully the risk factors beginning on page 16 for a
discussion of factors you should consider before exchanging your outstanding
notes for registered notes.
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<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PARTICIPATING IN THE
EXCHANGE OFFER. 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. UNLESS
INDICATED OTHERWISE, THE OUTSTANDING NOTES AND THE REGISTERED NOTES ARE
COLLECTIVELY REFERRED TO AS THE "NOTES" 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 approval of UbiquiTel Parent's stockholders 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 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.
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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
approval of UbiquiTel Parent's stockholders 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 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 approval of UbiquiTel
Parent's stockholders 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 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."
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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
- 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;
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- 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;
- 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 approval of UbiquiTel
Parent's stockholders, 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 approval of UbiquiTel
Parent's stockholders, 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
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management agreement with Sprint PCS may limit our ability to sell the business,
may reduce the value a buyer would be willing to pay for our business and may
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.
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.
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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 UBIQUITEL PARENT'S
INITIAL PUBLIC OFFERING OF ITS COMMON STOCK
On or about May 17, 2000, UbiquiTel established a website with three
hyperlinks to an independent unaffiliated website that included specific
articles regarding UbiquiTel and UbiquiTel Parent's initial public offering of
its common stock. One of the hyperlinks accessed the prospectus summary
contained in the prospectus forming a part of the registration statement
relating to UbiquiTel Parent's initial public offering, while each of the other
hyperlinks accessed a press release regarding UbiquiTel Parent's initial public
offering. The 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 UbiquiTel Parent to violate Section 5 of the Securities Act. If the
existence of any of the hyperlinks caused a violation of Section 5 of the
Securities Act, we believe that only purchasers in UbiquiTel Parent's 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 UbiquiTel Parent's 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 the 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.
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
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- 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 STOCKHOLDER APPROVAL
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 the 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
approval of UbiquiTel Parent's stockholders. The provisions in our management
agreement that allow Sprint PCS to purchase our operating assets at a discount
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.
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.
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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 the outstanding notes
and warrants to purchase 3,579,000 shares of UbiquiTel Parent's 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 the Senior Credit Facility" and
"Description of the Registered Notes."
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 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.
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 the outstanding notes, we borrowed $75.0 million
of term loans under the credit facility, 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 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 the outstanding notes and
from UbiquiTel Parent's initial public offering of its 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.
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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 approval of UbiquiTel Parent's stockholders. If Sprint
PCS does not exercise this option, our lender may sell our assets to third
parties without approval of UbiquiTel Parent's 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
UbiquiTel Parent's stockholders.
OUR INDEBTEDNESS PLACES RESTRICTIONS ON US WHICH MAY LIMIT OUR OPERATING
FLEXIBILITY AND OUR ABILITY TO PAY DIVIDENDS
The indenture that governs the 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 UbiquiTel Parent's
stockholders;
- making investments;
- selling assets;
- repurchasing UbiquiTel Parent's 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.
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.
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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
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.
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
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
25
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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 UBIQUITEL PARENT'S STOCKHOLDERS HAVE OTHER INVESTMENTS IN
TELECOMMUNICATIONS BUSINESSES, WHICH MAY RESULT IN A CONFLICT OF INTEREST WITH
US
Some of UbiquiTel Parent's 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
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UBIQUITEL PARENT'S CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE PROVISIONS
THAT MAY DISCOURAGE A CHANGE OF CONTROL TRANSACTION
Some provisions of UbiquiTel Parent's 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, UbiquiTel Parent has
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, UbiquiTel Parent's 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.
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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 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 NOTES
BECAUSE THE NOTES ARE SUBORDINATED TO OTHER DEBT THAT ENCUMBERS OUR ASSETS, YOU
MAY NOT BE FULLY REPAID IF WE BECOME INSOLVENT
If we become insolvent, we may not have sufficient assets to make payments
on amounts due on any or all of the notes or the parental guarantee. The right
to payment on the notes will be subordinated to all of our existing and future
senior debt, including our $250.0 million senior credit facility. Similarly,
each subsidiary guarantee of the notes will be subordinated to all existing and
future senior debt of the applicable guarantor. If we become bankrupt,
liquidate, dissolve, reorganize or undergo a similar proceeding, our or such
guarantor's assets will be available to pay obligations on the notes or the
applicable guarantee only after all outstanding senior debt of such party has
been paid in full. In addition, an event of a default under our senior debt may
prohibit us and the guarantors of the notes from paying the notes or the
guarantees of the notes.
BECAUSE THE NOTES AND GUARANTEE WILL BE UNSECURED, YOU MAY NOT BE FULLY REPAID
UNDER THE NOTES OR GUARANTEE IF WE BECOME INSOLVENT
Because the guarantee of the notes will be unsecured, if we become
insolvent, you may be repaid only after our senior debt is satisfied. Our senior
debt is secured by liens on substantially all of our assets and those of our
current and any future subsidiaries. If we were to default on our senior debt,
the lenders could foreclose on the collateral regardless of any default with
respect to the notes. These assets would first be used to repay in full all
amounts outstanding under our senior debt.
Our agreements with Sprint PCS and the infrastructure equipment used in our
network create the value of our assets. These asset are highly specialized and,
taken individually, have limited marketability, particularly as a result of some
of the provisions in our agreement with Sprint PCS. Therefore, in a foreclosure
sale, these assets are likely to be sold as an entirety, and the lender may not
realize enough money to satisfy all senior debt.
THE GUARANTEE BY UBIQUITEL PARENT MAY HAVE LIMITED PRACTICAL VALUE
UbiquiTel Parent will unconditionally guarantee, on a senior subordinated
basis, all payments of principal, premium, if any, and liquidated damages, if
any, on the notes. However, since at present
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UbiquiTel Parent's only significant asset is the capital stock of UbiquiTel
Operating Company (and such asset has been pledged to the lenders under our
$250.0 million senior credit facility), if we should he unable to meet our
payment obligations with respect to the notes, it is unlikely that UbiquiTel
Parent would be able to do so.
HOLDERS OF OUR SENIOR DEBT WILL CONTROL ENFORCEMENT OF THE PLEDGES OF ANY OF OUR
SUBSIDIARIES' STOCK WHICH MAY AFFECT THE TRUSTEE'S ABILITY TO INDEPENDENTLY
PURSUE REMEDIES ON BEHALF OF HOLDERS OF THE NOTES
The holders of the senior debt are given the exclusive right to control all
decisions relating to the enforcement of remedies under the senior debt pledge
agreement with respect to the stock of our current and future subsidiaries. As a
result, you will not be able to force a sale of the collateral securing the
notes or otherwise independently pursue the remedies of a secured creditor under
the pledge agreement securing the notes until the senior debt has been repaid in
full. Our senior debtholders may have interests that are different from yours
and our senior debtholders may elect not to pursue their remedies under the
pledge agreement at a time when it would be advantageous for you to do so.
BECAUSE FEDERAL AND STATE STATUTES MAY ALLOW COURTS TO VOID THE GUARANTEE OF THE
NOTES, YOU MAY NOT HAVE THE RIGHT TO RECEIVE ANY MONEY PURSUANT TO THE
GUARANTEE
Although the guarantee of the notes provides you with a direct claim against
the assets of the guarantor, creditors of a bankrupt guarantor may challenge the
guarantee. If a challenge to the guarantee were upheld, then the guarantee would
be invalid and unenforceable, junior to all creditors, including trade
creditors, of the guarantor.
The creditors of a bankrupt guarantor could challenge the guarantee on the
grounds that the guarantee constituted a fraudulent conveyance under bankruptcy
law. If a court were to rule that the guarantee did constitute a fraudulent
conveyance, then the court could void the obligations under the guarantee or
subordinate the guarantee to other debt of the guarantor or take other action
detrimental to holders of the notes. In addition, the guarantee could be subject
to the claim that, since the guarantee was incurred for our benefit, and only
indirectly for the benefit of our parent that provided the guarantee, the
obligations of the guarantor were incurred for less than fair consideration.
OUR DEBT INSTRUMENTS CONTAIN PROVISIONS AND REQUIREMENTS THAT COULD LIMIT OUR
ABILITY TO PURSUE BORROWING OPPORTUNITIES
The restrictions to be contained in the indenture governing the notes, and
the restrictions contained in our senior debt, may limit our ability to
implement our business plan, finance future operations, respond to changing
business and economic conditions, secure additional financing, if needed, and
engage in opportunistic transactions. Our senior debt also restricts our ability
and the ability of our future subsidiaries to do the following:
- create liens;
- make certain payments, including payments of dividends and distributions
in respect of capital stock;
- consolidate, merge and sell assets;
- engage in certain transactions with affiliates; and
- fundamentally change our business.
In addition, our senior debt requires us to maintain certain ratios, including:
- leverage ratios;
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- an interest coverage ratio; and
- a fixed charges ratio,
and to satisfy certain tests, including tests relating to:
- minimum covered population;
- minimum number of subscribers to our services; and minimum annualized
revenues.
We may not satisfy the financial ratios and tests under our senior debt due
to events that are beyond our control. If we fail to satisfy any of the
financial ratios and tests, we could be in default under our senior debt or may
be limited in our ability to access additional funds under our senior debt,
which could result in our being unable to make payments on the notes.
BECAUSE THE NOTES HAVE BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, YOU WILL HAVE
TO INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH
The notes have been issued at a substantial discount from their principal
amount at maturity. Original issue discount, i.e., the difference between the
stated redemption price at maturity of the notes, including all cash payments of
principal and interest, and the issue price of the notes, will accrue from the
issue date of the notes and will be included in your gross income for federal
income tax purposes before you receive the cash payment of such interest. United
States federal income tax law may postpone or limit our interest deduction for
original issue discount. See "Certain U.S. Federal Tax Considerations."
IF THE ORIGINAL ISSUE DISCOUNT ON THE NOTES IS SUFFICIENTLY HIGH, WE MAY NOT BE
ABLE TO DEDUCT A PORTION OF OUR BORROWING EXPENSE
If the yield to maturity of the notes exceeds the sum of the relevant
"applicable federal rate" published by the Internal Revenue Service for the
month in which the notes are issued and 6%, and if the notes are "applicable
high yield discount obligations" for federal income tax purposes, as described
below under "Certain U.S. Federal Tax Considerations--U.S. Holders; Applicable
High Yield Discount Obligations," the deduction otherwise available to us for
original issue discount on the notes would be permanently disallowed to the
extent the original issue discount is attributable to the yield to maturity of
the notes in excess of the sum of the applicable federal rate and 6%.
THE BANKRUPTCY LAWS MAY REDUCE YOUR CLAIM IN THE EVENT OF OUR INSOLVENCY
If a bankruptcy case were commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, your claim with respect to the
principal amount of the notes may be limited to an amount equal to the sum of
the initial offering price and that portion of the original issue discount that
is not deemed to constitute unmatured interest for purposes of the United State
Bankruptcy Code. Any original issue discount that had not amortized as of the
date of the bankruptcy filing could constitute unmatured interest for purposes
of the United States Bankruptcy Code. To the extent that the United States
Bankruptcy Code differs from the Internal Revenue Code in determining the method
of amortization of original issue discount, you may recognize taxable gain or
loss upon payment of your claim in bankruptcy.
IF AN EVENT CONSTITUTING A CHANGE IN CONTROL OF US OCCURS, WE MAY BE UNABLE TO
FULFILL OUR OBLIGATION TO PURCHASE YOUR NOTES
Our senior debt prohibits us from purchasing any of the notes before their
stated maturity. Under the indenture governing the notes, upon a change in
control we will, subject to certain contractual limitations, be required to make
an offer to repurchase all of the notes. In the event we become subject
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to a change in control at a time when we are prohibited from purchasing the
notes, we may seek the consent of the holders of our senior debt to purchase the
notes or attempt to refinance the debt that contains the prohibition. If we do
not obtain a consent or repay the senior debt, our failure to purchase the
tendered notes would constitute an event of default under the indenture, which
would in turn result in a default under the senior debt. Even if we obtain the
consent, we cannot assure you that we will have sufficient resources to
repurchase the notes following the change in control.
THE REGISTERED NOTES MAY NOT HAVE AN ACTIVE MARKET AND THE PRICE MAY BE
VOLATILE, SO YOU MAY BE UNABLE TO SELL YOUR REGISTERED NOTES AT THE PRICE YOU
DESIRE OR AT ALL
We cannot ensure that a liquid market will develop for the registered notes,
that you will be able to sell any of the registered notes 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 outstanding
notes. The initial purchasers of the outstanding notes have advised us that they
intend to make a market in the registered notes, but they are not obligated to
do so. The initial purchasers may discontinue any market-making in the
registered notes at any time in their sole discretion. We do not intend to apply
(and are not obligated to apply) for listing of the registered notes on any
securities exchange or any automated quotation system. Therefore, we cannot
assure you as to the liquidity of any trading market for the registered notes.
Future trading prices of the registered notes will depend on many factors,
including our operating performance and financial condition, prevailing interest
rates and the market for similar securities.
SOME PERSONS WHO PARTICIPATE IN THIS EXCHANGE OFFER MUST DELIVER A PROSPECTUS IN
CONNECTION WITH RESALES OF THE REGISTERED NOTES
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell or otherwise transfer the
registered notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. However, in some instances
described in this prospectus under "The Exchange Offer," you will remain
obligated to comply with the prospectus delivery requirements of the Securities
Act to transfer your registered notes. In these instances, if you transfer any
registered note without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your registered
notes under the Securities Act, you may incur liability under this Act. We do
not and will not assume, or indemnify you against, this liability.
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USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the registered notes as contemplated in this prospectus, we will
receive in exchange the outstanding notes in like principal amount. The
outstanding notes surrendered in exchange for the registered notes will be
retired and cancelled and cannot be reissued. The issuance of the registered
notes will not result in any increase in our indebtedness.
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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 issuance of the
outstanding notes and the issuance of related warrants;
- receipt of gross proceeds of $100.0 million from UbiquiTel Parent's
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 UbiquiTel Parent's
common stock, which was issued in connection with our senior subordinated
note;
- repayment of our senior subordinated note;
- conversion of UbiquiTel Parent's preferred stock into common stock;
- cancellation of UbiquiTel Parent's non-voting common stock;
- payments to preferred stockholders upon closing of UbiquiTel Parent's
initial public offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of UbiquiTel Parent's common stock and
136,758 shares of UbiquiTel Parent's common stock to UbiquiTel Parent's
founding stockholders to maintain a specific percentage stock ownership in
connection with the outstanding 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 from the outstanding notes allocated to long-term debt.
(4) Of such amount, $16.3 million represents the value assigned to the warrants
and $0.6 million represents the value assigned to the shares of preferred
stock issued in connection with the outstanding notes.
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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 issuance of the
outstanding notes and the issuance of related warrants;
- receipt of gross proceeds of $100.0 million from UbiquiTel Parent's
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 UbiquiTel Parent's
common stock, which was issued in connection with our senior subordinated
note;
- repayment of our senior subordinated note;
- conversion of preferred stock into UbiquiTel Parent's common stock;
- cancellation of UbiquiTel Parent's non-voting common stock;
- payments to preferred stockholders upon closing of UbiquiTel Parent's
initial public offering; and
- issuance of shares of preferred stock to preferred stockholders
convertible into 77,002 shares of UbiquiTel Parent's common stock and
136,758 shares of UbiquiTel Parent's common stock to founding stockholders
to maintain a specified percentage stock ownership in connection with the
outstanding 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.
34
<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
======== ========
Other Data:
Deficiency of earnings to fixed charges....... (22,124)(3)
========
</TABLE>
35
<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 the
outstanding notes over 10 years........................... 203
Interest expense on the outstanding notes................... 5,330
Amortization of the discount on the outstanding notes over
10 years.................................................. 400
------
$8,698
======
</TABLE>
(3) Earnings were insufficient to cover fixed charges on a pro forma basis by
$22,124. For purposes of computing a ratio of earnings to fixed charges,
fixed charges consist of interest expense, amortization of expenses related
to indebtedness and preferred dividends. Earnings consist of loss from
continuing operations plus fixed charges.
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.
36
<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>
PRO FORMA
HISTORICAL HISTORICAL 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
======= ========
Other Data:
Deficiency of earnings to fixed charges.......... (45,451)(3)
========
</TABLE>
37
<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 the
outstanding notes over 10 years........................... 811
Interest expense on the outstanding notes................... 21,319
Amortization of the discount on the outstanding notes over
10 years.................................................. 1,598
-------
$34,354
=======
</TABLE>
(3) Earnings were insufficient to cover fixed charges on a pro forma basis by
$45,451. For purposes of computing a ratio of earnings to fixed charges,
fixed charges consist of interest expense, amortization of expenses related
to indebtedness and preferred dividends. Earnings consist of loss from
continuing operations plus fixed charges.
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.
38
<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>
39
<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 outstanding notes............................. $152,277
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 the outstanding
notes..................................................... (7,177)
Cash used to pay prepayment premium on senior subordinated
debt...................................................... (80)
Cash used to retire outstanding senior subordinated debt.... (8,000)
Proceeds of UbiquiTel Parent's 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 UbiquiTel Parent's initial public offering........ (1,000)
--------
$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 the outstanding notes................... 7,177
Additional warrants issued in connection with the
outstanding notes......................................... 321
Issuance of shares of preferred stock to preferred
stockholders convertible into 77,002 shares of UbiquiTel
Parent's common stock to maintain a specific percentage
stock ownership upon the issuance of the warrants related
to the outstanding notes.................................. 616
-------
$14,907
=======
</TABLE>
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(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>
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 outstanding notes from the gross proceeds
of $152,277. The remaining $15,980 was ascribed to the warrants and is
reflected in stockholders' equity.
(9) Represents exercise of a warrant to purchase 4,978,150 shares of UbiquiTel
Parent's common stock issued in connection with the senior subordinated
debt.
(10) Represents conversion of convertible preferred stock to common stock in
connection with UbiquiTel Parent's initial public offering.
(11) Represents adjustments to stockholders' equity as follows:
<TABLE>
<S> <C>
Proceeds of UbiquiTel Parent's initial public offering...... $100,000
Estimated fees and expenses of UbiquiTel Parent's 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
Warrants issued with the outstanding notes.................. 15,980
Additional warrants issued in connection with the
outstanding notes......................................... 321
Issuance of shares of preferred stock to preferred
stockholders convertible into 77,002 shares of UbiquiTel
Parent's common stock to maintain a specific percentage
stock ownership in connection with the outstanding
notes..................................................... 616
--------
$111,274
========
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
(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 UbiquiTel
Parent's 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.
42
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
UBIQUITEL
- 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 UbiquiTel Parent's 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 UbiquiTel Parent's initial public offering and the
exercise of warrants to purchase 4,978,150 shares of its common stock which
were issued in connection with the outstanding notes.
43
<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
YEAR ENDED DECEMBER 31, ENDED 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,
------------------- AS OF
1998 1999 MARCH 31, 2000
-------- -------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets purchased.................................... $19,551 $19,784 $19,025
</TABLE>
44
<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
the outstanding notes and warrants to purchase, in the aggregate, 3,579,000
shares of UbiquiTel Parent's 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 UbiquiTel Parent's initial public offering of
12,500,000 shares of its 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 UbiquiTel Parent's initial
public offering of common stock, when combined with the proceeds from its sale
of preferred stock and our sale of the outstanding 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.
45
<PAGE>
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 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
46
<PAGE>
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 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
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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.
- 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
the 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 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 the Senior Credit Facility."
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 UbiquiTel Parent's issuance of Series B preferred stock at a
price less than its 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.
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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.
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.
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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.
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.
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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 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
the Senior Credit Facility."
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
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proceeds of UbiquiTel Parent's initial public offering of common stock, when
combined with the proceeds from its sale of preferred stock and our sale of the
outstanding 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.
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 the outstanding notes and from UbiquiTel
Parent's 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 UbiquiTel Parent's
assets and a pledge by it of the 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 outstanding
notes and warrants to purchase 3,579,000 shares of UbiquiTel Parent's common
stock. The outstanding notes mature on April 15, 2010 and are limited to an
aggregate principal amount at maturity of $300.0 million. The outstanding notes
generated gross proceeds to us of $152.3 million. The outstanding notes are
general, unsecured obligations subordinated in right of payment to all senior
debt, including obligations under our senior secured credit facility. The
outstanding notes accrue interest at a rate of 14.0% per annum, computed on a
semi-annual basis, calculated from April 11, 2000. The outstanding 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.
The indenture that governs the outstanding notes and the credit agreement
that governs our senior credit facility impose material operating and financial
restrictions on us. These restrictions, subject to
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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.
On June 12, 2000, we completed UbiquiTel Parent's initial public offering of
12,500,000 shares of its common stock. We received gross proceeds of
$100.00 million from the initial public offering.
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.
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 this offering, our sale of the outstanding 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 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 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 UbiquiTel Parent's
initial public offering of common stock, its sale of preferred stock, our sale
of the outstanding 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
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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 UbiquiTel
Parent's initial public offering, when combined with the proceeds from the sale
of its preferred stock and the outstanding 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/
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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.
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.
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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 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)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Q1 97 192
<S> <C>
Q2 97 347
Q3 97 570
Q4 97 887
Q1 98 1,114
Q2 98 1,365
Q3 98 1,751
Q4 98 2,587
Q1 99 3,350
Q2 99 3,967
Q3 99 4,687
Q4 99 5,723
</TABLE>
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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.
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.
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- 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:
- 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;
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- 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:
- 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);
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- 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;
- 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
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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 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
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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 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
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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 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.
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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.
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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
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
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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."
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.
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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.
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.
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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.
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
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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.
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
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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 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.
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SIMPLIFIED FREQUENCY PLANNING
Frequency planning is the process used to analyze and test alternative
patterns of frequency use within a wireless network to minimize interference and
maximize capacity. Unlike 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 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.
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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 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.
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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:
<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
our $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 our
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, CA Eureka, CA
Sparks, NV Oroville, CA
Carson City, NV Chico, CA
Lake Tahoe, NV 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.
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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 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
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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
- 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 approval of UbiquiTel Parent's stockholders, upon a
proposed sale of all or substantially all of our
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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 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 approval of UbiquiTel Parent's stockholders,
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
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- 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.
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 approval of
UbiquiTel Parent's stockholders, 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.
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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 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.
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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 our $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 our previous $25.0 million
credit facility. The consent generally provides, among other things, the
following.
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 our capital stock.
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 our 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 our obligations under
the credit facility are satisfied in full. Similarly, Sprint PCS has
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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 our 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 us 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 our credit agreement with Paribas. Paribas has agreed to provide
Sprint PCS with a copy of any written notice sent to us or UbiquiTel Parent
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 us of our 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 your management agreement, the consent grants Paribas
certain rights in the event that we default on our obligations under the credit
facility. Paribas' rights and remedies vary based on whether:
- we have defaulted on our obligations under the credit facility but no
event of termination has occurred under the management agreement; or
- we have breached the management agreement with Sprint PCS.
The consent generally permits, without approval of UbiquiTel Parent's
stockholders 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.
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CREDIT AGREEMENT DEFAULT WITHOUT A MANAGEMENT AGREEMENT BREACH. If we
default on our 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 our 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
- 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
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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 our
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, our 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 UbiquiTel Parent's stockholders, in the event that we
default on our 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 approval of UbiquiTel Parent's
stockholders, 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 our 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;
- 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
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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 our
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 our 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 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
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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 THE SENIOR CREDIT FACILITY
On March 31, 2000, we 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 the outstanding notes and from
UbiquiTel Parent's initial public offering of its 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 $75,000,000 have been satisfied.
We 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.
We 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 we 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:
- the reserve adjusted London interbank offered rate, plus an applicable
margin of between 4.25% and 2.75%, depending on the level of our ratio of
debt to earnings before interest, taxes, depreciation and amortization; or
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- 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 our 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 we 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 UbiquiTel Parent's initial public offering.
UbiquiTel Parent has guaranteed all of our obligations under the credit
facility. Our obligations under the credit facility are secured by security
interests in substantially all of our assets, and by UbiquiTel Parent's pledge
of all of our 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 we 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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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>
Chairman of the Board, President and Chief Executive
Donald A. Harris............ 47 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,
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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 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 UbiquiTel Parent's initial public offering, our stockholders
agreements were terminated and our directors were divided into three classes.
Mr. Lucas
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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.
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.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
ANNUAL COMPENSATION 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 UbiquiTel Parent's 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.
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 $125,000 in 2000. We are currently conducting a search for a Chief Financial
Officer and expect to provide annual compensation customary for a position of
this type within our industry.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options to acquire shares
of UbiquiTel Parent's common stock made during the fiscal year ended
December 31, 1999 to each of the named executive officers. No stock appreciation
rights were granted to these individuals during that year.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
(IN THOUSANDS) EXCEPT PER SHARE DATA
------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL POTENTIAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS REALIZABLE OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OFFERING VALUE APPRECIATION
UNEXERCISED EMPLOYEES OR BASE PRICE TO OFFERING FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE PUBLIC EXPIRATION PRICE TO ---------------------------
NAME GRANTED(1) YEAR ($)/(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 UbiquiTel Parent's initial public offering, there had been no
public market for its common stock. The exercise price of each of these
options is equal to the fair market value of its common stock on the date of
grant as determined by our board of directors.
(3) Potential realizable value is based on the product of UbiquiTel Parent's
initial public offering price minus the exercise price multiplied by the
number of shares underlying the options.
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(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 UbiquiTel Parent's 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 UbiquiTel Parent's 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
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END(#) FISCAL YEAR-END
NAME EXERCISE(#) REALIZED (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
-------------------------- ----------- -------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C>
Donald A. Harris.......... -- -- 0/2,550,000 $0/$19,125,000
</TABLE>
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 UbiquiTel Parent's 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. Upon the closing of this
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 UbiquiTel
Parent's 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 UbiquiTel
Parent's 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
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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 UbiquiTel Parent's 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.
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
UbiquiTel Parent's 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.
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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 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
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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
UbiquiTel Parent's 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 UbiquiTel Parent's 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 UbiquiTel Parent's 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
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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.
(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 UbiquiTel Parent's initial public offering in June 2000.
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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 UbiquiTel
Parent's 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 UbiquiTel Parent's
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 UbiquiTel
Parent's non-voting common stock were canceled as of June 12, 2000, the closing
of UbiquiTel Parent's initial public offering, for nominal value. The holders of
these shares of non-voting common stock were not entitled to equity
participation
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rights, such as rights to receive dividends or other distributions in the event
we are sold, merged or liquidated.
PREFERRED STOCK ISSUANCES
The following tables set forth, as of May 31, 2000, shares of UbiquiTel
Parent's preferred stock that have been issued to our stockholders that are
deemed to beneficially own, as of April 12, 2000, more than 5% of UbiquiTel
Parent's common stock, or who serve as our executive officers or directors. All
shares of preferred stock were converted into shares of UbiquiTel Parent's
common stock on June 12, 2000, the closing of UbiquiTel Parent's initial public
offering. The amounts listed below in the tables have been adjusted to reflect
the number of shares of UbiquiTel Parent's common stock, after giving effect to
the two-for-one stock split, that the preferred stock was automatically
converted into as a result of UbiquiTel Parent's 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
UbiquiTel Parent's initial public offering.
TERMS OF PREFERRED STOCK
The holders of UbiquiTel Parent's 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 UbiquiTel Parent's 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 UbiquiTel Parent's initial public offering.
Upon completion of UbiquiTel Parent's initial public offering, the shares of
preferred stock automatically converted into UbiquiTel Parent's common
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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:
<TABLE>
<CAPTION>
AMOUNT OF
NAME 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 UbiquiTel Parent's 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 UbiquiTel Parent's 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
UbiquiTel Parent's 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 UbiquiTel Parent's shares.
In connection with the issuance of UbiquiTel Parent's 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 UbiquiTel Parent's
initial public offering.
REGISTRATION RIGHTS AGREEMENTS
We have also granted registration rights to all of the persons who were
stockholders of UbiquiTel Parent prior to its 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 UbiquiTel
Parent's 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 UbiquiTel Parent's
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 UbiquiTel Parent's
common stock, which were converted into 4,978,150 shares as a result of a
two-for-one stock split in connection with UbiquiTel Parent's 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 UbiquiTel Parent's initial public offering.
Upon the closing of our note offering, we issued to Donaldson, Lufkin &
Jenrette Securities Corporation warrants to purchase shares of UbiquiTel
Parent's common stock. These warrants were cancelled prior to the closing of
UbiquiTel Parent's initial public offering and we issued new warrants to
Donaldson, Lufkin & Jenrette Securities Corporation to purchase up to 86,183
shares of UbiquiTel
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Parent's 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 UbiquiTel Parent's initial public offering and expire
on the fifth anniversary of UbiquiTel Parent's initial public offering.
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 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 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 UbiquiTel Parent's
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.
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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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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
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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 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-
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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
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
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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.
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 CAPITAL STOCK
The following summarizes all of the material terms and provisions of the
capital stock of UbiquiTel Parent. It does not purport to be complete, however,
and is qualified in its entirety by the actual terms and provisions contained in
UbiquiTel Parent's amended and restated certificate of incorporation.
AUTHORIZED CAPITAL STOCK
UbiquiTel Parent's 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
UbiquiTel Parent has 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. It has not reserved any shares of
preferred stock for issuance.
COMMON STOCK
The holders of UbiquiTel Parent's 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 UbiquiTel Parent's 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.
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If our board of directors decides to issue any preferred stock, it may
discourage or make more difficult a merger, tender offer, business combination
or proxy contest, assumption of control by a holder of a large block of our
securities or the removal of incumbent management, even if these events were
favorable to the interests of stockholders. The board of directors, without
stockholder approval, may issue preferred stock with voting and conversion
rights and dividend and liquidation preferences which may adversely affect the
holders of common stock.
WARRANTS
We currently have outstanding warrants to purchase in the aggregate
4,813,987 shares of UbiquiTel Parent's common stock.
PARIBAS WARRANTS
We issued warrants to purchase 1,148,804 shares of UbiquiTel Parent's 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 UbiquiTel
Parent's common stock as of the date we repurchase the warrants or shares.
UNIT WARRANTS
As part of our units offering, we issued and sold warrants to purchase an
aggregate of 4,234,804 shares of UbiquiTel Parent's common stock pursuant to a
warrant agreement between UbiquiTel Parent and American Stock Transfer & Trust
Company, as the warrant agent. We recently amended the warrant agreement to
cancel 655,804 of such warrants subject to the warrant agreement, which were
originally issued to Donaldson, Lufkin & Jenrette Securities Corporation.
Warrants to purchase 86,183 shares of UbiquiTel Parent's common stock were
reissued to Donaldson, Lufkin & Jenrette Securities Corporation pursuant to a
new warrant agreement as described below under "--DLJ Warrants."
The holders of the unit warrants are entitled, in the aggregate, to purchase
3,579,000 shares of UbiquiTel Parent's common stock, representing approximately
5% of the issued and outstanding shares of UbiquiTel Parent's common stock on a
fully diluted basis, assuming exercise of the Paribas warrants, the DLJ warrants
described below and all options outstanding or that have or may be issued under
UbiquiTel Parent's equity incentive plan. The unit warrants become exercisable
at any time after April 15, 2001 for a period of ten years from the date of
issuance. The unit warrants currently trade in the Private Offerings and Resales
trading through Automated Linkages (PORTAL) market.
Each of the warrants, when exercised, will entitle the holder to receive
11.93 fully paid and non-assessable shares of UbiquiTel Parent's common stock,
at an exercise price of $11.37 per share, subject to adjustment from time to
time in several circumstances including the following:
(1) the payment by us of dividends and other distributions on UbiquiTel
Parent's common stock;
(2) subdivision, combinations and reclassifications of UbiquiTel Parent's
common stock;
(3) the issuance to all holders of common stock of such rights, options or
warrants entitling them to subscribe for UbiquiTel Parent's common stock
or securities convertible into, or exchangeable or exercisable for,
UbiquiTel Parent's common stock at a price which is less than the fair
market value per share of UbiquiTel Parent's common stock;
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(4) certain distributions to all holders of UbiquiTel Parent's common stock
of any of our assets or debt securities or any rights or warrants to
purchase any such securities, excluding those rights and warrants
referred to in clause (3) above;
(5) the issuance of shares of UbiquiTel Parent's common stock for
consideration per share less than the then fair market value per share of
UbiquiTel Parent's common stock at the time of issuance of such
convertible or exchangeable security, excluding securities issued in
transactions referred to in clauses (1) through (4) above, or (6) below;
and
(6) the issuance of securities convertible into or exchangeable for
UbiquiTel Parent's common stock for a conversion or exchange price plus
consideration received upon issuance less than the then fair market value
per share of UbiquiTel Parent's common stock at the time of issuance of
such convertible or exchangeable security, excluding securities issued in
transactions referred to in (1) through (4) above.
The events described above are subject to certain exceptions described in
the warrant agreement including:
- issuances of options, convertible securities or common stock to employees,
directors or consultants of us or any of our subsidiaries pursuant to a
plan approved by our board of directors;
- rights to purchase common stock pursuant to a plan for reinvestment of
dividends or interest; and
- issuances of common stock, options or convertible securities in connection
with mergers and acquisitions with non-affiliated third parties.
We are required, under the terms of a warrant registration rights agreement
to:
- file a shelf registration statement on or before June 26, 2000 covering
the resale of the unit warrants, the issuance of the common stock issuable
upon exercise of the unit warrants and the resale of the common stock
issuable upon exercise of the unit warrants;
- 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 unit warrants or shares of common stock issuable
thereunder have been sold pursuant to the shelf registration statement or
the unit warrants have expired.
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 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 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 registration default continues for the
first 90-day period immediately following the occurrence of such registration
default. This amount will increase by an additional $0.02 per week per 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 registration default has been cured. We will not be required
to pay liquidated damages for more than one registration default at any given
time.
DLJ WARRANTS
In connection with the notes offering, we issued to Donaldson, Lufkin &
Jenrette Securities Corporation warrants to purchase an aggregate of 655,804
shares of UbiquiTel Parent's common stock. We recently canceled those warrants
and issued new warrants to Donaldson, Lufkin & Jenrette
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Securities Corporation to purchase an aggregate of 86,183 shares at an exercise
price equal to UbiquiTel Parent's initial public offering price of $8.00 per
share. These warrants will be exercisable after the first anniversary of the
consummation of UbiquiTel Parent's initial public offering and will expire upon
the fifth anniversary of UbiquiTel Parent's initial public offering.
The number of shares into which the warrants are exercisable and the
exercise price are subject to adjustment in the event of:
(1) the payment by us of dividends and other distributions on UbiquiTel
Parent's common stock;
(2) subdivisions, combinations and reclassifications of UbiquiTel Parent's
common stock;
(3) the issuance to all holders of common stock of such rights, options or
warrants entitling them to subscribe for our common stock or securities
convertible into, or exchangeable or exercisable for, UbiquiTel Parent's
common stock at a price which is less than the fair market value per
share of UbiquiTel Parent's common stock; and
(4) certain distributions to all holders of UbiquiTel Parent's common stock
of any of our assets or debt securities or any rights or warrants to
purchase any such securities, excluding those rights and warrants
referred to in clause (3) above.
The events described above will be subject to certain exceptions described
in the warrant agreement under which the DLJ warrants will be issued, including
issuances of options, convertible securities or common stock to employees,
directors or consultants of us or any of our subsidiaries pursuant to a plan
approved by our board of directors; rights to purchase common stock pursuant to
a plan for reinvestment of dividends or interest; and issuances of common stock,
options or convertible securities in connection with mergers and acquisitions
with non-affiliated third parties.
The warrant agreement under which the DLJ warrants were issued also provides
for registration rights with respect to the warrants and common stock issuable
thereunder. UbiquiTel Parent is required to file a shelf registration statement
with respect thereto within 75 days after the issuance of the DLJ warrants, and
is required to keep such shelf registration statement effective for a period of
up to five years, subject to limited exceptions.
REGISTRATION RIGHTS
We have granted registration rights to all of the persons who were
stockholders of UbiquiTel Parent prior to its 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.
ANTITAKEOVER EFFECTS OF DELAWARE LAW
UbiquiTel Parent is 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
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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
UbiquiTel Parent's 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.
UbiquiTel Parent's 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. UbiquiTel Parent's
bylaws provide that a stockholder may nominate directors only if the stockholder
delivers written notice to us not less than 45 days or more than 75 days before
the first anniversary of the date on which we first mailed our proxy materials
for the preceding year's annual meeting. If the date of the annual meeting is
advanced more than 30 days before or delayed more than 30 days after the
anniversary of the preceding year's annual meeting, then we must receive the
stockholder's notice not after the later of the ninetieth day before the annual
meeting or the tenth day after the day the public announcement of the date of
the annual meeting is made.
UbiquiTel Parent's 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.
UbiquiTel Parent's amended and restated certificate of incorporation
provides that any action required or permitted to be taken by UbiquiTel Parent's
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 UbiquiTel Parent's 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.
UbiquiTel Parent's bylaws provide that a stockholder may raise new business
at an annual stockholder meeting only if the stockholder delivers written notice
to UbiquiTel Parent 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
UbiquiTel Parent with certain information concerning the nature of the new
business, and must disclose
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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
certificate of incorporation requires the affirmative vote of the holders of at
least 80% of the outstanding voting stock to amend or repeal any of the
provisions of the certificate of incorporation or bylaws described above. Except
as otherwise provided by law, holders of our common stock are not entitled to
vote on any amendment to our certificate of incorporation that changes the
powers, preferences, rights or other terms of an outstanding series of our
preferred stock, if the holders of the affected series of preferred stock are
entitled to vote on the proposed amendment. The bylaws may be amended or
repealed by the board of directors, except if the bylaw provisions affect
provisions of the certificate of incorporation or bylaws described above, then
the affirmative vote of the holders of at least 80% of the 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 UbiquiTel Parent's
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 UbiquiTel Parent's
securities or the removal of incumbent management, even if these events would be
favorable to the interests of UbiquiTel Parent's stockholders.
UbiquiTel Parent's amended and restated certificate of incorporation
requires it 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 UbiquiTel
Parent's 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 UbiquiTel Parent's stockholders in derivative suits to recover
monetary damages against a director for breach of certain fiduciary duties as a
director, except that a director will be personally liable for:
- acts or omissions not in good faith for which involve intentional
misconduct or a knowing violation of law;
- the payment of dividends or the redemption or purchase of stock in
violation of Delaware law;
- any breach of the duty of loyalty to us or our stockholders;
- 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
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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 UbiquiTel Parent's common stock is
American Stock Transfer & Trust Company.
LISTING
UbiquiTel Parent's common stock is listed on the Nasdaq National Market
under the symbol "UPCS."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
As a condition to the sale of the outstanding notes, we and the initial
purchasers of the outstanding notes entered into the registration rights
agreement. Under the registration rights agreement, we agreed to:
- file with the SEC an exchange offer registration statement under the
Securities Act with respect to the registered notes no later than
June 26, 2000;
- use our best efforts to cause the exchange offer registration statement to
be declared effective under the Securities Act no later than October 8,
2000; and
- keep the exchange offer open for a period not less than 20 business days
(or longer if required by applicable law) after the date notice of the
exchange offer is mailed to holders of the outstanding notes; and
- cause the exchange offer to be consummated no later than the 30th business
day after it is declared effective under the Securities Act.
The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. You may be entitled to
"shelf" registration rights. In accordance with the registration rights
agreement, we are required to file a shelf registration covering your
outstanding notes for a continuous offering in accordance with Rule 415 of the
Securities Act if:
- we are not permitted to consummate the exchange offer because the exchange
offer is not permitted by applicable law or SEC policy; or
- any holder of outstanding notes which are Transfer Restricted Securities
notifies us before the 20th business day following the consummation of the
exchange offer that:
- it is prohibited by law or SEC policy from participating in the
exchange offer;
- it may not resell the registered notes acquired by it in the exchange
offer to the public without delivering a prospectus, and the prospectus
(including any amendment or supplement thereto) contained in the
exchange offer registration statement is not appropriate or available
for such resales by it; or
- it is a broker-dealer and holds notes acquired directly from us or any
of our affiliates.
In the event that we are obligated to file a shelf registration statement,
we will be required to keep the shelf registration statement effective until the
later of two years from the date the shelf registration is declared effective by
the SEC or the date on which all of the outstanding notes have been sold
thereunder.
For purposes of the registration rights agreement, "Transfer Restricted
Securities" means each note until the earlier of:
(1) the date on which such note is exchanged in the exchange offer and
entitled to be resold to the public by the holder thereof without
complying with the prospectus delivery requirements of the Securities
Act;
(2) the date on which such note has been disposed of in accordance with the
shelf registration statement;
(3) the date on which such note is disposed of by a broker-dealer pursuant
to the "Plan of Distribution" contemplated by the exchange offer
registration statement (including delivery of the prospectus contained
therein);
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(4) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The registration rights agreement provides that:
(1) if we fail to file an exchange offer registration statement with the SEC
on or before June 26, 2000;
(2) if the exchange offer registration statement is not declared effective
before October 8, 2000;
(3) if the exchange offer is not consummated on or before the 30th business
day after the exchange offer registration statement is declared
effective;
(4) if obligated to file the shelf registration statement and we fail to
file the shelf registration statement with the SEC on or before the 30th
day after such filing obligation arises;
(5) if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or before the 60th
day after the obligation to file a shelf registration statement arises;
or
(6) if the exchange offer registration statement or the shelf registration
statement, as the case may be, is declared effective but thereafter
ceases to be effective or useable in connection with resales of the
Transfer Restricted Securities, for such time of non-effectiveness or
non-usability (each, a "Registration Default"), then we will pay to each
holder of Transfer Restricted Securities affected thereby liquidated
damages ("Liquidated Damages") in an amount equal to $0.05 per week per
$1,000 in principal amount of the Transfer Restricted Securities 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. The amount of the Liquidated
Damages shall increase by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90 day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $0.50 per week per $1,000
in principal amount of Transfer Restricted Securities. We will not be
required to pay Liquidated Damages for more than one Registration Default
at any given time. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
We will pay all accrued Liquidated Damages to holders entitled thereto by
wire transfer to the accounts specified by them or by mailing checks to their
registered address if no such accounts have been specified.
EFFECT OF THE EXCHANGE OFFER
Based on no-action letters issued by the staff of the SEC to third parties,
we believe that you may offer for resale, resell and otherwise transfer the
registered notes issued to you under the exchange offer without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that you can represent that:
- you are acquiring the registered notes in the ordinary course of your
business;
- you are not engaging in and do not intend to engage in a distribution of
the registered notes;
- you have no arrangements or understandings with any person to participate
in the exchange offer for the purpose of distributing the registered
notes; and
- you are not an "affiliate" (as defined in Rule 405 of the Securities Act)
of ours.
If you are not able to make these representations, you are a "Restricted
Holder." As a Restricted Holder, you will not be able to participate in the
exchange offer, may not rely on the SEC staff
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positions set forth in the Exxon Capital Holdings Corporation no-action letter
and similar no-action letters and may only sell your outstanding notes as part
of a registration statement containing the selling security holder information
required by Item 507 or 508 of SEC Regulation S-K, as applicable, or under an
exemption from the registration requirements of the Securities Act.
In addition, each broker-dealer, other than a Restricted Holder, that
receives registered notes for its own account in exchange for outstanding notes
which were acquired by such broker-dealer as a result of market-making or other
trading activities (a "Participating Broker-Dealer") may be a statutory
underwriter and must acknowledge in the letter of transmittal that it will
deliver a prospectus meeting the requirements of the Securities Act upon any
resale of such registered notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based upon interpretations by the SEC staff, we believe that a Participating
Broker-Dealer may offer for resale, resell and otherwise transfer registered
notes issued under the exchange offer upon compliance with the prospectus
delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer as
part of their resales. We have agreed that, for a period of one year after the
completion of the exchange offer, we will make this prospectus available to any
broker-dealer for use by the broker-dealer in any resale. For more information,
please see the section in this prospectus entitled "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
To the extent outstanding notes are tendered and accepted in the exchange
offer, the principal amount of outstanding notes will decrease with a resulting
decrease in the liquidity in the market for the outstanding notes. In addition,
following completion of the exchange offer, except as provided in the
registration rights agreement, you will not have any further registration rights
and your outstanding notes will continue to be subject to certain restrictions
on transfer. Accordingly, if you do not participate in the exchange offer, your
ability to sell your outstanding notes could be adversely affected. You may
suffer adverse consequences if you fail to exchange your outstanding notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept for exchange any and all
outstanding notes that are validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the expiration date. We will issue $1,000
principal amount at maturity of registered notes in exchange for each $1,000
principal amount at maturity of outstanding notes accepted in the exchange
offer. You may tender some or all of your outstanding notes under the exchange
offer. However, outstanding notes may be tendered only in minimum denominations
of $1,000 principal amount and integral multiples of $1,000 in excess thereof.
As of the date of this prospectus, an aggregate of $300,000,000 in principal
amount at maturity of the outstanding notes is outstanding. This prospectus,
together with the accompanying letter of transmittal, is first being sent on or
about July 12, 2000, to the nominee of The Depository Trust Company ("DTC" or
the "Depository") and to others believed to have beneficial ownership in the
outstanding notes.
The form and terms of the registered notes will be substantially identical
to the form and terms of the outstanding notes, except that:
- the offering of the registered notes has been registered under the
Securities Act;
- the registered notes will not be subject to transfer restrictions; and
- the registered notes will be issued free of any covenants regarding
registration rights and free of any provision for Liquidated Damages.
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The registered notes will evidence the same debt as the outstanding notes
and will be issued under the same indenture.
You do not have any appraisal or dissenters rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act. Outstanding
notes which are not tendered for, or are tendered but not accepted in connection
with, the exchange offer will remain outstanding.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral notice, promptly confirmed in writing, or written
notice of the acceptance to the exchange agent. The exchange agent will act as
agent for the tendering holders for the purpose of receiving the registered
notes from us.
If we do not accept for exchange any tendered outstanding notes because of
an invalid tender, the occurrence of other events described in this prospectus
or otherwise, certificates for any such unaccepted outstanding notes will be
returned to you, without expense, as promptly as practicable after the
expiration date.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the exchange of
outstanding notes under the exchange offer. We will pay all charges and
expenses, other than underwriting discounts and commissions and transfer taxes,
as part of the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE, EXTENSIONS, TERMINATION
The term "expiration date" means 5:00 p.m., New York City time, on
August 10, 2000, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended.
We have the right, subject to applicable law, in our reasonable discretion,
at any time and from time to time, (1) to extend the exchange offer or (2) to
terminate the exchange offer, if any of the conditions set forth below under
"--Conditions" shall not have been satisfied by giving oral or written notice of
such extension or termination to the exchange agent. Any such extension or
termination will be followed as promptly as practicable by a public
announcement.
Any such termination or extension will be followed promptly by oral or
written notice to the exchange agent (any such oral notice to be promptly
confirmed in writing) and by making a public announcement, and such announcement
in the case of an extension will be made no later than 9:00 am New York City
time, on the next business day after the previously scheduled expiration date.
Without limiting the manner in which we may choose to make any public
announcement, and subject to applicable laws, we shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by issuing a timely release to an appropriate news agency.
PROCEDURES FOR TENDERING
BOOK-ENTRY INTERESTS
The outstanding notes were issued as global securities in fully registered
form without interest Coupons. Beneficial interests in the global securities,
held by direct or indirect participants in DTC, are shown on, and transfers of
these interests are effected only through, records maintained in book-entry form
by DTC with respect to its participants.
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If you hold your outstanding notes in the form of book-entry interests and
you wish to tender your outstanding notes for exchange pursuant to the exchange
offer, you must transmit to the exchange agent on or prior to the expiration
date either:
(1) written or facsimile copy of a properly completed and duly executed
letter of transmittal, including all other documents required by such
letter of transmittal, to the exchange agent at the address set forth on
the cover page of the letter of transmittal; or
(2) computer-generated message transmitted by means of DTC's Automated
Tender Offer Program system and received by the exchange agent and
forming a part of a confirmation of book-entry transfer, in which you
acknowledge and agree to be bound by the terms of the letter of
transmittal.
In addition, in order to deliver outstanding notes held in the form of
book-entry interests:
(A) a timely confirmation of book-entry transfer of such notes into the
exchange agent's account at DTC pursuant to the procedure for book-entry
transfers described below under "--Book-Entry Transfer" must be received
by the exchange agent prior to the expiration date; or
(B) you must comply with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY, OR NOMINEE TO EFFECT THE ABOVE
TRANSACTIONS FOR YOU.
CERTIFICATED OUTSTANDING NOTES
Only registered holders of certificated outstanding notes may tender those
notes in the exchange offer. If your outstanding notes are certificated notes
and you wish to tender those notes for exchange pursuant to the exchange offer,
you must transmit to the exchange agent on or prior to the expiration date. a
written or facsimile copy of a properly completed and duly executed letter of
transmittal, including all other required documents, to the address set forth
below under "--Exchange Agent." In addition, in order to validly tender your
certificated outstanding notes:
(1) the certificates representing your outstanding notes must be received by
the exchange agent prior to the expiration date,
(2) you must comply with the guaranteed delivery procedures described below.
PROCEDURES APPLICABLE TO ALL HOLDERS
If you validly tender outstanding notes and you do not withdraw the tender
prior to the expiration date, you will have made an agreement with us in
accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
If your outstanding notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and you wish to tender your
notes, you should contact the registered holder promptly and instruct the
registered holder to tender on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing the letter of transmittal
and delivering your outstanding notes, either make appropriate arrangements to
register ownership of the outstanding notes in your name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
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Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless:
(A) outstanding notes tendered in the exchange offer are tendered either:
(1) "Special Delivery Instructions" on the letter of transmittal; or
(2) for the account of an eligible institution; and
(B) the box entitled "Special Registration Instructions" on the letter of
transmittal has not been completed.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a financial institution,
which includes most banks, savings and loan associations and brokerage houses,
that is a participant in the Securities Transfer Agents Medallion Program. the
New York Stock Exchange Medallion Program or the Stock Exchanges Medallion
Program.
If the letter of transmittal is signed by a person other than you, your
outstanding notes must be endorsed or accompanied by a properly completed bond
power and signed by you as your name appears on those outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, in this instance you must submit with the letter of transmittal
proper evidence satisfactory to us of their authority to act on your behalf.
We will determine, in our sole discretion, all questions regarding the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered outstanding notes. This determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered or any outstanding notes our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties.
You must cure any defects or irregularities in connection with tenders of
your outstanding notes within the time period we will determine unless we waive
that defect or irregularity. Although we intend to notify you of defects or
irregularities with respect to your tender of outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
this notification. Your tender will not be deemed to have been made and your
notes will be returned to you if:
(1) you improperly tender your outstanding notes;
(2) you have not cured any defects or irregularities in your tender; and
(3) we have not waived those defects, irregularities or improper tender.
The exchange agent will return your outstanding notes, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration of the exchange offer.
By tendering, you will represent to us that, among other things:
(1) the registered notes to be acquired by you in the exchange offer are
being acquired in the ordinary course of your business;
(2) you are not engaging in and do not intend to engage in a distribution of
the registered notes to be acquired by you in the exchange offer;
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(3) you do not have an arrangement or understanding with any person to
participate in the distribution of the registered notes to be acquired by
you in the exchange offer; and
(4) you are not an "affiliate" of ours, as defined under Rule 405 of the
Securities Act.
In all cases, issuance of registered notes for outstanding notes that are
accepted for exchange in the exchange offer will be made only after timely
receipt by the exchange agent of certificates for your outstanding notes or a
timely book-entry confirmation of your outstanding notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal, or a computer-generated message instead of the letter of
transmittal, and all other required documents. If any tendered outstanding notes
are not accepted for any reason set forth in the terms and conditions of the
exchange offer or if outstanding notes are submitted for a greater principal
amount than you desire to exchange, the unaccepted or non-exchanged outstanding
notes, or outstanding notes in substitution therefor, will be returned without
expense to you. In addition, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described below, the non-exchanged outstanding
notes will be credited to your account maintained with DTC, as promptly as
practicable after the expiration or termination of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your outstanding notes and your outstanding notes
are not immediately available or one of the situations described in the
immediately preceding paragraph occurs, you may tender if:
(1) you tender through an eligible financial institution;
(2) on or prior to 5:00 p.m., New York City time, on the expiration date,
the exchange agent receives from an eligible institution, a written or
facsimile copy of a properly completed and duly executed letter of
transmittal and notice of guaranteed delivery, substantially in the form
provided by us; and
(3) the certificates for all certificated outstanding notes, in proper form
for transfer, or a book-entry confirmation, and all other documents
required by the letter of transmittal, are received by the exchange agent
within three NYSE trading days after the date of execution of the notice
of guaranteed delivery.
The notice of guaranteed delivery may be sent by facsimile transmission,
mail or hand delivery. The notice of guaranteed delivery must set forth:
(1) your name and address;
(2) the amount of outstanding notes you are tendering; and
(3) a statement that your tender is being made by the notice of guaranteed
delivery and that you guarantee that within three New York Stock Exchange
trading days after the execution of the notice of guaranteed delivery,
the eligible institution will deliver the following documents to the
exchange agent:
(A) the certificates for all certificated outstanding notes being
tendered, in proper form for transfer or a book-entry confirmation of
tender;
(B) a written or facsimile copy of the letter of transmittal, or a
book-entry confirmation instead of the letter of transmittal; and
(C) any other documents required by the letter of transmittal.
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BOOK-ENTRY TRANSFER
The exchange agent will establish an account with respect to the book-entry
interests at DTC for purposes of the exchange offer promptly after the date of
this prospectus. You must deliver your book-entry interest by book-entry
transfer to the account maintained by the exchange agent at DTC. Any financial
institution that is a participant in DTC's systems may make book-entry delivery
of book-entry interests by causing DTC to transfer the book-entry interests into
the exchange agent's account at DTC in accordance with DTC's procedures for
transfer.
If one of the following situations occur:
(1) you cannot deliver a book-entry confirmation of book-entry delivery of
your book-entry interests into the exchange agent's account at DTC; or
(2) you cannot deliver all other documents required by the letter of
transmittal to the exchange agent prior to the expiration date.
then you must tender your book-entry interests according to the guaranteed
delivery procedures discussed above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of outstanding notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address listed in this prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of such outstanding notes;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or he accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding notes register the transfer of the outstanding notes into the
name of the person withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered if
different from that of the person that deposited the outstanding notes to
be withdrawn.
If the outstanding notes have been delivered under the book-entry procedure
set forth above under "--Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn outstanding notes.
We will determine, in our sole discretion, all questions as to the validity,
form and eligibility, including time of receipt, of withdrawal notices. Our
determination shall be final and binding on all parties. Any outstanding notes
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer and registered notes will not be issued in exchange for such
withdrawn outstanding notes unless the withdrawn outstanding notes are validly
retendered. Properly withdrawn outstanding notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
Any outstanding notes that are tendered but not accepted due to withdrawal,
rejection of tender or termination of the exchange offer will be returned as
soon as practicable to the holder without cost to
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the holder (or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at the book-entry transfer facility under the
book-entry transfer procedures described above, these outstanding notes will be
credited to an account maintained with such book-entry transfer facility for the
outstanding notes).
CONDITIONS
Notwithstanding any other term of the exchange offer, we are not required to
accept for exchange any outstanding notes, and may terminate the exchange offer
as provided in this prospectus before the acceptance of any outstanding notes,
if:
- the exchange offer will violate applicable law or any applicable
interpretation of the SEC staff;
- the outstanding notes are not tendered in accordance with the exchange
offer;
- you do not represent that you are acquiring the registered notes in the
ordinary course of your business, that you are not engaging in and do not
intend to engage in a distribution of the registered notes, and that you
have no arrangement or understanding with any person to participate in a
distribution of the registered notes; or
- any action or proceeding is instituted or threatened by any governmental
agency with respect to the exchange offer which would reasonably be
expected to impair our ability to proceed with the exchange offer.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances giving rise to any condition or we may waive them in whole
or in part at any time and from time to time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights shall not he deemed
a waiver of the right and each right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may (1) refuse to accept any outstanding notes and return all
tendered outstanding notes to the tendering holders (or, in the case of
outstanding notes delivered by book-entry transfer within DTC, credit any
outstanding notes to the account maintained within DTC by the participant in DTC
which delivered the notes), (2) extend the exchange offer and retain all
outstanding notes tendered prior to the expiration of the exchange offer,
subject, however, to the rights of holders to withdraw the tenders of
outstanding notes (see "Withdrawal of Tenders" above) or (3) waive the
unsatisfied conditions with respect to the exchange offer and accept all
properly tendered outstanding notes which have not been withdrawn. If a waiver
constitutes a material change to the exchange offer, we will promptly disclose
the waiver by means of a prospectus supplement that will be distributed to the
registered holders, and we will extend the exchange offer for a period of five
to ten business days, depending upon the significance of the waiver and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during such five to ten business day period.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as exchange agent
for the exchange offer. Delivery of letters of transmittal and any other
required documents, questions, requests
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for assistance, and requests for additional copies of this prospectus or of the
letter of transmittal should be directed to the exchange agent as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL, BY FACSIMILE (ELIGIBLE INSTITUTION ONLY):
OVERNIGHT COURIER OR HAND DELIVERY:
(718) 234-5001
American Stock Transfer & Trust Company Attention: Exchange Department
40 Wall Street
New York, New York 10005 Confirmed by Telephone: (718) 921-8200
Attention: Exchange Department
(Originals of all documents submitted by facsimile
should be sent promptly by hand, overnight courier
or registered or certified mail.)
</TABLE>
Delivery to other than the above address or facsimile number will not
constitute a valid delivery of your outstanding notes.
FEES AND EXPENSES
We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable
out-of-pocket expenses under the exchange offer. We will also pay the reasonable
fees and expenses of one firm acting as counsel for the holders of the
outstanding notes. Expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
You must pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If satisfactory evidence of payment
of the taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of the transfer t axes will be billed directly to you.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
outstanding notes on the date of the exchange. Accordingly, we will recognize no
gain or loss for accounting purposes. The expenses of the exchange offer and the
unamortized expenses relating to the issuance of the outstanding notes will be
amortized over the term of the registered notes.
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DESCRIPTION OF THE REGISTERED NOTES
You can find the definitions of many of the terms used in this description
under the subheading "Selected Definitions." In this description, the words
"we", "our" or "us" refer only to UbiquiTel Operating Company and not to any of
our subsidiaries or guarantors.
We will issue the registered notes under the indenture for the outstanding
notes dated as April 11, 2000 among us, the guarantors referred to below, and
American Stock Transfer & Trust Company, as trustee.
Any outstanding notes that remain outstanding after the completion of the
exchange offer, together with the registered notes issued in exchange for the
outstanding notes, will be treated as a single class of debt securities under
the indenture. Unless otherwise indicated, the outstanding notes and the
registered notes to be issued in the exchange offer are collectively referred to
as the "notes" in this summary description. The terms of the notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939, as amended. The indenture will be qualified as an
indenture under the Trust Indenture Act.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it defines your rights as a holder of the notes. We
have filed a copy of the indenture as an exhibit to the registration statement
which includes this prospectus.
PRINCIPAL, MATURITY AND INTEREST
We issued $300.0 million aggregate principal amount of outstanding notes in
denominations and integral multiples of $1,000, maturing on April 15, 2010. The
outstanding notes were issued at a discount and generated approximately $152.3
million of gross proceeds to us. We will issue up to the same amount of
registered notes. The notes will mature on April 15, 2010.
Cash interest will not be paid on the notes prior to April 15, 2005. Prior
to that date, in lieu of cash interest, the notes will accrete in value at a
rate of approximately 14.0% per annum, compounded semi-annually, to an aggregate
principal amount of $300.0 million on April 15, 2005. Beginning on that date,
interest will accrue at a rate of 14.0% per annum, payable in cash semiannually
in arrears on April 15 and October 15 of each year, commencing on October 15,
2005, to holders of record of such notes at the close of business on the
April 1 and October 1 preceding such interest payment dates. Cash interest will
accrue from the most recent interest payment date to which interest has been
paid or duly provided for or, if no interest has been paid or duly provided for,
from April 15, 2005. Cash interest will be computed on a basis of a 360-day year
of twelve 30-day months. Accretion of original issue discount will be computed
on a basis of a 360-day year of twelve 30-day months, compounded semi-annually.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a registered holder of notes has given wire transfer instructions to us,
we will make all principal and interest payments on the notes in accordance with
those instructions. We will make all other payments on the notes at the office
or agency of the paying agent and registrar within the City and State of New
York unless we decide to pay interest by mailing checks to the registered
holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
We must appoint a paying agent to which the notes may he presented for
payment, and a registrar where notes may be presented for transfer or exchange.
The trustee will initially act as paying agent and registrar. We may change the
paying agent or registrar without prior notice to the holders, and we or any of
our subsidiaries may act as paying agent or registrar.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note that has been selected for
redemption. Also, we are not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
GUARANTEES
UbiquiTel Parent and all of our current and future domestic Restricted
Subsidiaries, other than UbiquiTel Leasing Company, will be guarantors of the
notes. UbiquiTel Leasing Company is a wholly-owned limited purpose subsidiary of
UbiquiTel Operating Company formed on March 17, 2000 solely for the purpose of
holding site and tower leases and will be prohibited by the indenture from
amending its certificate of incorporation to change the nature and purpose of
the business it is legally permitted to conduct. In the event that UbiquiTel
Leasing Company amends its certificate of incorporation to change the nature and
purpose of its business, or if UbiquiTel Leasing Company becomes a guarantor
under the Credit Facilities, it will become a guarantor of the notes.
The guarantors will be liable for the entire amount due under the notes and
the indenture. The obligations of each guarantor will be limited as necessary to
prevent the guarantee from constituting a fraudulent conveyance under applicable
law.
A guarantor (other than UbiquiTel Parent) may not sell or otherwise dispose
of all or substantially all of its assets, or consolidate with or merge with or
into another person, other than us or another guarantor, unless:
- immediately after giving effect to that transaction, no default exists;
and
- either:
- the acquiring person assumes all the obligations of the guarantor to
note holders; or
- the net proceeds of the transactions are applied in accordance with the
asset sale provisions of the indenture that are described below.
A guarantee, other than the guarantee of UbiquiTel Parent, will be released:
- in connection with any sale of all of the Capital Stock of a guarantor
(including the guarantee of any wholly-owned subsidiary of such guarantor)
to a person (including by way of merger or consolidation) that is not
(either before or after giving effect to such transaction) a subsidiary of
us, if the net proceeds of that transaction are applied (or we certify in
an officer's certificate delivered to the trustee that such net proceeds
will be applied within the time period specified) in accordance with the
asset sale provisions of the indenture;
- if we properly designate any Restricted Subsidiary that is a guarantor as
an Unrestricted Subsidiary.
SUBORDINATION AND RANKING
THE NOTES
The notes:
- are our general unsecured obligations;
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- are subordinated in right of payment to all of our existing and future
Senior Indebtedness, which includes most of our Indebtedness other than
taxes and trade payables;
- will be equal in right of payment to all of our future senior subordinated
Indebtedness;
- will be senior in right of payment to all of our future subordinated
Indebtedness; and
- are unconditionally guaranteed on a senior subordinated basis by the
guarantors.
THE GUARANTEES
The Guarantees:
- are general unsecured obligations of each guarantor;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the guarantors, which includes most of their Indebtedness
other than taxes and trade payables;
- will be equal in right of payment with any future senior subordinated
Indebtedness of each guarantor; and
- will be senior in right of payment to any future subordinated Indebtedness
of each guarantor.
The subordination provisions mean that the holders of Senior Indebtedness
will be entitled to receive payment in full of all obligations due them before
the holders of notes will be entitled to receive any payment on the notes or the
guarantees, including, without limitation, principal, premium (if any), interest
and liquidated damages (if any) payable pursuant to the terms of the notes
(including upon acceleration or redemption thereof):
- in a liquidation or dissolution proceeding;
- in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding;
- in an assignment for the benefit of creditors; or
- in any other marshalling of assets and liabilities.
In addition, until the Senior Indebtedness is paid in full, any payment or
distribution to which the holders of notes would be entitled will be made to
holders of Senior Indebtedness.
We may not make any payment on the notes, and a guarantor may not make any
payment on its guarantee, if (i) a default in the payment when due, whether at
maturity, upon any redemption, by acceleration or otherwise of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, Senior Indebtedness, or (ii) the bank
lenders under our Credit Facilities give the trustee under the indenture a
payment blockage notice. Those lenders are permitted to give that notice at any
time we have failed to honor our obligations under the Credit Facilities. If our
Credit Facilities have been paid off and we have other borrowings that we treat
as Designated Senior Indebtedness, then the holders of that Indebtedness may
give a payment blockage notice if we fail to meet our obligations under it.
We must resume payment on the notes following a payment blockage notice
only:
- in the case of a payment default, when it is cured or waived (and, if
applicable, any acceleration is rescinded); and
- in case of a nonpayment default, the earlier of the date when it is cured
or waived or 179 days after the date on which the payment blockage notice
is received, unless the maturity of any Designated Senior Indebtedness has
been accelerated.
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No new payment blockage notice may be delivered unless and until 360 days
have elapsed since the delivery of the prior payment blockage notice. No
non-payment default that existed or was continuing on the date of delivery of
any payment blockage notice shall be, or be made, the basis for a subsequent
payment blockage notice unless such default shall have been waived or cured for
a period of not less than 90 days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such payment blockage period that, in either case,
would give rise to an event of default pursuant to any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose).
Despite the provisions described above that prohibit payments to holders of
notes under the circumstances described, we and our guarantors could still make
those payments by delivering Equity Interests such as our Capital Stock or
Capital Stock of a guarantor, or by delivering debt that is subordinated at
least to the same extent as the notes and has a Weighted Average Life to
Maturity at least equal to the remaining Weighted Average Life to Maturity of
the notes.
If the trustee or any holder of notes receives a prohibited payment on the
notes and actually knew that the payment was prohibited, the trustee or holder
must hold the payment in trust for the benefit of the holders of Senior
Indebtedness and deliver it to them upon request.
We must promptly notify holders of Senior Indebtedness if payment on the
notes is accelerated because of a default. We and the guarantors may not make
any payment on the notes or the guarantees until five business days after the
holders of the Senior Indebtedness receive the notice. Thereafter, we and the
guarantors may make payments on the notes only if the subordination provisions
of the indenture permit payment at the time.
The subordination provisions described above may cause holders of the notes
to recover nothing at all, or to recover less than holders of Senior
Indebtedness.
Assuming we had completed the offering of the notes and entered into our new
senior credit facility and applied the net proceeds as intended, as of
March 31, 2000, we and the guarantors would have had total Senior Indebtedness
of approximately $75.0 million. The indenture will permit us and the guarantors
to incur additional Senior Indebtedness.
OPTIONAL REDEMPTION
Prior to April 15, 2003, we may on any one or more occasions redeem up to
35% of the Accreted Value of the notes originally issued under the indenture
with the net cash proceeds of one or more public offerings of our common stock
(or the public offering of UbiquiTel Parent's common stock, to the extent
proceeds are contributed to us, but excluding the net proceeds of the recently
completed initial public offering of UbiquiTel Parent's common stock). The
redemption price is $1,140 for each $1,000 of Accreted Value of notes redeemed.
We will not be permitted to make these redemptions unless:
- at least 65% of the Accreted Value of the notes originally issued under
the indenture remains outstanding immediately after the occurrence of such
redemption, excluding notes held by us and our subsidiaries; and
- the redemption must occur within 45 days of the date we receive the money
from the public offering.
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- We are not otherwise permitted to redeem notes prior to April 15, 2005. On
or after April 15, 2005, we may redeem all or a part of the notes by
giving notice between 30 and 60 days before the redemption. The redemption
price will be the amount shown in the table.
<TABLE>
<CAPTION>
REDEMPTION PRICE
PER $1,000 OF
YEAR BEGINNING 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>
Notwithstanding the foregoing, our Credit Facilities currently prohibit us
from redeeming the notes.
NO MANDATORY REDEMPTION OR SINKING FUND PAYMENTS
We are not required to make mandatory redemption or sinking fund payments on
the notes.
SELECTION AND NOTICE
If we redeem less than all of the notes, the trustee will select notes for
redemption as follows:
- if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which they are then listed, or
- if the notes are not listed, on a pro rata basis, by lot or any other
method the trustee considers fair and appropriate.
We must pay the redemption price on the redemption date that we choose. On
that date, interest and accretion will stop accruing on notes called for
redemption.
REPURCHASE AT THE OPTION OF HOLDERS
REPURCHASE IF A CHANGE OF CONTROL OCCURS
Within 30 days following any change of control, we must mail a notice to
each holder of notes describing the change of control and offering to repurchase
notes on a specified date within 30 to 60 days after we mail that notice, or
such later date as is necessary to comply with the requirements under the
Securities Exchange Act of 1934, as amended, or of any national securities
exchange on which the notes are then listed. 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 we may owe, if the purchase occurs on or after April 15, 2005.
In repurchasing notes, we will comply with applicable securities laws and
regulations even if they conflict with the indenture. That compliance will not
cause us to be in default under any conflicting provisions of the indenture. We
will not be required to repurchase notes if:
- the law does not permit us to purchase them; or
- they have not been properly tendered by the repurchase date.
Within 90 days following a change of control, we must either repay all of
our Senior indebtedness or obtain consents from the holders of Senior
Indebtedness permitting us to repurchase the notes. We
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must publicly announce the results of the change of control repurchase offer as
soon as possible after the repurchase occurs.
Except for these change of control provisions, we are not required to
repurchase notes if an acquisition, restructuring, recapitalization, merger or
similar transaction occurs that does not constitute a change of control under
the indenture.
We will not be required to make a change of control offer if a third party
makes and consummates the offer on the same terms required of us.
A change of control will occur if:
- we sell substantially all of our and our Restricted Subsidiaries' assets;
- we adopt a plan for our liquidation or dissolution;
- any person or group of persons, other than Principals or any of 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 the continuing
directors at the time.
REPURCHASE IF ASSET SALES OCCUR
We will not permit any asset sales of our assets or assets of any of our
Restricted Subsidiaries unless:
- we or the Restricted Subsidiary receives consideration at the time of the
asset sale at least equal to the fair market value of the assets or Equity
Interests issued or sold, as determined by our board of directors and
certified to the trustee by one of our officers, and
- at least 75% of the consideration is cash or Cash Equivalents. For
purposes of this provision, the following are considered to be cash:
- any liabilities of us or any Restricted Subsidiary that are assumed by
the transferee by an agreement that releases us or the Restricted
Subsidiary from further liability other than contingent liabilities and
liabilities that are subordinate to the notes, and
- cash that we or our Restricted Subsidiary receives from converting into
cash any securities, notes or other obligations that we or our
Restricted Subsidiary receives from the asset sale within 30 days after
receipt.
An asset sale is:
- the sale of Equity Interests in any of our subsidiaries, except a sale to
us or any Wholly-Owned Restricted Subsidiary; and
- a sale, lease or other transfer of any assets except the following:
- the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business,
- dispositions of cash or cash equivalents,
- transactions involving assets that have a fair market value of less
than $1.0 million,
- transfers of assets to us or any Wholly-Owned Restricted Subsidiary,
and
- Restricted Payments and Permitted Investments that are permitted under
the restricted payment covenant that we describe below.
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Within 360 days after we receive net proceeds from an asset sale, we may
apply them as follows:
- to repay Senior Indebtedness and, if the Senior Indebtedness repaid is
revolving credit Indebtedness, to correspondingly reduce the amount the
lenders have committed to lend us;
- to acquire all or substantially all of the assets of, or a majority of the
voting stock of, a Permitted Business, provided, that in the event of the
acquisition of at least a majority of the voting stock of a Permitted
Business, such Permitted Business becomes a Restricted Subsidiary of us;
- to make a capital expenditure that is useful or to be used in a Permitted
Business; or
- to acquire other long-term assets to be used in a Permitted Business.
Pending our use of net proceeds for these purposes, we may temporarily
reduce revolving credit borrowings or otherwise invest them in any manner that
is permitted by the indenture.
Any net proceeds from asset sales that we do not apply or invest as provided
above will be excess proceeds. When the amount of excess proceeds is greater
than $10.0 million, we will make an offer to all holders of notes to purchase or
redeem the maximum amount of notes that may be purchased with the excess
proceeds. The offer price will be the Accreted Value of the notes, if the
repurchase occurs before April 15, 2005, or the principal amount of the notes,
plus any accrued interest we may owe, if the repurchase occurs on or after April
15, 2005.
If any excess proceeds remain after consummation of the offer, we may use
them for any purpose permitted by the indenture. We are required to include in
the offer the holders of any Indebtedness that ranks equally with the notes and
contains similar provisions about excess proceeds. In that case, the trustee
under the indenture will select on a pro rata basis the notes and other
Indebtedness to be purchased. Upon completion of each offer, the amount of
excess proceeds is reset at zero. In making these offers, we will comply with
applicable securities laws and regulations even if they conflict with the
indenture. That compliance will not cause us to be in default under any
conflicting provisions of the indenture.
Our Credit Facilities prohibit us from purchasing notes, and also provides
that certain change of control or asset sale events would constitute a default.
Our future agreements relating to Senior Indebtedness may contain similar
restrictions and provisions. If a change of control or asset sale occurs at a
time when we are prohibited from purchasing notes, we could ask our senior
lenders to allow us to purchase notes, or we could attempt to refinance the
borrowings that contain the prohibition. If we do not succeed we will remain
prohibited from purchasing notes. In that case, our failure to purchase tendered
notes would constitute an event of default under the indenture which would, in
turn, constitute a default under our Senior Indebtedness. If that occurs the
subordination provisions in the indenture would likely restrict us from making
payments to the holders of notes.
SELECTED COVENANTS
LIMITATION ON RESTRICTED PAYMENTS
Prior to and including April 15, 2003, we cannot, directly or indirectly
make any restricted payments. We will be considered to have made a restricted
payment if we or our Restricted Subsidiaries:
(1) declare or pay any dividend on, or make any distribution to, the holders
of, any shares of our or any of our Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving us or any of our Restricted
Subsidiaries), or to the direct or indirect holders of our or any of our
Restricted Subsidiaries'
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Equity Interests, other than dividends or distributions payable solely in
our Equity Interests, other than Disqualified Stock;
(2) purchase, redeem or otherwise acquire or retire for value, or permit any
Restricted Subsidiary to, directly or indirectly, purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
each case, in connection with any merger or consolidation involving us or
any Restricted Subsidiary), any of our or our direct or indirect parent's
Equity Interests;
(3) redeem, repurchase, defease or otherwise acquire or retire for value, or
permit any Restricted Subsidiary to, directly or indirectly, redeem,
repurchase, defease or otherwise acquire or retire for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness that is subordinate, whether pursuant to its
terms or by operation of law, in right of payment to the notes; or
(4) make, or permit any Restricted Subsidiary, directly or indirectly, to
make, any Restricted Investment; (each of the foregoing actions set forth
in clauses (1) through (4) being referred to as a "Restricted Payment").
After April 15, 2003, we cannot, directly or indirectly, make any
Restricted Payment, and will not permit any Restricted Subsidiary to make
any Restricted Payment, unless, at the time thereof, and after giving
effect thereto,
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) we would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable period, have been permitted to incur
at least $1.00 of additional Indebtedness, other than Permitted
Indebtedness, pursuant to clause (a) or (b) of the first paragraph of
the covenant described below under the caption "--Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) after giving effect to such Restricted Payment on a pro forma basis,
the aggregate amount of all Restricted Payments made on or after the
Closing Date shall not exceed
(i) the amount of (x) 100% of our Operating Cash Flow after
April 15, 2003 through the end of the latest full fiscal quarter for
which consolidated financial statements of us are available preceding
the date of such Restricted Payment, treated as a single accounting
period, less (y) 150% of the cumulative Consolidated Interest Expense
of us after April 15, 2003 through the end of the latest full fiscal
quarter for which consolidated financial statements of us are
available preceding the date of such Restricted Payment, treated as a
single accounting period, plus
(ii) 100% of the aggregate net cash proceeds received by us after
the Closing Date as a contribution to our common equity capital or
from the issuance or sale of our Equity Interests, other than
Disqualified Stock, or from the issuance or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of us that have been converted into or exchanged for such
Equity Interests, other than Equity Interests, Disqualified Stock or
debt securities sold to a subsidiary of us; PROVIDED, HOWEVER, that
for purposes of this clause (c)(ii), the aggregate net proceeds
received by us from the initial public offering of the common stock
of UbiquiTel Parent will be excluded form the calculation, plus
(iii) the aggregate net cash proceeds received by us or any
Restricted Subsidiary from the sale, disposition or repayment, other
than to us or a Restricted Subsidiary, of any Restricted Investment
made after the Closing Date in an amount equal to the lesser of (x)
the return of capital with respect to such Investment and (y) the
initial amount of such Investment, in either case, less the cost of
disposition of such Investment.
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So long as no Default or Event of Default shall have occurred and be
continuing or would be caused thereby, the foregoing limitations do not prevent
us from:
(1) paying a dividend on our Equity Interests within 60 days after the
declaration thereof if, on the date when the dividend was declared, we
could have paid such dividend in accordance with the provisions of the
indenture;
(2) repurchasing our Equity Interests, from our former employees,
consultants or directors or any of our subsidiaries for consideration not
to exceed $1.0 million in the aggregate in any fiscal year and any unused
portion in any twelve month period may be carried forward to one or more
future periods; provided that the aggregate amount of all such
repurchases made pursuant to this clause (2) does not exceed $5.0 million
in the aggregate;
(3) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the notes in exchange for, or with the net cash proceeds of a
substantially concurrent sale of (other than to one of our subsidiaries):
(a) our Equity Interests, other than Disqualified Stock,
(b) Indebtedness that is at least as subordinated in right of payment to
the notes as the Indebtedness being purchased;
(4) the repurchase, redemption or other acquisition of our Equity Interests,
or out of the proceeds of a capital contribution or a substantially
concurrent offering of, our Equity Interests, other than Disqualified
Stock;
(5) the payment of any dividend or distribution by one of our Wholly-Owned
Restricted Subsidiaries to the holders of its common Equity Interests on
a pro rata basis;
(6) so long as UbiquiTel Parent holds all of our outstanding Capital Stock,
the payment of dividends or the making of loans or advances to UbiquiTel
Parent not to exceed $500,000 in any fiscal year, for the purposes of
paying franchise taxes or other expenses of UbiquiTel Parent; and
(7) make Investments in any Person, provided that the fair market value
thereof, measured on the date each such Investment was made or returned,
as applicable, when taken together with all other Investments made
pursuant to this clause (7), does not exceed the sum of $25.0 million,
plus the aggregate amount of the net reduction in Investments in any
Person made pursuant to this clause (7) on and after the Issue Date
resulting from dividends, repayments of loans or other transfers of
property, in each case to us or any Wholly-Owned Restricted Subsidiary
from such Person, except to the extent that any such net reduction amount
is included in the amount calculated pursuant to clause (c) of the
preceding paragraph or any other clause of this paragraph; provided,
however, that at the time of such Investment, no Default or Event of
Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such Investment shall be included in the
calculation of the amount of Restricted Payments made after the Closing
Date pursuant to clause (c) of the preceding paragraph.
In addition, if any Person in which an Investment is made, which Investment
constitutes a Restricted Payment when made, thereafter becomes a Restricted
Subsidiary, all such Investments previously made in such Person shall no longer
be counted as Restricted Payments for purposes of calculating the aggregate
amount of Restricted Payments pursuant to clause (c) of the second preceding
paragraph to the extent such Investments would otherwise be so counted.
For purposes of clause (3) above, the net proceeds received by us from the
issuance or sale of our Equity Interests either upon the conversion of, or
exchange for, Indebtedness of us or any Restricted Subsidiary shall be deemed to
be an amount equal to (a) the sum of (1) the principal amount or
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Accreted Value, whichever is less, of such Indebtedness on the date of such
conversion or exchange and (2) the additional cash consideration, if any,
received by us upon such conversion or exchange, less any payment on account of
fractional shares, minus (b) all expenses incurred in connection with such
issuance or sale. In addition, for purposes of clause (3) and (4) above, the net
proceeds received by us from the issuance or sale of our Capital Stock upon the
exercise of any options or warrants of us or any Restricted Subsidiary shall be
deemed to be an amount equal to (a) the additional cash consideration, if any,
received by us upon such exercise, minus (b) all expenses incurred in connection
with such issuance or sale.
For purposes of this "Limitation on Restricted Payments" covenant, if a
particular Restricted Payment involves a non-cash payment, including a
distribution of assets, then such Restricted Payment shall be deemed to be an
amount equal to the cash portion of such Restricted Payment, if any, plus an
amount equal to the fair market value of the non-cash portion of such Restricted
Payment, as determined by our board of directors, whose good-faith determination
shall be conclusive and evidenced by a board resolution and, in the case of fair
market value of such noncash portion in excess of $5.0 million, accompanied by
an opinion of an accounting, appraisal or investment banking firm of national
standing. Not later than the date of making any Restricted Payment, we shall
deliver to the trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this "Limitation on Restricted Payments" covenant were computed,
together with a copy of any board resolution, fairness opinion or appraisal
required by the indenture.
The amount of any Investment outstanding at any time shall be deemed to be
equal to the amount of such Investment on the date made, less the return of
capital, repayment of loans and return on capital, including interest and
dividends, in each case, received by us or one of our Restricted Subsidiaries in
cash, up to the amount of such Investment on the date made.
LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We cannot, and shall not permit any Restricted Subsidiary to, incur any
Indebtedness, including Acquired Debt, and we cannot issue any Disqualified
Stock and will not permit any of our Restricted Subsidiaries to issue any shares
of Preferred Stock, unless immediately after giving effect to the incurrence of
such Indebtedness, including Acquired. Debt, or the issuance of such
Disqualified Stock or Preferred Stock and the receipt and application of the net
proceeds therefrom, including, without limitation, the application or use of the
net proceeds therefrom to repay indebtedness or make any Restricted Payment, (a)
the Consolidated Debt to Annualized Operating Cash Flow Ratio would be (1) less
than 7.0 to 1.0, if prior to April 15, 2005 and (2) less than 6.0 to 1.0, if on
or after April 15, 2005 or (b) in the case of any incurrence of Indebtedness
prior to April 15, 2005 only, Consolidated Debt would be equal to or less than
70% of Total Invested Capital.
So long as no Default or Event of Default shall have occurred and be
continuing or would be caused thereby, the first paragraph of this covenant will
not prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
(1) the incurrence by us and our subsidiaries of Existing Indebtedness;
(2) the incurrence by us and the guarantors of Indebtedness represented by
the notes and the guarantees;
(3) the incurrence by us and any guarantor of Indebtedness under Credit
Facilities; provided that the aggregate principal amount of all
Indebtedness of us and the guarantors outstanding under the Credit
Facilities at any time outstanding, after giving effect to such
incurrence, does not exceed an amount equal to $250.0 million less the
aggregate amount of all net proceeds of asset sales applied by us or any
of our subsidiaries since the date of the Indenture to
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permanently repay Indebtedness under the Credit Facilities pursuant to
the covenant described above under the caption "--Repurchase at the
Option of Holders--Repurchase if Asset Sales Occur";
(4) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of leasing or financing all, or any part of the purchase price
or cost of construction or improvement of inventory, property, plant or
equipment used in our business in an aggregate principal amount not to
exceed $5.0 million at any time outstanding;
(5) the incurrence by us or any of our Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Indebtedness, other than
intercompany Indebtedness, that was permitted by the Indenture to be
incurred under the first paragraph of this covenant or clauses (1),
(2) or (11) of this paragraph;
(6) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our
Wholly-Owned Restricted Subsidiaries that are guarantors; provided,
however, that:
(a) if we or any guarantor is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all obligations with respect to the notes, in the
case of us, or the guarantee of such guarantor, in the case of a
guarantor; and
(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than us
or one of our Wholly-Owned Restricted Subsidiaries and (2) any sale
or other transfer of any such Indebtedness to a Person that is not
either us or one of our Wholly-Owned Restricted Subsidiaries, shall
be deemed, in each case, to constitute an incurrence of such
Indebtedness by us or such Restricted Subsidiary, as the case may be,
that was not permitted by this clause (6);
(7) the incurrence by us or any of our Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that
is permitted by the terms of the Indenture to be outstanding, provided
that the notional amount of any such Hedging Obligation does not exceed
the amount of Indebtedness to which such Hedging Obligation relates;
(8) the guarantee by us or any of the guarantors of Indebtedness of us or a
Restricted Subsidiary that was permitted to be incurred by another
provision of this covenant;
(9) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock; and
(10) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness (a) in respect of bid, performance or advance payment
bonds, standby letters of credit and appeal or surety bonds entered into
in the ordinary course of business and not in connection with the
borrowing of money, or (b) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations
incurred in connection with the disposition of any business, assets or
Restricted Subsidiary in compliance with the terms of the indenture;
(11) the incurrence by us or any of our Restricted Subsidiaries of additional
Indebtedness (which may, but need not be, incurred in whole or in Part
under the Credit Facilities) in an aggregate principal amount, or
accreted value, as applicable, at any time outstanding, including all
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Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (11), not to
exceed $50.0 million; and
(12) the incurrence by us of any Indebtedness under any unsecured deferred
promissory note payable to Sprint PCS pursuant to the deferral of
collected revenues provisions of the Consent and Agreement between
Sprint PCS and the lenders under our Credit Facilities.
For purposes of determining compliance with this "Limitation on Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (12)
above, or is entitled to be incurred pursuant to the first paragraph of this
covenant, we will be permitted to classify such item of Indebtedness on the date
of its incurrence or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant; provided, that
Indebtedness outstanding under the Credit Facilities on the date of the
indenture will be deemed to have been incurred on such date in reliance on the
exception provided in clause (3) of the definition of Permitted Indebtedness.
NO SENIOR SUBORDINATED DEBT
The indenture will provide that we and the guarantors will not incur any
Indebtedness that pursuant to its terms is subordinate or junior in right of
payment to any Senior Indebtedness or any Permitted Indebtedness described in
clause (4) of the second paragraph under "--Limitation on Incurrence of
Indebtedness and Issuance of Preferred Stock," and senior in any respect in
right of payment to the notes or the guarantees; provided that the foregoing
limitation shall not apply to distinctions between categories of Senior
Indebtedness of us or a guarantor that exist by reason of any Liens or
guarantees arising or created in respect of some but not all such Senior
Indebtedness.
LIENS
We will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or otherwise cause or suffer to exist or become effective any Lien
of any kind securing Indebtedness that is equal in right of payment with the
notes or the applicable guarantee, as the case may be, or is subordinated
Indebtedness, upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the indenture and the notes are secured
equally and ratably with, or prior to, in the case of subordinated Indebtedness,
the obligations so secured until such time as such obligations are no longer
secured by such Lien; provided that this restriction will not apply to Permitted
Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries,
directly or indirectly, to create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to us
or any of our Restricted Subsidiaries, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to us or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted Subsidiaries; or
(3) transfer any of its properties or assets to us or any of our Restricted
Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness or the Credit Facilities as in effect on the date
of the indenture and any amendments, modifications, restatements,
renewals, increases, supplements, refundings,
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replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken
as a whole, with respect to such dividend and other payment restrictions
than those contained in such Existing Indebtedness, as in effect on the
date of the indenture;
(2) the indenture, the notes and the guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at the
time of such acquisition, except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition,
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of
the indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary course
of business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive in any material respect, taken as a
whole, than those contained in the agreements governing the Indebtedness
being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred pursuant
to the provisions of the covenant described above under the caption
"--Liens" that limit the right of us or any of our Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, asset or stock purchase agreements
and other similar agreements entered into in the ordinary course of
business; and
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We shall not, in any transaction or series of related transactions, merge or
consolidate with or into, or sell, assign, convey, transfer or otherwise dispose
of our properties and assets substantially as an entirety to, any Person, and
shall not permit any of our Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer or other disposition of the properties and assets of us and our
Restricted Subsidiaries, taken as a whole, substantially as an entirety to any
Person, unless, at the time and after giving effect thereto:
(1) either: (A) if the transaction or series of transactions is a
consolidation of us with or a merger of us with or into any other Person,
we shall be the surviving Person of such merger or consolidation, or
(B) the Person formed by any consolidation with or merger with or into
us, or to which our properties and assets or the properties and assets of
us and our Restricted
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Subsidiaries, taken as a whole, as the case may be, substantially as an
entirety are sold, assigned, conveyed or otherwise transferred (any such
surviving Person or transferee Person referred to in this clause
(B) being the "Surviving Entity"), shall be a corporation, partnership,
limited liability company or trust organized and existing under the laws
of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed
and delivered to the indenture and, in each case, the indenture, as so
supplemented, shall remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis including any
Indebtedness incurred or anticipated to he incurred in connection with or
in respect of such transaction or series of transactions, no Default or
Event of Default shall have occurred and be continuing; and
(3) we or the Surviving Entity will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable period, (A) have Consolidated Net
Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of us immediately preceding the transaction and
(B) be permitted to incur at least $1.00 of additional Indebtedness
pursuant to clause (a) of the covenant described above under the caption
"Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock"; provided, however, that the foregoing requirements shall not
apply to any transaction or series of transactions involving the sale,
assignment, conveyance, transfer or other disposition of the properties
and assets by any Wholly-Owned Restricted Subsidiary to any other
Wholly-Owned Restricted Subsidiary, or the merger or consolidation of any
Wholly-Owned Restricted Subsidiary with or into any other Wholly-Owned
Restricted Subsidiary. The indenture will also provide that we may not,
directly or indirectly, lease all or substantially all of its properties
or assets, in one or more related transactions, to any other Person.
In connection with any consolidation, merger, sale, assignment, conveyance,
transfer or other disposition contemplated by the foregoing provisions, we shall
deliver, or cause to be delivered, to the trustee, in form and substance
reasonably satisfactory to the trustee, an officers' certificate stating that
such consolidation, merger, sale, assignment, conveyance, transfer, or other
disposition and the supplemental indenture in respect thereof, required under
clause (1)(B) of the preceding paragraph, comply with the requirements of the
indenture and an opinion of counsel. Each such officers' certificate shall set
forth the manner of determination of our compliance with clause (3) of the
preceding paragraph.
For all purposes of the indenture and the notes, including the provisions
described in the two immediately preceding paragraphs and the "Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock" and "Designation of
Restricted and Unrestricted Subsidiaries" covenants, subsidiaries of any
Surviving Entity will, upon such transaction or series of transactions, become
Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant to the
"Designation of Restricted and Unrestricted Subsidiaries" covenant and all
Indebtedness of the Surviving Entity and its subsidiaries that was not
Indebtedness of us and our subsidiaries immediately prior to such transaction or
series of transactions shall be deemed to have been incurred upon such
transaction or series of transactions.
The Surviving Entity shall succeed to, and be "substituted for, and may
exercise every right and power of us under the indenture, and the predecessor
company shall be released from all its obligations and covenants under the
indenture and the notes.
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TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to us
or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or such Restricted Subsidiary
with an unrelated Person; and
(2) We deliver to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the board of directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the board
of directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the holders of notes
of such Affiliate Transaction from a financial point of view issued
by an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not he subject to the provisions of the prior paragraph:
(1) any employment, severance, stock option and other employee benefit
agreement entered into by us or any of our Restricted Subsidiaries in the
ordinary course of business;
(2) transactions between or among us and/or our Restricted Subsidiaries;
(3) agreements in effect on the Issue Date, provided that each amendment to
any such agreement shall be subject to the limitations of this covenant;
(4) payment of reasonable directors fees, expenses and indemnification to
Persons who are not otherwise Affiliates of us; and
(5) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "--Limitation on Restricted
Payments."
ADDITIONAL GUARANTEES
If we or any of our Restricted Subsidiaries acquires or creates another
domestic Restricted Subsidiary after the date of the indenture, then that newly
acquired or created domestic Restricted Subsidiary must become a guarantor and
(1) execute a supplemental indenture satisfactory to the trustee making the
Restricted Subsidiary a party to the indenture, (2) execute an endorsement of
guarantee, and (3) deliver an opinion of counsel to the trustee within 10
business days of the date on which it was acquired or created.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The board of directors may designate any Restricted Subsidiary as an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by us and our Restricted Subsidiaries in the
subsidiary so designated will be deemed to be an Investment made as of the time
of such designation and will
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reduce the amount available for Restricted Payments under paragraph (c) of the
covenant described above under the caption "--Limitation on Restricted Payments"
or Permitted investments, as applicable. All such outstanding Investments will
be valued at their fair market value at the time of such designation. That
designation will only be permitted if such Restricted Payment would be permitted
at that time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary. The board of directors may redesignated any
Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would
not cause a Default.
SALE AND LEASEBACK TRANSACTIONS
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that we or any
Restricted Subsidiary that is a guarantor may enter into a sale and leaseback
transaction if:
(1) We or that guarantor, as applicable, could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction under the tests in (a) and (b), if
applicable, of the covenant described above under the caption
"--Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
board of directors and set forth in an officers' certificate delivered to
the trustee, of the property that is the subject of such sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and we apply the proceeds of such transaction in compliance
with, the covenant described above under the caption "--Repurchase at the
Option of Holders--Repurchase if Asset Sales Occur."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Equity Interests in
any Wholly Owned Restricted Subsidiary of us to any Person, other than us or a
Wholly Owned Restricted Subsidiary of us, unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the net cash proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "Repurchase at the Option of Holders--Repurchase
if Asset Sales Occur."
In addition, we will not permit any Wholly Owned Restricted Subsidiary of us
to issue any of its Equity Interests, other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares, to any Person other
than to us or a Wholly Owned Restricted Subsidiary of us.
BUSINESS ACTIVITIES
We will not, and will not permit any Restricted Subsidiary to, engage in any
business other than Permitted Businesses, except to the extent that would not be
material to us and our subsidiaries, taken as a whole.
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PAYMENTS FOR CONSENT
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, pay or cause to he paid any consideration to or for the benefit of
any holder of notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the notes unless such
consideration is offered to be paid and is paid to all holders of the notes that
consent, waiver or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
Whether or not required by the Securities and Exchange Commission, so long
as any notes arc outstanding, we will furnish to the holders of notes, within 15
days of the time periods specified in the Securities and Exchange Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Securities and Exchange Commission on
Forms 10-0 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
on the annual financial statements by our certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Securities and Exchange Commission on Form 8-K if we were required to
file such reports.
If we have designated any of our subsidiaries as Unrestricted Subsidiaries,
then the quarterly and annual financial information required by the preceding
paragraph shall include a reasonably detailed presentation, either on the face
of the financial statements or in the footnotes thereto, and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, of the
financial condition and results of operations of us and our Restricted
Subsidiaries separate from the financial condition and results of operations of
our Unrestricted Subsidiaries.
In addition, whether or not required by the Securities and Exchange
Commission, we will file a copy of all of the information and reports referred
to in clauses (1) and (2) above with the Securities and Exchange Commission for
public availability within the time periods specified in the Securities and
Exchange Commission's rules and regulations, 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.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the
indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the indenture;
(3) failure by us or any of our Restricted Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Repurchase if Change of Control Occurs," "--Repurchase at the
Option of Holders--Repurchase if Asset Sales Occur," and "--Selected
Covenants--Merger, Consolidation or Sale of Assets."
(4) failure by us or any of our Restricted Subsidiaries for 60 days after
written notice to comply with any of the other agreements in the
indenture has been given to us by (a) the trustee
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under the indenture, or (b) the holders of at least 25% in aggregate
principal amount of the then outstanding notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries, whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal at final stated maturity of
such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its stated
maturity;
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which
has been so accelerated, aggregates $7.5 million or more;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $7.5 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any guarantee of UbiquiTel Parent
or any Significant Subsidiary shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or UbiquiTel Parent or any guarantor that is a
Significant Subsidiary, or any Person acting on behalf of any such
guarantor, shall deny or disaffirm its obligations under its guarantee;
(8) certain events of bankruptcy or insolvency with respect to us or any of
our Significant Restricted Subsidiaries;
(9) (a) if any Credit Facility is not in existence, any event occurs that
causes, subject to any applicable grace period of waiver, an Event of
Termination under any of the Sprint Agreements or (b) if any Credit
Facility is in existence, Spring shall have commenced to exercise any
remedy under the Sprint Agreements (other than Section 11.6.3 of the
Management Agreement) by reason of the occurrence of an Event of
Termination; and
(10) if on or prior to July 31, 2000, UbiquiTel Parent has not received at
least $100 million of gross proceeds from either (a) the completion of
its proposed initial public offering of its common stock or (b) the
issuance of equity in a private placement, and in each case, has
contributed all net proceeds therefrom, except up to $1.25 million, to
UbiquiTel Operating Company.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to us, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare to be
immediately due and payable (i) if prior to April 15, 2005, the Accreted Value
or (ii) if on or after April 15, 2005, the principal amount, in each case, of
all notes then outstanding, plus accrued and unpaid interest to the date of
acceleration. In order to effect such acceleration, the trustee or holders of at
least 25% in principal amount of the outstanding notes shall deliver notice in
writing to us and the trustee specifying the respective Event of Default and
that such notice is a "notice of acceleration" (the "Acceleration Notice"), and
the same (1) shall become immediately due and payable or (2) if there are any
amounts outstanding under the Credit Facilities, shall become immediately due
and payable upon the first to occur of an acceleration under the Credit
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Facilities or five Business Days after receipt by us and the agent under the
Credit Facilities of such Acceleration Notice, but only if such Event of Default
is then continuing.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default, except a Default or
Event of Default relating to the payment of principal, premium, liquidated
damages or interest, if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of us with the intention
of avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the notes pursuant to the optional redemption provisions of
the indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the notes,
If an Event of Default occurs prior to April 15, 2005, by reason of any willful
action or inaction taken or not taken by or on behalf of us with the intention
of avoiding the prohibition on redemption of the notes prior to April 15, 2005,
then the premium specified in the indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default or Event of
Default, we are required to deliver to the trustee a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of us or any
guarantor, as such, shall have any liability for any obligations of us or the
guarantors under the notes, the indenture or the guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the notes.
The waiver may not be effective to waive liabilities under the federal
securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes and all obligations of the
guarantors discharged with respect to their guarantees ("Legal Defeasance")
except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of. premium, if any, liquidated damages, if any,
and interest on such notes when such payments are due from the trust
referred to below;
(2) Our obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes
and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
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In addition, we may, at our option and at any time, elect to have the
obligations of us and the guarantors. released with respect to certain covenants
that are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events, not including non-payment, bankruptcy, receivership,
rehabilitation arid insolvency events, described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) We must irrevocably deposit with the trustee, in trust, for the benefit
of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and we must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming
that (a) we have received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the date of the indenture,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel
shall confirm that. the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit; or (b) insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of. or constitute a default under any material agreement or
instrument, other than the indenture, to which we or any of our
Restricted Subsidiaries is a party or by which we or any of our
Restricted Subsidiaries is bound;
(6) we must have delivered to the trustee an opinion of counsel to the
effect that, assuming no intervening bankruptcy of us between the date of
deposit and the 91st day following the deposit and assuming that no
holder is an "insider" of us under applicable bankruptcy law, after the
91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(7) we must deliver to the trustee an officers' certificate stating that the
deposit was not made by us with the intent of preferring the holders of
notes over our other creditors with the intent of defeating, hindering,
delaying or defrauding creditors of us or others; and
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(8) we must deliver to the trustee an officers' certificate and an opinion
of counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture, the
notes or the guarantees may be amended or supplemented with the consent of the
holders of at least a majority in aggregate principal amount at maturity of the
then outstanding notes, including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes, and
any existing default or compliance with any provision of the indenture or the
notes may be waived with the consent of the holders of a majority in aggregate
principal amount at maturity of the then outstanding notes including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes.
Without the consent of each holder adversely affected, an amendment or
waiver may not, with respect to any notes held by a non-consenting holder:
(1) reduce the Accreted Value of the then outstanding senior subordinated
discount notes if prior to April 15, 2005 or the aggregate of the
principal amount of notes if after April 15, 2005 whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes, other
than provisions relating to the covenants described above under the
captions "--Repurchase at the Option of Holders--Repurchase if Change of
Control Occurs" and "--Repurchase if Asset Sales Occur";
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, liquidated damages, if any, or interest on the notes,
except a rescission of acceleration of the notes by the holders of at
least a majority in aggregate principal amount of the notes and a waiver
of the payment default that resulted from such acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of holders of notes to receive payments of
principal of or premium, if any, liquidated damages, if any, or interest
on the notes;
(7) waive a redemption payment with respect to any note. other than a
payment required by one of the covenants described above under the
captions "--Repurchase at the Option of Holders--Repurchase if Change of
Control Occurs" and "--Repurchase if Asset Sales Occur"; or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to holders of notes in
the case of a merger or consolidation or sale of all or substantially all
of our assets;
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(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal
rights under the indenture of any holder;
(5) to comply with requirements of the Securities and Exchange Commission in
order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act;
(6) to add a guarantor under the indenture; or
(7) to evidence and provide the acceptance of the appointment of a successor
trustee under the indenture.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of us or any guarantor, the indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of my such claim as security or otherwise.
The trustee will he permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Securities and Exchange Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are many of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ACCRETED VALUE" of any outstanding note as of or to any date of
determination means an amount equal to the sum of:
(1) the issue price of such note as determined in accordance with Section
1273 of the Internal Revenue Code, plus
(2) the aggregate of the portions of the original issue discount, i.e., the
excess of the amounts considered as part of the "stated redemption price
at maturity" of such note within the meaning of Section 1273(a)(2) of the
Internal Revenue Code or any successor provisions, whether denominated as
principal or interest, over the issue price of such note, that shall
theretofore have accrued pursuant to Section 1272 of the Internal Revenue
Code, without regard to Section 1272(a)(7) of the Internal Revenue Code,
from the date of issue of such note (a) for each six-month or shorter
period ending or prior to the date of determination and (b) for the
shorter period, if any, from the end of the immediately preceding
six-month or shorter period, as the case may be, to the date of
determination, plus
(3) accrued and unpaid interest to the date such Accreted Value is paid
(without duplication of any amount set forth in (2) above), minus all
amounts theretofore paid in respect of such note, which amounts are
considered as part of the "stated redemption price at maturity" of such
note within the meaning of Section 1273(a)(2) of the Internal Revenue
Code or any successor provisions whether such amounts paid were
denominated principal or interest.
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"ACQUIRED DEBT" means, with respect to any specified Person:
(1) indebtedness of any other Person existing at the time such other Person
is merged with or into or became a subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
"contemplation of, such other Person merging with or into, or becoming a
subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"ANNUALIZED OPERATING CASH FLOW" means Operating Cash Flow, for the latest
two full fiscal quarters on which consolidated financial statements of us are
available multiplied by two.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such tern in Rule 13d-3 and
Rule 13d-5 under the Securities Exchange Act of 1934, except that in calculating
the beneficial ownership of any particular "person," as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, such "person" shall be
deemed to have beneficial ownership of all securities that such "person" has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents, however
designated, of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests, whether general or limited; and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof.
provided that the full faith and credit of the United States is pledged
in support thereof, having maturities of less than one year from the date
of acquisition;
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(3) certificates of deposit and eurodollar time deposits with maturities of
less than one year from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case, with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing prior to one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"CLOSING DATE" means April 11, 2000, the date on which the notes were
originally issued under the indenture.
"CONSOLIDATED DEBT" means the aggregate amount of Indebtedness of us and our
Restricted Subsidiaries on a consolidated basis outstanding at the date of
determination.
"CONSOLIDATED DEBT TO ANNUALIZED OPERATING CASH FLOW RATIO" means, as at any
date of determination, the ratio of (i) Consolidated Debt to (ii) the Annualized
Operating Cash Flow of us as of our most recently completed fiscal quarter for
which financial statements are available.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any period,
(1) the aggregate interest expense and fees and other financing costs in respect
of Indebtedness (including amortization of original issue discount and non-cash
interest payments and accruals), (2) the interest component in respect of
Capital Lease Obligations and any deferred payment obligations of such Person
and its Restricted Subsidiaries determined on a consolidated basis in accordance
with GAAP, (3) all commissions, discounts, other fees and charges owed with
respect to letters of credit and hankers' acceptance financing and net costs
(including amortization of discounts) associated with interest rate swap and
similar agreements and with foreign currency hedge, change and similar
agreements and (4) the product of (a) all dividend payments, whether or not in
cash, on any series of Preferred Stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Capital Stock payable solely in
Capital Stock of such Person (other than Disqualified Stock) or to such Person
or its Restricted Subsidiaries, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income, but not loss, of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified Person or a Wholly-owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval that has not been obtained or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
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(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock, other than
Disqualified Stock, that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
Preferred Stock.
"CREDIT FACILITIES" means the Credit Agreement, dated as of March 31, 2000,
among UbiquiTel Parent, UbiquiTel Operating Company, various banks and Paribas
as agent, together with the related documents (including without limitation, any
guarantee agreements and security documents), as such agreements may be amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including increasing the
amount of available borrowings thereunder or adding our subsidiaries as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (a) Indebtedness under the Credit
Facilities, whether outstanding on the date of issuance of a payment blockage
notice or thereafter incurred, and (b) after payment of all obligations under
the Credit Facilities, any other Senior Indebtedness permitted to be incurred
under the indenture which, at the time of determination, has an aggregate
principal amount of at least $25.0 million and that has been designated by us in
writing to the trustee as "Designated Senior Indebtedness."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms, or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof, or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase such Capital Stock
upon the occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that: we may not
repurchase or redeem any such Capital Stock pursuant to such provisions unless
such repurchase or redemption complies with the covenant described above under
the caption "--Selected Covenants--Limitation on Restricted Payments."
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock, hut excludes any debt security that is
convertible into, or exchangeable for, Capital Stock.
"EVENT OF TERMINATION" means any of the events described in (1) Section 11.3
of the Management Agreement; (2) Section 13.2 of the Trademark Agreement; or
(3) Section 13.2 of the Spectrum Trademark Agreement.
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"EXISTING INDEBTEDNESS" means the aggregate principal amount of Indebtedness
of us and our Restricted Subsidiaries in existence on the date of the indenture,
until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GOVERNMENT SECURITIES" means (1) any security which is (a) a direct
obligation of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) an obligation
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation of the United
States of America, which, in either case, is not callable or redeemable at the
option of the issuer thereof, and (2) any depository receipt issued by a bank,
as defined in the Securities Act, as custodian with respect to any Government
Securities and held by such bank for the account of the holder of such
depository receipt. or with respect to any specific payment of principal of or
interest on any Government Securities which is so specified and held, provided
that, except as required by law, such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Securities or
the specific payment of principal or interest evidenced by such depository
receipt.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit, or reimbursement agreements in respect thereof;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations;
if and to the extent any of the preceding, other than letters of credit and
Hedging Obligations, should appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person, whether or not such Indebtedness is assumed by
the specified Person, and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person.
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The amount of any Indebtedness outstanding as of any date shall be:
(1) the Accreted Value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons, including Affiliates, in the forms of direct or
indirect loans, including guarantees of Indebtedness or other obligations,
advances or capital contributions, excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business,
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If we or any Restricted Subsidiary sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of us such that, after
giving effect to any such sale or disposition, such Person is no longer a
Restricted Subsidiary of us, we shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Selected Covenants--Limitation on Restricted
Payments." The acquisition by us or any Restricted Subsidiary of a Person that
holds an Investment in a third Person shall be deemed to he an Investment by us
or such Restricted Subsidiary in such third Person in an amount equal to the
fair market value of the Investment held by the acquired Person in such third
Person in an amount determined as provided in the final paragraph of the
covenant described above under the Caption "--Selected Covenants--Limitation or
Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (other than precautionary filings made with respect to operating
leases and sales of receivables), or equivalent statutes, of any jurisdiction,
other than any lease properly classified as an operating lease under GAAP or
intellectual property licensing agreements.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of Preferred Stock dividends, excluding,
however:
(1) any gain, but not loss, together with any related provision for taxes on
such gain, but not loss, realized in connection with: (a) any asset sale;
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain, but not loss, together with any related
provision for taxes on such extraordinary gain, but not loss.
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither us nor any of our Restricted Subsidiaries
(a) provides credit support of any kind, including any undertaking,
agreement or instrument that would constitute Indebtedness, (b) is
directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which, including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary, would permit upon notice, lapse of time or both any holder of
any other Indebtedness, other than the notes, of us or any of
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our Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of us or any of our Restricted
Subsidiaries.
"OPERATING CASH FLOW" means, with respect to any Person for any fiscal
quarter, (a) Consolidated Net Income, plus (i) depreciation, (ii) amortization,
(iii) other non-cash charges, other than any such non-cash items to the extent
that it represents an accrual of or reserve for cash expenditures in any future
period or constituting an extraordinary or non-recurring item,
(iv) Consolidated Interest Expense, and (v) all income taxes of such Person paid
or accrued in accordance with GAAP for such Person, other than income taxes
attributable to extraordinary or non-recurring gains or losses, minus (b) all
non-cash items increasing Consolidated Net Income for such period, other than
any such non-cash item to the extent that it will result in the receipt of cash
payments in any future period, all as determined on a consolidated basis in
accordance with generally accepted accounting principles. For purposes of
calculating Operating Cash Flow for the fiscal quarter most recently completed
for which financial statements are available prior to any date on which an
action is taken that requires a calculation of the Operating Cash Flow to
Consolidated Interest Expense Ratio or Consolidated Debt to Annualized Cash Flow
Ratio, (1) any Person that is a Restricted Subsidiary on such date (or would
become a Restricted Subsidiary in connection with the transaction that requires
the determination of such ratio) will be deemed to have been a Restricted
Subsidiary at all times during such fiscal quarter, (2) any Person that is not a
Restricted Subsidiary on such date (or would cease to be a Restricted Subsidiary
in connection with the transaction that requires the determination of such
ratio) will be deemed not a) have been a Restricted Subsidiary at any time
during such fiscal quarter and (3) if such Person or any Restricted Subsidiary
of such Person shall have in any manner acquired (including through commencement
of activities constituting such operating business) or disposed of (including
through termination or discontinuance of activities constituting such operating
business) any operating business during or subsequent to the most recently
completed fiscal quarter, such calculation will be made on a pro forma basis on
the assumption that such acquisition or disposition had been completed on the
first day of such completed fiscal quarter.
"PERMITTED BUSINESS" means the business primarily involved in the ownership,
design, construction, development, acquisition, installation, integration,
management and/or provision of Telecommunications Assets or any business or
activity reasonably related or ancillary thereto.
"PERMITTED INVESTMENTS" means:
(1) any Investment in us or in a Wholly-owned Restricted Subsidiary of us
that is a guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any Restricted Subsidiary of us in a Person, if
as a result of such Investment:
(a) such Person becomes a Wholly-Owned Restricted Subsidiary of us; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, us or a Wholly-Owned Restricted Subsidiary of us;
(4) any Investment made as a result of the receipt of non-cash consideration
from an asset sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option
of Holders--Repurchase if Asset Sales Occur";
(5) any acquisition of assets solely in exchange for the issuance of our
Equity Interests, other than Disqualified Stock;
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(6) other Investments in any Person having an aggregate fair market value,
measured on the date each such Investment was made and without giving
effect to subsequent changes in value, when taken together with all
other Investments made pursuant to this clause (6) since the date of the
indenture, not to exceed $5.0 million;
(7) guarantees of Indebtedness of a Wholly Owned Restricted Subsidiary given
by us or another Wholly Owned Restricted Subsidiary and guarantees of
our Indebtedness given by any Restricted Subsidiary, in each case, not
otherwise in violation of the terms of the Indenture;
(8) accounts receivable created or acquired in the ordinary course of our
business or any Subsidiary and Investments arising from transactions by
us or any Subsidiary with trade creditors or customers in the ordinary
course of business, including any such Investment received pursuant to
any plan or reorganization or similar arrangement pursuant to bankruptcy
or insolvency of such trade creditors or customers or otherwise in
settlement of a claim;
(9) investments in prepaid expenses, negotiable instruments held for
collection, and lease, utility and workers' compensation, performance
and other similar deposits; and
(10) exchange of our Preferred Stock into Capital Stock or our non-voting
Capital Stock into voting Capital Stock, all in accordance with the
terms of our certificate of incorporation as in effect on the date of
the indenture.
"PERMITTED LIENS" means:
(1) Liens on the assets of us and any guarantor securing Indebtedness and
other obligations under the Credit Facilities that were permitted by the
terms of the indenture to be incurred;
(2) Liens in favor of us or the guarantors;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with us or any Restricted Subsidiary;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with us or the
Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by us or
any Restricted Subsidiary of us, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(5) Liens and deposits made to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of
business;
(6) Liens to secure Indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant entitled
"Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens for security for payment of workers' compensation or other
insurance or arising under workers' compensation laws or similar
legislation;
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(10) Liens relating to zoning restrictions, easements, licenses,
reservations, title defects, rights of others for rights of way,
utilities, sewers, electric lines, telephone or telegraph lines, and
other similar purposes, provisions, covenants, conditions, waivers,
restrictions on the use of property or irregularities of title and, with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and
arising by, through or under a landlord or owner of the leased property,
with or without consent of the lessee, none of which materially impairs
the use of any parcel of property material to the operation of our
business or any subsidiary or the value of such property for the purpose
of such business;
(11) Liens arising by operation of law in favor of landlords, carriers,
warehousemen, bankers, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums which
are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof;
(12) Liens arising from leases, subleases, licenses or other similar rights
granted to third Persons not interfering with the ordinary course of our
business or our subsidiaries;
(13) any Lien securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit; and
(14) Liens incurred in the ordinary course of business of us or any
Restricted Subsidiary with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of us or any of
our Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of us or any of our Restricted Subsidiaries, other than
intercompany Indebtedness; provided that:
(1) the principal amount, or accreted value, if applicable, of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of, or accreted value, if applicable, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by us as necessary to accomplish such refinancing,
plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded, plus the amount of reasonable
expenses incurred in connection therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the holders of notes as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by us or by our Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization or government or any
agency or political subdivision thereof.
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"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PRINCIPALS" means Donaldson, Lufkin & Jenrette Securities Corporation, BET
Associates, L.P., The Walter Group, Inc., Donald A. Harris, James Parsons, Paul
F. Judge, US Bancorp, Brookwood UbiquiTel Investors, LLC, CBT Wireless
Investments, L.L.C., SpectraSite Communications and New Ventures, L.L.C.
"RESTRICTED INVESTMENT" means any Investment that is not a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR INDEBTEDNESS" means:
(1) all Indebtedness outstanding under Credit Facilities and all Hedging
Obligations with respect thereto, whether incurred on the date of the
indenture or thereafter;
(2) any other Indebtedness incurred by us and the guarantors, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or the guarantees, as the case may be; and
(3) all obligations with respect to items listed in the preceding clauses
(1) and (2) (including any interest accruing subsequent to the filing of
a petition in bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim
under applicable law).
Notwithstanding anything to the contrary in the preceding, Senior
Indebtedness will not include (whether or not constituting Indebtedness as
defined in the indenture):
(1) any liability for federal, state, local or other taxes owed or owing by
us;
(2) any Indebtedness of us to any of our subsidiaries or other Affiliates
(other than Indebtedness owing under the Credit Facilities);
(3) any trade payables;
(4) Indebtedness represented by Disqualified Stock;
(5) Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of us; or
(6) the portion of any Indebtedness that is incurred in violation of the
indenture to the extent so incurred, provided, however, that any portion
of Indebtedness incurred by us under the Credit Facilities in violation
of the second paragraph of the covenant described under the caption
"Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock" solely as the result of a Default or Event of Default having
occurred and continuing or caused by such incurrence shall only be
excluded from the definition of Senior indebtedness in the event that the
Trustee or holders of at least 25% of the aggregate principal amount of
the notes then outstanding shall have delivered a notice to the
administrative agent for the lenders under the Credit Facilities of such
Default or Event of Default prior to such incurrence.
"SIGNIFICANT SUBSIDIARY" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as such regulation is in effect on the
date hereof.
"SPRINT AGREEMENTS" means the (1) Sprint PCS Management Agreement between
Sprint Spectrum L.P., WirelessCo, L.P. and UbiquiTel Holdings, Inc., dated as of
October 15, 1998 as amended on October 15, 1998 and in December 1999, and any
exhibits, schedules or addendum thereto, as such may
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be further amended, modified or supplemented from time to time (the "Management
Agreement"); (2) Sprint PCS Services Agreement between Sprint Spectrum L.P. and
UbiquiTel Holdings, Inc., dated as of October 15, 1998, and any exhibits,
schedules or addendum thereto, as such may be amended, modified or supplemented
from time to time; (3) Sprint Trademark and Service Mark License Agreement
between Sprint Communications Company, L.P. and UbiquiTel Holdings, Inc., dated
as of October 15, 1998, and any exhibits, schedules or addendum thereto, as such
may be amended, modified or supplemented from time to lime (the "Trademark
Agreement"); and (4) Sprint Spectrum Trademark and Service Mark License
Agreement between Sprint Spectrum L.P. and UbiquiTel Holdings, Inc., dated as of
October 15, 1998, and any exhibits, schedules or addendum thereto, as such may
be amended, modified or supplemented from time to time (the "Spectrum Trademark
Agreement").
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"TELECOMMUNICATIONS ASSETS" means, with respect to any Person, any asset
that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of PCS telecommunications equipment, inventory, technology, systems
and/or services. Telecommunications Assets shall include stock, joint venture or
partnership interests of an entity where substantially all of the assets of the
entity consist of Telecommunications Assets.
"TOTAL INVESTED CAPITAL" means at any time of determination, the sum of,
without duplication, (i) the total amount of equity contributed to us as of the
Closing Date (being $42.0 million), plus (ii) the aggregate net cash proceeds
received by us from capital contributions or any other issuance or sale of
Capital Stock (other than Disqualified Stock but including Capital Stock issued
upon the conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Disqualified Stock)),
subsequent to the Closing Date, other than to a Restricted Subsidiary, plus
(iii) the aggregate net repayment of any Investment made after the Closing Date
and constituting a Restricted Payment in an amount equal to the lesser of
(a) the return of capital with respect to such Investment and (b) the initial
amount of such Investment, in either case, less the cost of the disposition of
such Investment, plus (iv) an amount equal to the net Investment (as of the date
of determination) we and/or any of our Restricted Subsidiaries has made in any
subsidiary that has been designated as an Unrestricted Subsidiary after the
Closing Date upon its redesignation as a Restricted Subsidiary in accordance
with the covenant described under "--Selected Covenants--Designation of
Restricted and Unrestricted Subsidiaries," plus (v) Consolidated Debt, minus
(vi) the aggregate amount of all Restricted Payments declared or made on or
after the Closing Date.
"UNRESTRICTED SUBSIDIARY" means any subsidiary of us that is designated by
the board of directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with us or any Restricted Subsidiary of us unless the terms of any such
agreement, contract arrangement or understanding are no less favorable to
us or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of us;
(3) is a Person with respect to which neither us nor any of our Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results;
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(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of us or any of our Restricted Subsidiaries;
and
(5) has at least one director on its board of directors that is not a
director or executive officer of us or any of our Restricted Subsidiaries
and has at least one executive officer that is not a director or
executive officer of us or any of our Restricted Subsidiaries.
Any designation of a subsidiary of us as an Unrestricted Subsidiary shall be
evidenced to the trustee by filing with the trustee a certified copy of the
board resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant described above under the caption "--Selected
Covenants--Limitation on Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to he an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of us as of such date and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "--Selected Covenants--Limitation on
Incurrence of Indebtedness and Issuance of Preferred Stock," we shall be in
default of such covenant. Our board of directors may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of us of any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation shall only be permitted if (1) such Indebtedness is
permitted under the covenant described under the caption "--Selected
Covenants--Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the beginning of the four-quarter reference period; and (2) no Default or Event
of Default would be in existence following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years, calculated to the nearest
one-twelfth, that will elapse between such date and the making of such
payment;
(2) the then outstanding principal amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which, other than directors' qualifying shares, shall at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person and one or more Wholly-Owned Restricted Subsidiaries
of such Person.
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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 note acquired in exchange for an outstanding note applies to you if
you acquired the outstanding note for cash on its original issuance at its issue
price and if you hold the outstanding note and the registered note 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 market-to-market accounting treatment;
- a person holding registered notes 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 note 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 NOTE AS WELL AS ANY TAX
CONSIDERATIONS APPLICABLE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER
TAXING JURISDICTION.
EXCHANGE OF NOTES
Your exchange of an outstanding note for a registered note pursuant to the
exchange offer should not be a taxable event for U.S. federal income tax
purposes. Accordingly, you should have the same adjusted basis, holding period,
issue price, adjusted issue price, stated redemption price at maturity, yield
and accrual periods for a registered note acquired pursuant to the exchange
offer as you had in the outstanding note immediately before the exchange. The
tax consequences of ownership and disposition of a registered note should be the
same as the tax consequences of the ownership and disposition of the outstanding
note surrendered in exchange for it.
Accordingly, in the following discussion, the U.S. federal income tax
consequences with respect to a registered note assume that the registered note
is treated, for U.S. federal income tax purposes, as the same note as the
outstanding note for which it was issued and that the registered note has the
same adjusted basis, holding period, issue price, adjusted issue price, stated
redemption price at maturity, yield and accrual periods as the outstanding note
had in your hands immediately before the
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exchange, and that any amounts that accrue or are paid or payable on an
outstanding note are treated as accruing or as paid or payable on the registered
note.
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 note 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;
- 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 law 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.
ORIGINAL ISSUE DISCOUNT. Because the outstanding notes were issued at a
substantial discount from their principal amount at maturity and because there
would not be any payment of interest on the outstanding notes until October 15,
2005, the outstanding notes were issued with original issue discount, referred
to as "OID," in an amount equal to the excess of the "stated redemption price at
maturity" over the "issue price" of the outstanding notes. The "stated
redemption price at maturity" of the outstanding notes is the sum of all
payments to be made on the outstanding notes other than "qualified stated
interest." The term "qualified stated interest" means, generally, stated
interest that is unconditionally payable at least annually at a single fixed or
variable rate. Because no interest is to be paid on the outstanding or the
registered notes before 2005, none of the interest to be paid on the outstanding
or the registered notes is qualified stated interest. Accordingly, all payments
on the outstanding and the registered notes, both principal and interest, are
treated as part of the outstanding notes' stated redemption price at maturity.
The "issue price" of an outstanding note is equal to the portion of the "issue
price" of the unit that originally was issued (which constituted an "investment
unit" for U.S. federal income tax purposes consisting of an outstanding note and
the associated warrants) allocable to the outstanding note based upon the
relative fair market values of the outstanding note and the associated 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
outstanding notes and the associated 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 issue price of each outstanding note was $394.97.
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As noted above, a U.S. Holder of a registered note should be subject to the
rules on OID in the same manner as if the registered note were a continuation of
the outstanding note for which it is issued. In that event, a registered note
would have the same adjusted basis, holding period, issue price, adjusted issue
price, stated redemption price at maturity, yield and accrual periods as the
outstanding note had in your hands immediately before the exchange, and any
amounts that accrue or are paid or payable on an outstanding note are treated as
accruing or as paid or payable on the registered note. Under the rules on OID, a
U.S. Holder of a registered note, general, must include in income OID calculated
on a constant-yield accrual method prescribed by Treasury regulations in advance
of the receipt of some or all of the related cash payments. The amount of OID
included in income by an initial U.S. Holder of a registered note is the sum of
the "daily portions" of OID with respect to that note for each day during the
taxable year or portion of the taxable year in which the U.S. Holder holds that
note. This amount is referred to as "accrued OID." The daily portion is
determined by allocating to each day in any accrual period a PRO RATA portion of
the OID allocable to that accrual period. The accrual period for the registered
notes may be of any length selected by the U.S. Holder and may vary in length
over the term of the registered notes, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
on the first day or the final day of an accrual period. The amount of OID
allocable to any accrual period is equal to:
- the product of the registered note's adjusted issue price at the beginning
of the accrual period and the registered note's yield to maturity
(determined on the basis of compounding at the close of each accrual
period, properly adjusted for the length of the accrual period) over
- the qualified stated interest allocable to the accrual period (which, in
the case of the registered notes, will be zero). OID allocable to the
final accrual period is the difference between the amount payable at
maturity of the registered note and the registered note's "adjusted issue
price" at the beginning of the final accrual period. Special rules will
apply in calculating OID for an initial short accrual period. The
"adjusted issue price" of a registered note at the beginning of any
accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period for the outstanding and the registered note
and reduced by any payments made on the outstanding and the registered
note on or before the first day of the accrual period.
Interest payments on a registered note will not be includible in gross
income by a U.S. Holder but instead will constitute a nontaxable reduction in
the holder's adjusted tax basis in the registered note, as described below under
"Certain U.S. Federal Tax Considerations--U.S. Holders; Sale, Exchange or
Retirement of Notes."
APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS. The registered notes will be
treated as "applicable high-yield discount obligations" for federal income tax
purposes if:
- the yield to maturity of the outstanding notes, computed as of the issue
date of the outstanding notes, equals or exceeds the sum of (i) the
"applicable federal rate" in effect for the month in which the outstanding
notes were issued and (ii) 5%, and
- the outstanding notes bore "significant OID."
In general, OID on an outstanding note will be significant if the aggregate
amount includible in gross income on the outstanding note before the close of
any accrual period ending more than five years after the issue date of the
outstanding note exceeds the sum of the aggregate amount of interest to be paid
on the outstanding note before the close of that accrual period plus the product
of the issue price of the outstanding note and the yield to maturity of the
outstanding note.
If the registered notes are considered to be applicable high yield discount
obligations, the Company will not be allowed to deduct OID accrued on the
outstanding or registered notes until the Company actually pays the OID.
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Moreover, if and to the extent that the yield to maturity of the outstanding
and registered notes exceeds the sum of the applicable federal rate and 6%, the
deduction for OID on the outstanding and registered notes will be permanently
disallowed to the extent the OID is attributable to the yield to maturity of the
outstanding and registered notes in excess of the sum of the applicable federal
rate and 6% (regardless of whether the Company actually pays that OID). For
purposes of the dividends-received deduction generally available to
corporations, payments of that excess yield will be treated as dividends to the
extent they are deemed to have been paid out of the Company's current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes. U.S. Holders that are corporations should consult their tax advisors
as to applicability of the dividends-received deduction.
The relevant applicable federal rate for semiannual compounding for
April 2000, the month the outstanding notes were issued, was 6.39%, and because
the yield on the outstanding notes was 17.81% and the amount of OID on the
outstanding notes was "significant", our deduction for a portion of the OID on
the outstanding and the registered notes will be deferred until it is paid, and
our deduction for the remaining portion of the OID will not be deductible at any
time and will be treated as a dividend to you to the extent it is paid out of
our current or accumulated earnings and profits.
SALE, EXCHANGE OR RETIREMENT OF NOTES. Upon a sale, exchange or retirement
of a registered note, a U.S. Holder will recognize gain or loss to the extent of
the difference between the sum of the cash and the fair market value of any
property received for the registered note and the U.S. Holder's adjusted tax
basis in the registered note. A U.S. Holder's tax basis in a registered note
will equal the portion of the issue price of the investment unit consisting of
the outstanding note and the associated warrants allocated to the note, as
described in "--Original Issue Discount," increased by any OID included in the
holder's income on the outstanding note and the registered note prior to the
disposition of the registered note and reduced by any payments received on the
outstanding and the registered note. Any gain or loss recognized by a U.S.
Holder upon a sale, exchange or retirement of a registered note will be capital
gain or loss and will be long-term capital gain or loss if the registered note
has been held for more than one year.
LIQUIDATED DAMAGES; CHANGE OF CONTROL REDEMPTION. We intend to take the
position that the likelihood of payment of Liquidated Damages described above
under "Description of the Registered Notes--Registration Rights; Liquidated
Damages" and that the likelihood of payment of a redemption premium upon the
occurrence of certain events described above under "Description of the
Registered Notes--Repurchase at the Option of Holders; Repurchase if a Change of
Control Occurs" is remote within the meaning of the applicable Treasury
regulations and that therefore any of those payments, if made, would be taxable
to a U.S. Holder as ordinary interest income in accordance with the U.S.
Holder's regular method of income tax accounting. The Internal Revenue Service
may take a different position, however, which could affect the timing of a U.S.
Holder's income with respect to the Liquidated Damages or the redemption premium
upon the occurrence of any of the designated events.
INFORMATION REPORTING; BACKUP WITHHOLDING. We are required to furnish to
record holders of the registered notes, other than corporations and other exempt
holders, and to the Internal Revenue Service, information with respect to
interest paid and OID accrued on the registered notes.
Certain U.S. Holders may be subject to backup withholding at the rate of 31%
with respect to interest and OID paid on a registered note or with respect to
proceeds received from a disposition of a registered note.
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;
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<PAGE>
- 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.
NON-U.S. HOLDERS
- 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.
INTEREST AND OID. In general, interest paid to, and OID paid to or accrued
by, a Non-U.S. Holder of a registered note will not be subject to U.S.
withholding tax if it qualifies for the portfolio interest exemption, and it
will not otherwise be subject to U.S. federal income tax if it is not U.S. trade
or business income of the Non-U.S. Holder. Interest and OID on a registered note
qualify for the portfolio interest exemption if (i) the Non-U.S. Holder of the
registered note (a) does not own, actually and constructively, 10% or more of
the total combined voting power of all classes of our stock entitled to vote,
(b) is not a controlled foreign corporation related, directly or indirectly, to
us through stock ownership and (c) is not a bank receiving interest on an
extension of credit made pursuant to a loan agreement made in the ordinary
course of its trade or business and (ii) either (a) the Non-U.S. Holder
certifies, under penalties of perjury, to us or the paying agent, as the case
may be, that it is a Non-U.S. Holder and provides its name and address or (b) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the registered note on behalf of the Non-U.S.
Holder certifies, under penalties of perjury, that it or a Financial Institution
between it and the Non-U.S. Holder has received such a certificate and furnishes
the payor with a copy thereof. Recently adopted Treasury regulations that
generally will be effective for payments made on or after January 1, 2001
provide alternative methods for satisfying the certification requirement
described in (ii) above. The new regulations generally will require, in the case
of a registered note held by a foreign partnership, that the certificate
described in (ii) above must be provided by the foreign partners rather than by
the foreign partnership.
OID (the aggregate amount of which includes all stated interest on the
outstanding and registered notes, as described in "Certain U.S. Federal Tax
Considerations--U.S. Holders--Original Issue Discount) accrued by a Non-U.S.
Holder that constitutes U.S. trade or business income will be 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 certain circumstances also will be subject
to an additional branch profits tax at a 30% rate (or, if applicable, a lower
treaty rate). The gross amount of OID paid to a Non-U.S. Holder that does not
qualify for the portfolio interest exemption and that is not U.S. trade or
business income will be subject to withholding of U.S. federal income tax at the
rate of 30%, unless a U.S. income tax treaty reduces or eliminates withholding.
To
166
<PAGE>
claim the benefit of a tax treaty or to claim an exemption from withholding
because income is U.S. trade or business income, a Non-U.S. Holder must provide
a properly executed Form W-8BEN or W-8ECI (or a successor form), as applicable,
prior to the payment of the income. These forms generally must be updated
periodically. Under the new regulations, a Non-U.S. Holder who is claiming the
benefits of a tax treaty may be required to obtain a U.S. TIN and to provide
certain documentary evidence issued by a foreign governmental authority to prove
residence in the foreign country. Special procedures are provided in the new
regulations for payments through qualified intermediaries. A holder of a
registered note should consult its own tax adviser regarding the effect, if any,
of the new regulations on it.
TAXABLE DISPOSITION OF A REGISTERED NOTE. 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, exchange, retirement or other taxable
disposition of a registered note. 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 of (b) the gain is attributable to an office or other fixed place
of business you maintain in the United States;
A Non-U.S. Holder's tax basis in a registered note will be equal to the portion
of the holder's tax basis in a unit that is allocated to the original note and
the original warrant comprising as described in "Certain U.S. Federal Tax
Consequences--U.S. Holders Original Issue Discount."
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 registered note that is owned, or treated as owned, at the time of
death will not be subject to U.S. federal estate tax, unless (except as an
applicable estate tax treaty provides to the contrary) the individual owned,
actually and constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote or the income on the note was U.S.
trade or business income.
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 registered note
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. We must report annually to the
IRS and to each Non-U.S. Holder any OID (the aggregate amount of which includes
all stated interest on the outstanding and registered notes, as described in
"Certain U.S. Federal Tax Considerations--U.S. Holders--Original Issue Discount)
that is subject to U.S. withholding tax or that is exempt from withholding
pursuant to a tax treaty or the portfolio interest exception. Copies of these
information returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides. Information reporting and backup withholding (at a rate
of 31%) do not apply to interest or OID paid to a Non-U.S. Holder if the holder
makes the requisite certification or otherwise establishes an exemption provided
that neither we nor our paying agent has actual knowledge that the holder is not
a Non-U.S. Holder or that the conditions of any other exemption are not, in
fact, satisfied.
The payment of the proceeds from the disposition of a registered note to or
through the U.S. office of any broker, U.S. or foreign, is subject to
information reporting and possible backup
167
<PAGE>
withholding unless the owner certifies under penalties of perjury that it is not
a U.S. Holder or otherwise establishes an exemption provided that the broker
does not have actual knowledge that the holder is not a Non-U.S. Holder or that
the conditions of any other exemption are not, in fact, satisfied.
The proceeds of a disposition of a registered note 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 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.
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<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes in exchange for
outstanding notes for its own account pursuant to the exchange offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such registered notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
registered notes received in exchange for outstanding notes where such
outstanding notes were acquired as a result of market-making activities or other
trading activities. We have agreed that we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale for a period of one year after consummation of the exchange offer.
We will not receive any proceeds from any sale of registered notes by
broker-dealers. Registered notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the registered notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such registered notes. Any
broker-dealer that effects any resale of registered notes that were received by
it for its own account pursuant to the exchange offer and any broker or dealer
that participates in a distribution of such registered notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of registered notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after consummation of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the
outstanding notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the outstanding notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
UbiquiTel Parent is, and as a result of the exchange offer, we will be
subject to the periodic reporting and other informational requirements of the
Exchange Act. Each of us will file annual, quarterly and special reports and
other information with the SEC. In addition, we have agreed under the indenture
that governs the outstanding notes and the registered notes 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 outstanding notes or registered notes remain outstanding, we will
furnish to the holders of any of those securities 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. In addition, for so long as any of the outstanding notes or
registered notes remain outstanding, we have agreed to make available to any
prospective purchaser or beneficial owner of any of those securities in
connection with any sale thereof the information required by
Rule 144A(d)(4) under the Securities Act.
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<PAGE>
We have filed a registration statement on Form S-4 with the SEC to register
under the Securities Act the registered notes. 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 Operating Company
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 registered notes 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 registered notes offered hereby will be passed upon by
Greenberg Traurig, P.A., Miami, Florida.
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 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 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.
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<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-26
Statements of Assets to be Sold as of December 31, 1999
and 1998 and March 31, 2000 (unaudited)................. F-27
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-28
Notes to Statements of Assets to be Sold and Statements of
Revenues and Expenses................................... F-29
</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>
CUMULATIVE FROM THE
PERIOD FROM PERIOD FROM
INCEPTION THREE MONTHS INCEPTION
(SEPTEMBER 29, 1999) ENDED (SEPTEMBER 29, 1999)
TO DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
-------------------- -------------- --------------------
(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 and 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 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>
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
=========== =========== ===========
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
F-7
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-8
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-9
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
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.
F-10
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-11
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS (CONTINUED)
(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.
(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
F-12
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPRINT AGREEMENTS (CONTINUED)
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.
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
F-13
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
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-14
<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.
F-15
<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)
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.
<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.
F-16
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-17
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE WARRANTS (CONTINUED)
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.
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.
F-18
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
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>
The following table summarizes information about stock options outstanding
at March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS WEIGHTED-AVERAGE OPTIONS AVERAGE
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT EXERCISE
RANGE OF EXERCISE PRICES MARCH 31, 2000 CONTRACTUAL LIFE EXERCISE PRICE MARCH 31, 2000 PRICE
------------------------ --------------- ---------------- ---------------- --------------- ---------
(UNAUDITED) (UNAUDITED)
<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
F-19
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLAN (CONTINUED)
per share at December 31, 1999 and March 31, 2000 (unaudited) would have
increased as indicated in the following pro forma amounts:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- ------------
(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%.
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.
F-20
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------
<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>
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
F-21
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS (CONTINUED)
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.
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
F-22
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LITIGATION (CONTINUED)
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
F-23
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
(CONTINUED)
three months ended March 31, 2000 (unaudited) and the cumulative period from
November 9, 1999 (inception) to March 31, 2000 (unaudited) is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
SUMMARIZED BALANCE SHEET DATA 1999 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 FROM CUMULATIVE FOR THE
NOVEMBER 9, 1999 PERIOD FROM
(INCEPTION) THREE MONTHS INCEPTION
TO ENDED (NOVEMBER 9, 1999)
DECEMBER 31, 1999 MARCH 31, 2000 TO MARCH 31, 2000
------------------- --------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues..................................... $ -- $ 68,519 $ 68,519
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.
F-24
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
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.
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-25
<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-4 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-26
<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-27
<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-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
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.
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-4 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.
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
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
2. BASIS OF PRESENTATION (CONTINUED)
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.
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.
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
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (CONTINUED)
2. BASIS OF PRESENTATION (CONTINUED)
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.
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>
F-31
<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 (CONTINUED)
4. OPERATING LEASES (CONTINUED)
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-32
<PAGE>
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[LOGO]
UBIQUITEL OPERATING COMPANY
OFFER TO EXCHANGE
$300,000,000
ALL OUTSTANDING
14.0% SENIOR SUBORDINATED DISCOUNT NOTES DUE 2010
FOR
REGISTERED
14.0% SENIOR SUBORDINATED DISCOUNT NOTES
DUE 2010
---------------------
PROSPECTUS
---------------------
JULY 7, 2000
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--------------------------------------------------------------------------------
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.
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