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As filed with the Securities and Exchange Commission on September 16, 1999
Registration No. 333-81313
Registration No. 333-81313-01
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
TELECORP PCS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4812 54-1872248
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
______________
TELECORP COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4812 52-2105807
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
______________
1010 N. Glebe Road
Suite 800
Arlington, VA 22201
(703) 236-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
______________
Thomas H. Sullivan, P.C.
Executive Vice President and Chief Financial Officer
TeleCorp PCS, Inc.
1010 N. Glebe Road, Suite 800
Arlington, VA 22201
(703) 236-1122
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________
Copies to:
Dov T. Schwell, Esq.
McDermott, Will & Emery
50 Rockefeller Plaza
New York, NY 10020
NYK 581213-1.037995.0022
(212) 547-5400
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
___________________________________
The Registrant hereby amends this Registration Statement on the date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall then become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on the date as the Securities and Exchange Commission, acting pursuant
to said Section 8(a), may determine.
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EXPLANATORY NOTE
This registration statement contains a prospectus relating to the offer for
all outstanding 11 5/8% Senior Subordinated Discount Notes due 2009 of TeleCorp
PCS, Inc. in exchange for 11 5/8% Senior Subordinated Discount Notes due 2009.
In addition, this registration statement contains a prospectus relating to
market-making activities with respect to the exchange notes which may, from time
to time, be carried out by Chase Securities Inc. The two prospectuses will be
identical in all material respects except for the front cover page, the Plan of
Distribution section and the back cover page and except for the fact that the
market-making prospectus will not contain the information in the Prospectus
Summary relating to the exchange offer, the information under the caption "The
Exchange Offer" and "U.S. Federal Tax Considerations--Exchange Offer" will be
deleted and specific conforming changes will be made to delete references to the
exchange offer. The prospectus for the exchange offer follows immediately after
this Explanatory Note. Following the prospectus are the form of alternative
cover page, Plan of Distribution section and back cover page for the market-
making prospectus and alternative pages, sections and provisions covering
conforming changes.
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The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
This prospectus, dated September 16, 1999, is subject to completion and
amendment.
PROSPECTUS
TELECORP PCS, INC.
Exchange Offer For Our
11 5/8% Senior Subordinated Discount Notes Due 2009
We offer to exchange all of our outstanding and unregistered 11 5/8% Senior
Subordinated Discount Notes due 2009 for our registered 11 5/8% Senior
Subordinated Discount Notes due 2009.
You should carefully review the Risk Factors beginning on page 9 of this
prospectus.
Our offer to exchange the outstanding notes for exchange notes will be open
until 5:00 p.m., New York City time, on , 1999, unless we extend the offer.
Neither the SEC nor any state securities commission has approved or
disapproved of the notes, or determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
_________________, 1999
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this
prospectus. We effected a 100-to-1 stock split of all of our common stock,
capital stock, senior common stock and series F preferred stock on August 31,
1999. We have not restated historical amounts to reflect the stock split. We
have reflected the stock split in share amounts listed as on or subsequent to
August 31, 1999.
TeleCorp
We intend to become a leading provider of wireless communications services in
targeted markets in the south-central and northeast United States and in Puerto
Rico. We were founded in 1996 to acquire licenses for radio airwaves on which to
transmit wireless communications in populated areas. PCS licenses, which are the
licenses we own, refer to licenses to use a portion of the airwaves to carry
voice and data communications and PCS is a type of wireless communications
service. In 1998, we entered into a venture with AT&T and its direct and
indirect wholly owned subsidiaries in which AT&T contributed wireless
communications licenses to us in exchange for ownership in our company.
Our licenses cover a population of approximately 16.0 million, including those
in major population centers. Our markets have attractive economic and
demographic characteristics and are experiencing strong growth in use of
wireless services.
We have successfully launched our services in 15 markets, including all of our
major markets. We have 33 company-owned stores and more than 500 retail outlets
where customers can buy our services. We have committed capital of approximately
$1.3 billion.
Strategic Alliance with AT&T
To rapidly develop some of its wireless communications markets, AT&T has
focused on constructing its own network in selected cities and has entered into
agreements with independent wireless operators, such as us and other affiliates,
to construct and operate wireless networks in other markets. Our strategic
alliance with AT&T provides us with many business, operational and marketing
advantages, including:
Brand. We market our wireless services to our customers
giving equal emphasis to our
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regional SunCom brand and the AT&T brand names and logos.
. Exclusivity. We are AT&T's exclusive provider of PCS in our
covered markets, subject to AT&T's right to resell services on
our network.
. Roaming. We are the preferred carrier for AT&T's PCS
customers who use their phones in our covered markets. PCS
customers use phones that can call using the PCS portion of the
airwaves. We receive preferred long distance rates from
AT&T.
. Products and Services. We receive preferred terms on
selected products and services, including handsets,
infrastructure equipment and back office support from companies
who provide these products and services to AT&T.
. Marketing. We benefit from AT&T's nationwide marketing and
advertising campaigns, including the success of AT&T's Digital
One Rate plans, in the marketing of our own national SunRate
plans. In addition, we are working with AT&T's national sales
representatives to jointly market our wireless services to AT&T
corporate customers located in our markets.
Business Strategy
Our formula for success is to focus on providing our customers with:
. superior network coverage;
. superior scope and quality of coverage;
. enhanced value at low cost;
. quality customer care; and
. superior network clarity.
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Our principal executive offices are at 1010 N. Glebe Road, Suite 800,
Arlington, Virginia 22201. The telephone number at our executive offices is
(703) 236-1100. We maintain a website at http://www.suncom1.com.
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<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.................. We are offering to exchange $1,000
principal amount of exchange notes for
each $1,000 principal amount of
outstanding notes.
Expiration Date..................... The exchange offer will expire at 5:00
p.m., New York City time, , 1999,
or the later date and time to which we
extend it.
Withdrawal.......................... You may withdraw tendered outstanding
notes at any time prior to the
expiration of the exchange offer. We
will return any outstanding notes that
we do not accept for exchange for any
reason without expense to you as soon as
practicable after the exchange offer
expires or terminates.
Accrued Interest on the Exchange
Notes and the Outstanding Notes..... Interest on the exchange notes will
accrue from April 23, 1999 until April
15, 2004, at which time they will have
an aggregate principal amount of
$575,000,000. At that time, cash
interest on the notes will become
payable on April 15 and October 15 of
each year, beginning on October 15,
2004. We will pay no interest on the
outstanding notes tendered and accepted
for exchange.
Conditions to the Exchange Offer.... The exchange offer is subject to
customary conditions, some of which we
may waive. See "The Exchange Offer-
Conditions to the Exchange Offer"
beginning on page 64.
Resale Without Further Registration. We believe that the exchange notes may
be offered for resale and resold and
otherwise transferred by you without
compliance with the registration and
prospectus delivery provisions of the
Securities Act so long as the following
statements are true:
. you acquire the exchange notes
issued in the exchange offer in the
ordinary course of your business;
. you are not our affiliate, as
defined under the Securities Act,
of ours; and
. you are not participating, and
do not intend to participate, and
have no arrangement or
understanding with any person to
participate, in the distribution of
the exchange notes issued to you in
the exchange offer.
By tendering your outstanding notes as
described below, you will be making
representations to this effect.
Transfer Restrictions on the
Exchange Notes...................... You may incur liability under the
Securities Act if:
(1) any of the representations listed
above are not accurate; and
(2) you transfer any exchange notes
issued to you in the exchange offer
without:
. delivering a prospectus
meeting the requirements of
the Securities Act; or
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. qualifying for an
exemption from the Securities
Act's requirement to register
your exchange notes.
We do not assume or indemnify you
against such liability. Each broker-
dealer that is issued exchange notes for
its own account in exchange for
outstanding notes that were acquired as
a result of market-making or other
trading activities must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in
connection with the resale of the
exchange notes. A broker-dealer may use
this prospectus for an offer to resell,
a resale or other retransfer of the
exchange notes issued to it in the
exchange offer.
Procedures for Tendering Outstanding
Notes................................ If you wish to accept the exchange
offer, you must:
. complete, sign and date the
accompanying letter of transmittal,
or a facsimile of the letter; or
. arrange for The Depository
Trust Company to send required
information to the exchange agent
in connection with a book-entry
transfer.
You must mail or otherwise deliver such
documentation on our outstanding notes
to the exchange agent, at the address
described in "The Exchange Offer--
Exchange Agent."
The exchange notes issued in the
exchange offer will be delivered
promptly following the expiration of the
exchange offer.
Special Procedures for
Beneficial Owners.................... Any beneficial owner whose outstanding
notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender the outstanding notes in the
exchange offer should contact the
registered holder promptly and instruct
the registered holder to tender on its
behalf. If the beneficial owner wishes
to tender on its own behalf, it must,
prior to completing and executing a
letter of transmittal and delivering its
outstanding notes, either make
appropriate arrangements to register
ownership of the outstanding notes in
its name or obtain a properly completed
bond power from the registered holder.
The transfer of registered ownership may
take considerable time and may not be
able to be completed prior to the
expiration of the exchange offer. See
"The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery Procedures....... You may comply with the procedures
described in this prospectus under the
heading "The Exchange Offer--Guaranteed
Delivery Procedures" if you wish to
tender your outstanding notes and:
. time will not permit your
required documents to reach the
exchange agent by the expiration of
the exchange offer;
. you cannot complete the
procedure for book-entry transfer
on time; or
. your outstanding notes are not
immediately available.
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Exchange Agent...................... Bankers Trust Company is serving as
exchange agent in connection with the
exchange offer.
U.S. Federal Tax Considerations..... The exchange of the outstanding notes
for the exchange notes in the exchange
offer should not constitute a sale or an
exchange for U.S. federal income tax
purposes. See "U.S. Federal Tax
Considerations--Exchange Offer"
beginning on page 152.
Effect of Not Tendering............. Outstanding notes that are not tendered
or that are tendered but not accepted
will, following the completion of the
exchange offer, continue to be subject
to the existing restrictions upon
transfer. Under some circumstances, we
may register the outstanding notes under
a shelf registration statement.
Use of Proceeds..................... We will not receive any cash from the
exchange of the outstanding notes in the
exchange offer.
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<PAGE>
THE NOTES
Issuer.............................. TeleCorp PCS, Inc.
Securities.......................... $575,000,000 aggregate principal amount
at maturity of 11 5/8% Senior
Subordinated Discount Notes due 2009.
Maturity Date....................... April 15, 2009.
Interest and Accretion.............. The notes will accrete in value until
April 15, 2004, compounded semi-
annually. At that time, cash interest on
the notes will accrue and become payable
on April 15 and October 15 of each year,
beginning on October 15, 2004. The yield
to maturity of the notes is 11 5/8%
computed on a semi-annual bond-
equivalent basis calculated from April
23, 1999.
Original Issue Discount............. We issued the notes with original issue
discount for U.S. federal income tax
purposes. When computing gross income
for U.S. federal income tax purposes, a
holder of the notes will be required to
include in gross income a portion of the
original issue discount for each day
during each taxable year in which any
notes are held, even though no cash
interest payments on the notes will be
made prior to October 15, 2004. The
original issue discount will be equal to
the difference between the sum of all
cash payments, whether denominated as
interest or principal, to be made on the
notes and the issue price of the notes.
See "U.S. Federal Tax Considerations--
Tax Consequences to U.S. Holders."
Optional Redemption................. On or after April 15, 2004, we may
redeem some or all of the notes at the
redemption prices described under
"Description of the Notes--Optional
Redemption," together with accrued and
unpaid interest, if any, to the date of
redemption.
Before April 15, 2002, we may redeem up
to 35% of the aggregate principal amount
at maturity of the notes with the net
cash proceeds of equity offerings at a
redemption price equal to 111 5/8% of
the accreted value of the notes as of
the date of redemption, provided that at
least 65% of the aggregate principal
amount at maturity of the notes remains
outstanding immediately after the
redemption. See "Description of the
Notes--Optional Redemption."
Change of Control................... If we experience a change of control,
you will have the right to require us to
repurchase your notes at a price equal
to 101% of either the accreted value or
the principal amount at maturity of the
notes, as applicable, together with
accrued and unpaid interest, if any, to
the date of repurchase. See "Description
of the Notes--Change of Control."
Subsidiary Guarantees............... The notes are fully and unconditionally
guaranteed on an unsecured, senior
subordinated basis by TeleCorp
Communications. Some of our future
subsidiaries that incur debt will fully
and unconditionally guarantee the notes
on an unsecured, senior subordinated
basis. If we fail to make payments on
the notes, our guarantor subsidiaries
must make them instead. Each of our
guarantor subsidiaries also guarantees
our senior credit facilities and are
jointly and severally liable on a senior
basis with us for all obligations under
them. Not all of our subsidiaries
guarantee payments on the notes. All
obligations under our senior credit
facilities are secured by pledges of all
the
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capital stock of all our subsidiaries
and security interests in, or liens on,
substantially all of our other tangible
and intangible assets and the tangible
and intangible assets of our
subsidiaries. See "Description of the
Notes--Subsidiary Guarantees," "--
Important Covenants" and "Our
Indebtedness--Senior Credit Facilities."
Ranking............................. The notes and the subsidiary guarantees
are unsecured and:
. subordinate in right of
payment to all of our and our
guarantor subsidiaries' existing
and future senior debt, including
our and our guarantor subsidiaries'
obligations under our senior credit
facilities;
. equal in right of payment with
any of our and our guarantor
subsidiaries' future senior
subordinated debt; and
. senior in right of payment to
all of our and our guarantor
subsidiaries' subordinated debt.
As of June 30, 1999:
. our outstanding senior debt
was approximately $225.0 million,
excluding unused commitments under
our senior credit facilities and
additional senior indebtedness of
our subsidiaries;
. we had no senior subordinated
debt other than the notes; and
. our outstanding subordinated
debt was approximately $40.5
million, including $0.5 million of
interest that was paid-in-kind,
plus $0.3 million of additional
accrued interest.
In addition:
. the outstanding senior debt of
our guarantor subsidiary was
approximately $225.0 million,
consisting entirely of a guarantee
of our borrowings under our senior
credit facilities;
. our subsidiary guarantor had
no senior subordinated debt other
than the guarantee of the notes;
and
. our subsidiary guarantor had
no subordinated debt.
Our subsidiaries who do not guarantee
the notes had a total of approximately
$242.5 million of senior debt,
consisting of approximately $20.7
million of debt owed to the U.S.
government related to our licenses and
approximately $225.0 million consisting
of guarantees of our borrowing under our
senior credit facilities. These
subsidiaries had no senior subordinated
debt or subordinated debt. The total
liabilities of these subsidiaries was
approximately $320.8 million, consisting
of:
. debt owed to the U.S.
government related to our licenses
in the approximate amount of $20.7
million;
. trade payables in the
approximate amount of $24.8
million;
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. accrued and other expenses in
the approximate amount of $4.1
million; and
. intercompany amounts payable
in the approximate amount $274.4
million.
The U.S. government debt is shown on our
balance sheet net of discounts of $3.2
million reflecting the below market
interest rates on the debt. See
"Description of Notes--Ranking."
Restrictive Covenants............... We issued the outstanding notes, and
will issue the exchange notes, under an
indenture with Bankers Trust Company, as
trustee. The indenture restricts, among
other things, our ability and the
ability of some of our subsidiaries to:
. incur debt;
. create levels of debt that are
senior to the notes but junior to
our senior debt;
. pay dividends on or redeem capital
stock;
. make some investments or redeem
other subordinated debt;
. make particular dispositions of
assets;
. engage in transactions with
affiliates;
. engage in particular business
activities; and
. engage in mergers, consolidations
and particular sales of assets.
The indenture also limits our ability to
permit restrictions on the ability of
some of our subsidiaries to pay
dividends or make other distributions.
For more details, see "Description of
the Notes--Important Covenants" and "--
Merger, Consolidation and Sales of
Assets."
Risk Factors
You should consider carefully all of the information described in this
prospectus and, in particular, you should evaluate the specific factors under
"Risk Factors" beginning on the next page before exchanging the notes.
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RISK FACTORS
We may not be able to manage the construction of our network or the growth of
our business successfully.
Our financial performance will depend on our ability to manage the
construction of our network and the successful growth of our business. Our
management may not be able to direct our development effectively, including
implementing adequate systems and controls in a timely manner or retaining
qualified employees. This inability could slow our growth and our ability to
compete in the telecommunications service industry and could result in a payment
default on our existing debt, including a default on our obligation to repay the
notes. See "Business--Network Development."
We do not currently generate cash flows from which to make payments on the notes
and may never generate significant cash flow.
We may never establish an adequate revenue base to produce an operating profit
or generate adequate cash flows to provide future capital expenditures and
repayment of debt. Our plan to develop our business and expand our network
contributes to our negative cash flow, since our business has required and will
continue to require substantial capital expenditures. We will continue to have
negative cash flow and operating losses until we begin to realize adequate
revenues. We incurred cumulative operating losses through June 30, 1999 of
approximately $152.8 million. Consequently, we do not currently generate cash
flows from which we can make payments on the notes. In addition, we will have to
dedicate a substantial portion of any cash flow from operations to pay interest
on, and principal of, our debt, which will reduce funds available for other
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We have substantial existing debt, and may incur substantial additional debt,
that we may be unable to service, including the notes.
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We have a substantial amount of debt, and may not have sufficient funds to
pay interest on, and principal of, our debt, including the notes. As of June 30,
1999, our outstanding debt was approximately $618.7 million. In addition, Lucent
has committed to purchase up to an additional $80.0 million of junior
subordinated notes in connection with our development of new markets.
We may incur additional debt in the future and it may be senior debt. We may
not have sufficient funds to pay interest on, and principal of, any future debt.
Our senior credit facilities provide for total borrowings in the amount of up to
$525.0 million and for additional potential borrowings in the amount of up to
$75.0 million. In addition, the vendor financing provided by Lucent provided for
us to issue up to an additional $15.0 million aggregate principal amount of
notes based upon our current markets and an additional $65.0 million if we
develop new markets.
Our failure to earn enough to pay our debts could, among other things, lower
the market value of the notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Our Indebtedness" and "Description of the Notes."
If we do not pay debt owed to the U.S. government when due, the FCC may impose
financial penalties on us or modify our licenses.
If we do not pay any debt that we or our subsidiaries owe to the U.S.
government when it is due, the FCC may:
. impose substantial financial penalties;
. reclaim and reauction the licenses for which we incurred the
debt, and impose a significant financial penalty in respect of
each license that is reclaimed and reauctioned;
. not renew of any other licenses; and
. pursue other enforcement measures.
Any of these FCC actions would slow our growth and our ability to compete in
the wireless telecommunications industry, and could result in a payment default
on our existing debt and on our obligation to repay you. See "Our
Indebtedness--Government Debt."
Our assets and the assets of our subsidiaries, secure our debt that is senior to
the notes, and if we do not pay that debt, we could lose these assets and we may
be unable to pay the notes.
We pledged the capital stock of our subsidiaries, and have granted liens on
most of our other assets and the assets of our subsidiaries, to secure our debt
under our senior credit facilities. If we do not pay our senior debt, our
creditors may take this stock and assets, 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 credit facilities and
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there may not be sufficient funds to repay the notes. The need to obtain FCC
approval and comply with applicable governmental regulations could reduce the
value our senior creditors obtain for these assets, and decrease the excess
funds, if any, returned to us to pay the notes. If we lose our stock and assets,
we lose our ability to operate and generate revenue.
Our debt under our senior credit facilities matures before the notes mature.
Any payment of our senior debt, or collection against our held stock or assets
for our senior debt, may lessen funds available to pay the notes. See "Our
Indebtedness."
If we need additional financing to complete our network and fund operating
losses, we may not be able to repay the notes or our other existing debt.
We will make significant capital expenditures to finish the building, testing
and deployment of our network. The actual expenditures necessary to achieve
these goals may differ significantly from our estimates. We cannot predict
whether any additional financing we may need will be available, the terms on
which any additional financing would be available or whether our existing debt
agreements will allow additional financing. We may incur variable rate debt,
which would make us more vulnerable to interest rate increases. If we cannot
obtain additional financing when needed, we will have to delay, modify or
abandon some of our plans to construct the remainder of our network, which could
slow our growth and our ability to compete in the wireless telecommunications
industry, and could result in a payment default on our existing debt, including
on the notes. We would have to obtain additional financing if:
. any of our sources of capital are unavailable or insufficient;
. we significantly depart from our business plan;
. we experience unexpected delays or cost overruns in the
construction of our network;
. we have increases in operating costs;
. changes in technology or governmental regulations create
unanticipated costs; or
. we acquire additional licenses.
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We depend on our agreements with AT&T for our success, and we would have
difficulty operating without them, or without rights under them.
We have entered into a number of agreements with AT&T, including:
. a license agreement;
. stockholders' agreement;
. an intercarrier roamer services agreement;
. a roaming administration service agreement; and
. a long distance agreement.
In limited situations, AT&T may withdraw from these agreements with us. If any
of the agreements we have entered into with AT&T were not renewed or were
terminated, we would have difficulty operating.
The agreements we have entered into with AT&T contain requirements regarding
the construction of our network which, in many instances, are more stringent
than those imposed by the FCC. If we fail to meet AT&T's requirements, AT&T
could terminate the exclusivity of our relationship. Other providers could then
enter into agreements with AT&T and we could lose our customers. The
construction of the remainder of our network involves risks of unanticipated
costs and delays. We will need to timely complete the construction of additional
phases of our network to meet AT&T's development requirements. See "Certain
Relationships and Related Transactions - AT&T Agreements."
We rely on our relationship with AT&T for equipment discounts. Any disruption
in our relationship with AT&T could hinder our ability to obtain the
infrastructure equipment that we use in our network or on our relationship with
our vendors.
We rely on the use of the AT&T brand name and logo to market our services, and
loss of use of this brand and logo, or a decrease in the market value of this
brand and logo, would hinder our marketability.
If we lose our right to use the AT&T brand and logo under our license
agreement, we would lose the advantages associated with AT&T's brand recognition
and the benefits of AT&T's marketing efforts. The AT&T brand and logo is highly
recognizable and AT&T supports its brand and logo by its marketing. If we lose
the rights to use this brand and logo, customers may not recognize our brand
readily. We may have to spend significantly more money on advertising to create
brand recognition. See "Business--Marketing Strategy," "--Intellectual Property"
and "Certain Relationships and Related Transactions--AT&T Agreements."
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We depend on AT&T's success as a wireless communications provider and the
value of its brand and logo, because many of our operations are tied to AT&T's
network. If AT&T is not successful in obtaining customers, developing a high
quality network or operating at a profit, we may not be successful in developing
our business. We may have to invest heavily in obtaining other operating
agreements and in marketing our brand to develop our business, though we may not
have funds to do so.
We may not be able to acquire the sites necessary to complete our network.
We must lease or otherwise acquire rights to use sites for the location of
network equipment and obtain zoning variances and other governmental approvals
to complete the construction of our network and to provide wireless
communications services to customers in our licensed areas. If we encounter
significant difficulties in leasing or otherwise acquiring rights to sites for
the location of network equipment, we may need to alter the design of our
network. Changes in our development plan could slow the construction of our
network, which would make it harder to compete in the wireless
telecommunications industry or cause us not to meet development requirements.
Local zoning ordinances restrict our ability to construct antennas, and such
ordinances may prevent us from successfully completing our network.
Difficulties in obtaining infrastructure equipment may affect our ability to
construct our network, meet our development requirements and compete in the
wireless telecommunications industry.
There is high demand for the equipment that we require to construct our
network and manufacturers of this equipment could have substantial backlogs of
orders. Accordingly, the lead time for the delivery
-14-
<PAGE>
of this equipment may be long. Some of our competitors purchase large quantities
of communications equipment and may have established relationships with the
manufacturers of this equipment. Consequently, they may receive priority in the
delivery of this equipment. Lucent may fail to deliver equipment to us in a
timely manner. If we do not receive the equipment in a timely manner, we may be
unable to provide wireless communications services comparable to those of our
competitors. In addition, we may be unable to satisfy our development
requirements. If we fail to construct our network in a timely manner, we may not
be able to compete effectively, we could lose our licenses or we could breach
our agreements with AT&T. Any of these outcomes could lessen our revenue which
could make us unable to repay you. See "Business--Network Development" and
"Certain Relationships and Related Transactions--AT&T Agreements."
Potential acquisitions may require us to incur additional debt and integrate new
technologies, operations and services, which may be costly and time
consuming.
If we acquire new licenses or facilities, we may encounter difficulties that
may be costly and time-consuming, and may slow our growth, which could hinder
effective competition in the wireless telecommunications industry, cause us to
miss development requirements and lessen our revenue which could make us unable
to repay you. Examples of such difficulties are that we may have to:
. incur additional debt to finance the acquisitions;
. assume U.S. government debt related to the licenses;
. integrate new technologies with our technology;
. integrate new operations with our operations;
. integrate new services with our offering of services;
or
. divert the attention of our management from other business
concerns.
-15-
<PAGE>
Our substantial amount of debt makes us especially susceptible to competition
and market fluctuations, which may affect our ability to grow our business or
pay our debt.
Our substantial amount of debt limits our ability to adjust to changing
market conditions. We may not be able to maintain attractive pricing packages,
because when we discount our prices, we need more customers to balance the loss
in revenues. We may have difficulty keeping our prices similar to AT&T's prices
because of our debt burdens. If our business does not grow, we may not have
funds to pay our debt.
We may not be able to effectively compete with carriers who entered the wireless
communications market before us.
Competitors who entered the wireless communications services market before us
may have a significant time-to-market advantage over us. As a new entrant in the
market, we may have to significantly discount our prices over a long period of
time to attract customers, which would make it more difficult for us to achieve
positive cash flow to pay the notes. See "Business-Competition."
We have many competitors in our markets that have substantial coverage of the
areas, which makes it difficult for us to acquire and maintain a strong
competitive position and to earn profits.
We may have to significantly discount our prices over a long period of time to
attract customers, which would put downward pressure on our prices and make it
more difficult for us to achieve positive cash flow to pay the notes. We compete
in our markets with virtually every major U.S. wireless communications services
company, such as:
. ALLTEL;
. Bell Atlantic;
. BellSouth;
. Cellular One;
. Centennial Cellular;
. GTE;
. Nextel;
. Omnipoint Technologies;
. Powertel;
. PrimeCo Personal Communications;
-16-
<PAGE>
. Puerto Rico Telephone Company;
. Radiofone;
. SBC Communications;
. Sprint PCS; and
. U.S. Cellular.
In some markets, we compete with as many as six major competitors.
Many of these competitors have greater financial, marketing and sales and
distribution resources than we do. In addition, some of these competitors have
achieved substantial coverage in portions of our licensed areas. Some of our
competitors have more extensive coverage within our licensed areas than we
provide and also have broader regional coverage. See
"Business--Competition."
Some competitors may have different or better technology than us, and may
attract more customers.
We compete with companies that use other communications technologies,
including paging and digital two-way paging, which is a type of wireless
communications technology, enhanced specialized mobile radio, a digital
technology system that reuses radio airwaves, and domestic and global mobile
satellite service. These technologies may have advantages over our technology,
and may attract our customers. See "Business--The Wireless Communications
Industry."
Competitors who offer more services than us may attract more customers.
Some of our competitors market other services, such as traditional telephone
service, cable television access and access to the Internet, together with their
wireless communications services, which makes their services more attractive to
customers. They may attract customers away from us, or prevent our attracting
customers. 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. See "Business--
Competition."
If we do not operate our network seamlessly at high levels of quality, customers
will leave us.
There is high customer turnover in the wireless communications industry.
Customers choose carriers based on network coverage, cost of service, customer
care and network clarity. If we do not perform well in any of these areas, our
customers may switch to our competitors for their wireless communications
service.
-17-
<PAGE>
We depend upon consultants and contractors for our network services, and if any
of them fail to perform their obligations to us, we may not timely complete our
network development.
We have retained Lucent, AT&T and other consultants and contractors to help us
to design, construct, deploy and support our network. See "Business--Network
Development." The failure by any of these consultants or contractors to fulfill
its contractual obligations could slow the construction of our network in a
timely manner, which could slow our growth and our ability to compete in the
wireless telecommunications industry, and could result in a payment default on
our existing debt, including the notes.
If the management agreement with TeleCorp Management is terminated, we may not
be able to comply with applicable FCC rules, or effectively run our business.
Under our management agreement with TeleCorp Management, TeleCorp Management
provides management services to us regarding the design, development and
operation of our network, as well as compliance with FCC rules. If the
management agreement is terminated, we may have limited success and less ability
to comply with the rules regarding our licenses. We do not carry life
insurance on either Mr. Vento or Mr. Sullivan. See "Business--Government
Regulation" and "Management--Management Agreement."
If we cannot retain senior management, we may not be able to effectively run our
business.
We depend on Julie Dobson for management services. If she ends her employment
with us, we may not be successful in running our business. We do not carry life
insurance on Ms. Dobson. See "Management."
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<PAGE>
Members of our management own interests in companies that may compete with us
for new licenses, may acquire interests in companies that compete in our
markets, and may spend more time managing these companies than managing us.
Members of our management, including Mr. Vento and Mr. Sullivan, own interests
in companies that hold licenses to provide wireless communications services in
areas outside of our licensed areas and may acquire interests in companies that
hold licenses to provide wireless communications services in the future. Mr.
Vento or Mr. Sullivan may allocate more time to managing these companies than to
managing us. They may assist these companies in obtaining licenses that we may
desire. They may obtain interests in companies that may compete with us in our
markets. Our interests may conflict with the interests of these companies and
any conflicts may not be resolved in our favor.
Government regulation, changes in our licenses or other governmental action
could affect how we do business.
Congress, the FCC, the Federal Aviation Administration, state and local
regulatory authorities or the courts may adopt new regulations, amend existing
regulations, alter the administration of existing regulations or take other
actions that might cause us to incur significant costs in making changes to our
network, and such costs might affect our cash flows and our ability to repay
you.
As the FCC continues to implement changes to promote competition under the
Communications Act of 1934, as amended by the Telecommunications Act of 1996, it
may change how it regulates how our network connects with other carriers'
networks. The FCC may require us to provide lower cost services to other
carriers, which may lessen our revenues and ability to repay you.
Our licenses to provide wireless communications services, which are our
principal assets, have terms of ten years. The FCC may revoke all of our
licenses at any time for cause, which includes our failure to comply with the
terms of the licenses, our failure to remain qualified under applicable FCC
rules to hold the licenses, violations of FCC regulations and malfeasance and
other misconduct. The FCC may not renew our licenses upon expiration of their
terms. Further, the FCC could modify our licenses in a way that decreases the
value or use to us. The nonrenewal or loss of any of our licenses would slow our
growth and our ability to compete in the wireless telecommunications industry,
and could result in a payment default on our existing debt and on our obligation
to repay you. Additionally, the threat of nonrenewal or loss of any of our
licenses could decrease the market value of the notes. See "Business--Government
Regulation."
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<PAGE>
We could lose our PCS licenses or incur financial penalties if the FCC
determines we are not a very small business or if we do not meet the FCC's
minimum construction requirements.
The FCC could impose penalties on us related to our very small business status
and its requirements regarding minimum construction of our network that could
slow our growth and our ability to compete in the wireless telecommunications
industry or limit cash available to pay our debt, including the notes. See
"Business--Government Regulation." TeleCorp Holding and we acquired PCS licenses
as a very small business, and TeleCorp Holding and we must remain a very small
business for at least five years to comply with applicable rules of the FCC. The
FCC or another party may challenge our capital or ownership structure as a very
small business in the future. Our capital structure or ownership structure, our
relationship with AT&T, our financial affiliations with other entities or the
loans from Lucent may be found to violate the very small business rules. If the
FCC determines that we violated these rules or failed to meet its minimum
construction requirements, it could impose substantial penalties upon us or
TeleCorp Holding, such as:
. fine us;
. revoke our licenses;
. accelerate our installment payment obligations; or
. cause us to lose bidding credits retroactively.
See "Business - Government Registration."
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<PAGE>
The technologies that we use may become obsolete, which would limit our ability
to compete effectively.
If our technologies become obsolete, we may need to purchase and install
equipment necessary to allow us to convert to new technologies or change our
choice of technology to compete in the marketplace. We use the TDMA, or time
division multiple access, technology standard in our network. This digital
technology allocates a discrete amount of radio airwaves to each user to permit
many simultaneous conversations of one radio airwave channel. Other digital
technologies, such as CDMA, or code division multiple access, and GSM, or global
system for mobile communications, may have significant advantages over TDMA.
CDMA codes and sends scrambled speech using very few information bits on a
network. GSM encompasses uniform standards in Europe and Japan. Our agreements
with AT&T require us to upgrade our technology to match the technology of AT&T.
We may not be able to purchase and install successfully the equipment necessary
to allow us to convert to a new or different technology or to adopt a new or
different technology at an acceptable cost, if at all. In addition, the
technologies that we choose to invest in may not lead to successful
implementation of our business plan. See "Business--The Wireless Communications
Industry" and "Certain Relationships and Related Transactions --AT&T
Agreements."
We expect to incur operating costs and to lose revenues due to fraud.
Based upon the experiences of other providers of wireless communications
services, we expect to incur costs as a result of the unauthorized use of our
network and to lose revenues. If we are not able to control the unauthorized use
of our network, or if we experience unanticipated types of fraud, we will not
collect revenues owing to us and we will incur costs. These costs include the
capital and administrative costs associated with detecting, monitoring and
reducing the incidence of fraud and the costs associated with payments to other
providers of wireless communications services for unbillable fraudulent roaming
on their networks.
If hand-held phones pose health and safety risks, we may be subject to new
regulations and there may be a decrease in demand for our services.
Media reports have suggested that some radio airwave emissions from wireless
handsets may be linked to health concerns. These reports could discourage the
use of wireless handsets, which would decrease demand for our services. Recent
studies suggest that hand-held phones may interfere with medical devices.
Subsequent studies that demonstrate significant interference or raise public
concern could decrease demand for our services. Governmental authorities may
create new regulations concerning hand-held phones. Our handsets may not comply
with rules adopted in the future. Noncompliance would decrease demand for our
services. Some state and local legislatures are considering restrictions on
wireless phone use for drivers. The passage or proliferation of this or future
legislation could decrease demand for our services. See "Business--Government
Regulation."
Because your right to payment on the notes is junior to others and is unsecured,
the notes may not be repaid if we become insolvent or until and unless we pay
others.
The right to payment on the notes is subordinate to all of our existing and
future senior debt. As of June 30, 1999, our outstanding senior debt was
approximately $225.0 million. Our senior credit facilities provide for total
borrowings in the amount of up to $525.0 million and for additional potential
borrowings in the amount of up to $75.0 million. Similarly, each subsidiary
guarantee is subordinate to all existing and future senior debt of the
applicable guarantor. As of June 30, 1999, the outstanding senior debt of our
guarantor subsidiary was approximately $225.0 million, consisting entirely of a
guarantee of our borrowings under our senior credit facilities. In the event of
a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to us or any guarantor, our assets or the assets of the guarantor
will be available to pay obligations on the notes or the applicable guarantee
only after all outstanding senior debt of the party has been paid in full. There
may not be sufficient assets remaining to make payments on amounts due on any or
all of the notes then outstanding or any subsidiary guarantee.
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<PAGE>
If we default on some of our senior debt, neither we nor the guarantors of the
notes may pay the notes or the guarantees.
An event of a default in the payment of some of our senior debt may prohibit
us and the guarantors of the notes from paying the notes or the guarantees. See
"Our Indebtedness" and "Description of the Notes."
Not all of our subsidiaries will guarantee the notes, which limits your recourse
if we do not pay the notes.
Some of our subsidiaries will not guarantee the notes. In the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to any of these subsidiaries, the assets of these subsidiaries will be
available to pay obligations on the notes only after all outstanding liabilities
of these subsidiaries have been paid in full. See "Description of the Notes."
We depend upon our subsidiaries for funds necessary to make payments on the
notes.
We conduct almost all of our operations through our subsidiaries. As a result,
we depend upon dividends from our subsidiaries for the funds necessary to make
payments on the notes. Our senior credit facilities restrict the ability of our
subsidiaries to pay dividends or make other distributions. In addition, any
dividends or distributions may not be adequate to allow us to repay the notes.
Our debt instruments could restrict our business plans.
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<PAGE>
The restrictions contained in the indenture, in our senior credit facilities
and in the vendor financing provided by Lucent 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 some transactions.
These restrictions may cause us to forego potentially profitable opportunities
that would generate revenues with which to pay the notes. Our senior credit
facilities require us to maintain ratios, including leverage ratios, an interest
coverage ratio and a fixed charges ratio, and to satisfy specified tests,
including tests relating to minimum covered populations, minimum number of
subscribers to our services and minimum aggregate service revenue per
subscriber. The vendor financing provided by Lucent also restricts our ability
and the ability of our subsidiaries to do the following:
. create liens;
. make payments, including payments of dividends and distributions
in respect of capital stock;
. consolidate, merge and sell assets;
. engage in some transactions with affiliates; and
. fundamentally change our business.
The failure to satisfy any of the financial ratios and tests could result in a
default under our senior credit facilities. Following a default under our senior
credit facilities, the lenders could declare all amounts outstanding to be
immediately due and payable. If we could not repay these amounts, the lenders
could foreclose on the collateral granted to them to secure this indebtedness.
See "--Because your right to payment on the notes is junior to others and is
unsecured, the notes may not be repaid if we become insolvent and unless we pay
others." If the lenders accelerated the indebtedness outstanding under our
senior credit facilities, we may not be able to repay this indebtedness, and we
may not be able to pay amounts due in respect of our other indebtedness with our
remaining assets, including the notes. See "Our Indebtedness" and "Description
of the Notes-- Ranking."
You may be liable for taxes with respect to the notes before interest on the
notes is paid to you.
We issued the notes at a substantial discount from their principal amount at
maturity. Original issue discount, the difference between the stated redemption
price at maturity of the notes and the issue price of the notes, accrued from
April 23, 1999 and will be included in your gross income for federal income tax
purposes before you receive the cash payment of this interest. See "U.S. Federal
Tax Considerations--Tax Consequences to U.S. Holders."
We may not be able to take full advantage of tax deductions related to the notes
or net operating loss carryforwards.
U.S. federal income tax law may postpone or limit our deduction of interest or
original issue discount. See "U.S. Federal Tax Considerations--Applicable High
Yield Discount Obligations." U.S. federal income tax law limits the use of
corporate net operating loss carryforwards following particular ownership
changes in a corporation. This may limit our ability to use the net operating
loss carryforwards we have experienced or acquired to date to reduce future tax
liabilities.
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<PAGE>
If we become bankrupt, you may be limitied in the amount you can claim, and you
may recognize taxable gain for any amounts you do collect.
If a bankruptcy case were commenced by or against us under the U.S. Bankruptcy
Code, your claim with respect to the principal amount of the notes may be
limited to the amount you paid for your notes and that portion of the accreted
original issue discount that is not deemed to constitute unmatured interest for
purposes of the U.S. Bankruptcy Code. This may be less than the accreted value
or the principal amount at maturity of your notes. Specifically, any original
issue discount that had not amortized as of the date of the bankruptcy filing
could constitute unmatured interest for purposes of the U.S. Bankruptcy Code. To
the extent that the U.S. Bankruptcy Code differs from the Internal Revenue Code
of 1986 in determining the method of amortization of original issue discount,
the amount you collect in a bankruptcy proceeding could be different than the
amount of original issue discount, the amount you collect in a bankruptcy
proceeding could be different than the amount of original issue discount you
have already recorded as taxable income and you may recognize taxable gain or
loss upon payment of your claim.
We may not be able to satisfy our obligations owed to you upon a change of
control.
In the event of a change of control, we may not have sufficient assets to
satisfy all obligations under our senior credit facilities and the indenture.
Any debt we incur in the future may also prohibit events or transactions that
would constitute a change of control under the indenture. Our senior credit
facilities effectively prevent our repurchase of the notes in the event of our
change of control unless we repay all amounts outstanding under our senior
credit facilities in full. Our failure to repurchase the notes would be a
default under the indenture, which would be a default under our senior credit
facilities. The inability to repay all indebtedness outstanding under our senior
credit facilities upon acceleration would also be a default under the indenture.
Any default under our senior credit facilities or the indenture would strain our
finances as well as hurt the market price of the notes. See "Our Indebtedness--
Senior Credit Facilities" and "Description of the Notes--Change of Control."
This prospectus contains statements that are not statements of fact, and these
statements may be incorrect.
All statements in this prospectus that are not statements of historical facts
are forward-looking statements. Forward-looking statements are inherently
speculative, and they may be incorrect. Our business, operations and financial
results may differ materially from the expectations expressed or implied in the
forward-looking statements in this prospectus. Forward-looking statements
concern our strategy, future operations, technical capabilities, construction
plan and schedule, commercial operations schedule, funding needs, prospective
acquisitions , financing sources, pricing, future regulatory approvals, markets,
size of markets for wireless communications services, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management, as well as information concerning expected actions of third parties
such as equipment suppliers, service providers and roaming partners, and
expected characteristics of competing systems. Do not place undue reliance on
any forward-looking statements.
We make several assumptions when we describe our financial position which may be
incorrect, which may mean we need more capital than we anticipate.
The following information comprises forward-looking statements:
. the information described under "Business--Network
Development," other than historical information;
. the statements in this prospectus regarding the years during
which we expect to continue to incur significant operating losses
and to generate negative cash flow from operating activities; and
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<PAGE>
. the statements in this prospectus regarding our anticipated
capital needs.
We base these statements upon the following assumptions, among others, and
they may be incorrect:
. we will not incur any unanticipated costs in the
construction of our network;
. we will be able to compete successfully in each of our
markets;
. demand for our services will meet wireless communications
industry projections;
. our network will satisfy the requirements described in our
agreements with AT&T and support the services we expect to
provide;
. the capacity of our network will be sufficient to meet the
level of service reflected in our business plan;
. we will be successful in working with AT&T and the other
SunCom companies, as well as with other providers of wireless
communications services and roaming partners, to ensure effective
marketing of our network and the services we intend to offer;
. there will be no change in any governmental regulation or
the administration of existing governmental regulations that
requires a material change in the operation of our business; and
. there will be no change in any of our material contracts
that adversely affects us.
If one or more of these assumptions is incorrect, our actual business,
operations and financial results may differ materially from the expectations,
expressed or implied, in the forward-looking statements.
If holders fail to exchange the outstanding notes for the exchange notes, it may
weaken the market for the exchange notes, and there may be no market for the
remaining outstanding notes.
To the extent remaining outstanding notes are tendered and accepted in the
exchange offer, the trading market for tendered but unaccepted outstanding notes
could be adversely affected due to the limited amount of the outstanding notes
that are expected to remain outstanding following the exchange offer. Generally,
a lower outstanding or trading amount of a security could result in less demand
to purchase the security and could result in lower prices for the security. For
the same reasons, to the extent that a large amount of the outstanding notes are
not tendered or are tendered and not accepted in the exchange offer, the trading
market for the exchange notes could be adversely affected. See "The Exchange
Offer."
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<PAGE>
There is no public market for the notes and there are restrictions on the resale
of the notes.
The exchange notes are new securities with no established trading market, and
we do not intend to list the exchange notes on any securities exchange. The
exchange notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, our
performance and other factors. Chase Securities Inc., one of the initial
purchasers of the outstanding notes, is not obligated to make a market in the
notes, and may discontinue any market-making activities at any time without
notice. In addition, Chase Securities Inc. may limit any market-making
activities during the exchange offer and the pendency of the shelf registration
statement. A liquid market for the notes may not develop. See "Plan of
Distribution."
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<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The net proceeds
from the offering of the outstanding notes, after deducting the initial
purchasers' discounts and estimated fees and expenses payable by us, were
approximately $317.0 million. We intend to use:
. approximately $317.0 million of remaining net proceeds from the offering
of the outstanding notes;
. approximately $205.3 million of proceeds from sales of our equity
securities;
. approximately $487.6 million of borrowings under our senior credit
facilities;
. approximately $55.0 million of vendor financing provided by Lucent;
and
. internally generated cash,
to fund:
. approximately $555.2 million of capital expenditures;
. acquisitions of PCS licenses for approximately $123.0 million; and
operating losses and other working capital requirements, including debt
service and acquisition and financing closing costs, of approximately
$386.7 million.
We also received approximately $148.0 million of PCS licenses and agreements
in exchange for our common and preferred stock.
See "Business--Network Development" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The vendor financing that we repaid with the proceeds from the sale of the
outstanding notes consisted of series B junior subordinated notes due 2012 with
an interest rate of 10%, increasing by 1.5% per year starting on January 1,
2001. We were required to redeem the Lucent series B notes following a change of
control and with any proceeds from offerings of high yield debt in excess of $80
million. See "Our Indebtedness--Vendor Financing."
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CAPITALIZATION
The following table sets forth as of June 30, 1999,
(1) our historical capitalization and
(2) our capitalization giving pro forma effect to the Viper Wireless, Inc.
transaction,
derived from our unaudited pro forma balance sheet included elsewhere in this
prospectus. This table should be read together with "Selected Historical and Pro
Forma Consolidated Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our Consolidated Financial
Statements and the notes to our financial statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of June 30,
1999
------------------------
Actual Pro Forma
------- ---------
<S> <C> <C>
(dollars in millions)
Cash and cash equivalents................................................ $ 151.4 $ 136.6
Debt:
Government license obligations (a).................................. $ 17.2 $ 17.2
Senior credit facilities (b)........................................ 225.0 225.0
Senior subordinated notes (c)....................................... 334.8 334.8
Vendor financing (d)................................................ 41.7 41.7
------- ---------
Total debt..................................................... 618.7 618.7
------- ---------
Mandatorily redeemable preferred stock (e)............................... 342.4 368.2
Preferred stock subscriptions receivable and other items (f)........ (103.2) (129.0)
------- ---------
Mandatorily redeemable preferred stock, net.................... 239.2 239.2
Stockholders' deficit (g)................................................ (152.6) (152.6)
------- ---------
Total capitalization..................................................... $ 705.3 $ 705.3
======= =========
</TABLE>
______________
(a) This debt is shown on our balance sheet net of discounts of $3.5 million
reflecting the below market interest rate on the debt.
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(b) Our senior credit facilities provide up to $525.0 million of term loan and
revolving credit financing. As of June 30, 1999, we had drawn $225.0 million
under our senior credit facilities. See "Our Indebtedness--Senior Credit
Facilities."
(c) Represents the gross proceeds of $327.6 million from the sale of 11 5/8%
Senior Subordinated Discount Notes due 2009 on April 23, 1999, plus accrued
interest of $7.2 million added to the principal of the senior subordinated
notes through June 30, 1999.
(d) As of June 30, 1999, the total amount of series A notes outstanding was
$41.7 million, including $1.4 million of interest paid-in-kind, plus $0.3
million of additional accrued interest. In connection with the acquisition
of licenses and related assets from AT&T in Puerto Rico, Lucent has
committed to purchase $15.0 million of additional junior subordinated notes.
Lucent has also committed to purchase up to an additional $65.0 million of
the notes in connection with our development of new markets. See "Our
Indebtedness--Vendor Financing."
(e) Represents mandatorily redeemable preferred stock issued or to be issued to
AT&T, Chase Capital Partners, Desai Capital Management Incorporated, Hoak
Capital Corporation, J.H. Whitney III, L.P., M/C Partners, Entergy
Corporation, Northwood Ventures, LLC, One Liberty Ventures, LLC, Toronto
Dominion Capital (USA), Wireless 2000, Digital PCS and stockholders of
TeleCorp Holding.
(f) Preferred stock subscriptions receivable and other items is comprised of the
following:
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------------------
Actual Pro Forma
----------------------------------
<S> <C> <C>
Deferred Compensation.............................................. $ (283,827) $ (283,827)
Preferred stock subscriptions receivable........................... (103,000,531) (128,763,413)
------------- -------------
$(103,284,358) $(129,047,240)
============= =============
</TABLE>
(g) Stockholders' deficit is comprised of the following:
<TABLE>
<CAPTION>
As of June 30, 1999
----------------------------------
Actual Pro Forma
---------------- ----------------
<S> <C> <C>
Series F preferred stock........................................... $ 443 $ 482
Common stock....................................................... 2,206 2,425
Additional paid-in capital......................................... 347,432 413,091
Deferred compensation.............................................. (13,133) (13,133)
Common stock subscriptions receivable.............................. (190,990) (256,908)
</TABLE>
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<TABLE>
<S> <C> <C>
Accumulated deficit................................................ (152,775,947) (152,775,947)
------------- -------------
$(152,629,989) $(152,635,804)
============= =============
</TABLE>
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SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below as
of December 31, 1997, and 1998 and as of June 30, 1999, for the period from
inception on July 29, 1996 to December 31, 1996, for the years ended December
31, 1997 and 1998, and for the six months ended June 30, 1998 and 1999, has been
derived from our consolidated financial statements and the related notes
included elsewhere in this prospectus. The balance sheet data as of December 31,
1996 has been derived from our audited consolidated financial statements not
included in this prospectus. The unaudited pro forma balance sheet data as of
June 30, 1999, are derived from the unaudited pro forma financial data included
elsewhere in this prospectus, and give effect to our Viper Wireless, Inc.
transaction, as if it had occurred on June 30, 1999. The selected historical and
pro forma data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our audited
and unaudited consolidated financial statements and notes to the statements and
our unaudited pro forma balance sheet and notes to the balance sheet included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the period July 29, For the year ended
1996 (inception) to December 31, For the year ended
December 31, 1996 1997 December 31,
(Predecessor) (Predecessor) 1998
----------------------- ------------------ ------------------
<S> <C> <C> <C>
Statements of Operations Data:
Service revenue......................... $ - $ - $ -
Equipment revenue....................... - - -
Roaming revenue......................... - - 29,231
----------------------- ------------------ ------------------
Total revenue........................... - - 29,231
----------------------- ------------------ ------------------
Operating expense:
Cost of revenue.................... - - -
Operations and development......... - - 9,772,485
Selling and marketing.............. 9,747 304,062 6,324,666
General and administrative......... 515,146 2,637,035 26,239,119
Depreciation and amortization...... 75 10,625 1,583,864
----------------------- ------------------ ------------------
Total operating expense....... 524,968 2,951,722 43,920,134
----------------------- ------------------ ------------------
Operating loss................ (524,968) (2,951,722) (43,890,903)
Other (income) expense:
Interest expense................... - 396,362 11,934,263
Interest income.................... - (12,914) (4,697,233)
Other expense...................... - - 27,347
----------------------- ------------------ ------------------
Net loss.............................. (524,968) (3,335,170) (51,155,280)
Accretion of mandatorily
redeemable preferred stock............. (288,959) (725,557) (8,566,922)
----------------------- ------------------ ------------------
<CAPTION>
For the six month For the six
period ended month period ended
June 30, 1998 June 30, 1999
(unaudited) (unaudited)
----------------------- ------------------
<S> <C> <C>
Statements of Operations Data:
Service revenue......................... $ - $ 6,232,355
Equipment revenue....................... - 5,648,966
Roaming revenue......................... - 9,486,916
----------------------- ------------------
Total revenue........................... - 21,368,237
----------------------- ------------------
Operating expense:
Cost of revenue.................... - 10,106,968
Operations and development......... 1,214,372 15,498,104
Selling and marketing.............. 1,095,361 20,924,712
General and administrative......... 6,873,306 22,440,887
Depreciation and amortization...... 16,491,374
----------------------- ------------------
Total operating expense....... 9,279,184 85,462,045
----------------------- ------------------
Operating loss................ (9,279,184) (64,093,808)
Other (income) expense:
Interest expense................... 445,204 17,107,514
Interest income.................... (140,338) (3,064,606)
Other expense...................... 3,818 146,675
----------------------- ------------------
Net loss...................... (9,587,868) (78,283,391)
Accretion of mandatorily
redeemable preferred stock............. (207,217) (9,895,700)
----------------------- ------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Net loss attributable to common equity.......... $ (813,927) $(4,060,727) $(59,722,202) $(9,795,085) $ (88,179,091)
============= =========== ============ =========== =============
Other Data:
Deficiency of earnings to fixed charges(a) $ (524,968) $(3,466,567) $(53,210,323) $(9,966,808) $ (82,704,453)
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of December
31, 1996 31, 1997
(Predecessor) (Predecessor)
----------------- ----------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................................ $ 51,646 $ 2,566,685
Property and equipment, net...................................... 829 3,609,274
Personal communications services licenses and microwave
relocation costs............................................. - 10,018,375
Intangible assets -AT&T Agreements, net.......................... - -
Total assets..................................................... 7,574,352 16,294,475
Total debt....................................................... 498,750 12,608,395
Mandatorily redeemable preferred stock........................... 7,788,959 4,144,340
Mandatorily redeemable preferred stock, net (b)(c) (d)........... 7,788,959 4,144,340
Total stockholders' deficit...................................... $ (811,927) $(4,873,798)
<CAPTION>
As of December
31, 998 As of June 30, 1999
---------------- -------------------------------
Actual Pro Forma
-------------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................................... $111,732,841 $ 151,437,828 $ 136,621,656
Property and equipment, net....................................... 197,468,622 320,604,414 320,604,414
Personal communications services licenses and microwave
relocation costs.............................................. 118,107,256 201,817,136 234,103,136
Intangible assets -AT&T Agreements, net........................... 26,285,612 42,819,132 42,819,132
Total assets...................................................... 466,644,032 777,474,589 777,474,589
Total debt........................................................ 243,385,066 618,687,300 618,687,300
Mandatorily redeemable preferred stock............................ 240,408,879 342,435,903 368,198,785
Mandatorily redeemable preferred stock, net (b)(c) (d)............ 164,490,706 239,151,545 239,151,545
Total stockholders' deficit....................................... $(64,499,968) $(152,629,989) $(152,629,989)
</TABLE>
________________________
(a) The ratio of earnings to fixed charges is computed by dividing fixed charges
into income before taxes plus fixed charges plus amortization of interest
capitalized less interest capitalized. Fixed charges includes interest
expense, interest capitalized, amortization of debt expense and one-third of
rental expense attributable to the interest factor. On this basis, earnings
before fixed charges for the period ended December 31, 1996, for the years
ended December 31, 1997 and 1998 and for the six months ended June 30, 1998
and 1999 were not adequate to cover fixed charges . In view of the Company's
limited operating history and future additional interest and amortization
charges due to the new debt issued, the deficiencies of earnings to cover
fixed charges should not be considered indicative of future deficiency of
earnings.
(b) Net of treasury stock, deferred compensation and preferred stock
subscription receivable of $8, $4,111, and $75,914,054 respectively, as of
December 31, 1998.
(c) Net of deferred compensation and preferred stock subscription receivable of
$283,827 and $103,000,531, respectively, as of June 30, 1999.
(d) Net of deferred compensation and preferred stock subscription receivable of
$283,827 and $128,763,413, respectively, as of June 30, 1999 on a pro forma
basis.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
History
TeleCorp Holding was incorporated on July 29, 1996 to participate in the FCC's
auction of PCS licenses in April 1997 as a designated entity and very small
business, as defined by the FCC. TeleCorp Holding obtained PCS licenses in the
New Orleans, Memphis, Beaumont and Little Rock basic trading areas as well as
other licenses that were subsequently transferred to unrelated entities. The FCC
has divided the country into major trading areas, which are each further
subdivided into basic trading areas for purposes of PCS licensing.
We were incorporated on November 14, 1997 by the controlling stockholders of
TeleCorp Holding. In January 1998, we entered into a venture with AT&T under
which AT&T contributed PCS licenses to us in exchange for an equity interest in
us and sold additional PCS licenses to us for $21.0 million. In July 1998, we
received final FCC approval for the venture and, in connection with the
completion of the venture, we entered into exclusivity, licensing, roaming and
long distance agreements. We are AT&T's exclusive provider of facilities-based
mobile wireless communications services in our licensed markets and we use the
AT&T brand name and logo together with the SunCom name and logo, giving equal
emphasis to each. In addition, TeleCorp Holding became our wholly owned
subsidiary.
In the first quarter of 1999, we commenced commercial operations in each of
our major mainland U.S. markets, after having launched our New Orleans market
for roaming services in late December 1998. We launched our service in our
Puerto Rico markets on June 30, 1999. Accordingly, for periods prior to 1999 we
were a development stage company.
We acquired licenses covering the Baton Rouge, Houma, Hammond and Lafayette,
Louisiana basic trading areas from Digital PCS, for $2.3 million of our common
and preferred stock and the assumption of $4.1 million of debt owed to the U.S.
government related to these licenses. This debt is shown on our balance sheet
net of a discount of $1.1 million reflecting the below market interest rate on
the debt. We also acquired a license and related assets covering the San Juan
major trading area from AT&T. On May 24, 1999, we sold to AT&T $40.0 million of
our preferred stock. On May 25, 1999, we purchased the license and related
assets from AT&T for $96.0 million in cash. In addition, we reimbursed AT&T $3.2
million for microwave relocation and $0.5 million for other expenses it incurred
in connection with such acquisition. Microwave relocation entails transferring
business and public safety agencies from radio airwaves that overlap with the
portion of the airwaves covered by our licenses to other portions of the
airwaves. In addition, we acquired licenses covering the Alexandria, Lake
Charles and Monroe, Louisiana basic trading areas from Wireless 2000, for
approximately $0.4 million of common and preferred stock, the assumption of $7.4
million of debt owed to the U.S. government related to these licenses, $0.2
million in cash in connection with microwave relocation and $0.4 million in
reimbursement of interest paid on government debt related to the license. The
U.S. government debt is shown on our balance sheet net of a discount of $1.3
million reflecting the below market interest rate on the debt.
We participated in the FCC's reauction of licenses for additional access to
selected airwaves through Viper Wireless. On April 20, 1999, the FCC announced
that Viper Wireless was the high bidder for additional spectrum in New Orleans,
Houma and Alexandria, Louisiana, San Juan, Puerto Rico, Jackson, Tennessee and
Beaumont, Texas. The FCC has granted us all of these licenses.
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<PAGE>
Viper Wireless filed an opposition to the petition on June 15, 1999.
At present, TeleCorp Holding owns 85% of Viper Wireless, and Mr. Vento and Mr.
Sullivan together own the remaining 15%. Mr. Vento and Mr. Sullivan together
have voting control over Viper Wireless. AT&T and some of our cash equity
investors have committed an aggregate of up to $32.3 million in exchange for
additional shares of our preferred and common stock in connection with the Viper
Wireless transaction.
From time to time, we may enter into discussions regarding the acquisition of
other licenses, including swapping our licenses for those of other license
holders.
Pricing trends
It appears that the wireless industry is experiencing a general trend towards
offering rate plans containing larger buckets of minutes and lower handset
pricing. This is expected to result in decreases in gross average revenue per
user and gross revenue per minute.
We have autonomy in determining our pricing plans. We have developed our
pricing plans to be competitive and to emphasize the advantages of our
offerings. We may discount our pricing in order to obtain customers or in
response to downward pricing in the market for wireless commmunications
services.
Revenue
We derive our revenue from:
. Service. We sell wireless PCS. The various types of service
revenue associated with wireless communications service for our
subscribers include monthly recurring charges and monthly non-
recurring airtime charges for local, long distance and roaming airtime
used in excess of pre-subscribed usage. Our customers' roaming charges
are rate plan dependent, based on the number of pooled minutes
included in their plans. Service revenue also includes monthly non-
recurring airtime usage associated with our prepaid subscribers and
non-recurring activation and de-activation service charges.
. Equipment. We sell wireless personal communications handsets and
accessories that are used by our customers in connection with our
wireless services.
. Roaming. We charge monthly non-recurring fees to other wireless
companies whose customers use our network facilities to place and
receive wireless services.
It is expected that as our customer base grows, there will be a significant
change in our gross revenue mix. As a result, service revenue is expected to
increase while roaming revenues and equipment sales are expected to decrease, as
a percent of gross revenue. Roaming minutes on our network are expected to
increase as AT&T and other carriers increase the number of subscribers on their
networks. It is expected that reciprocal roaming rates charged between us and
other carriers will decrease.
Cost of Revenue
Equipment. We purchase personal communications handsets and accessories from
third party vendors to resell to our customers for use in connection with our
services. Equipment cost of revenue for phone handsets will continue to
approximate equipment revenue. The cost of handsets is inherently higher than
the resale price to the customer. We record the excess cost as a sales and
marketing operational expense. We do not manufacture any of this equipment.
Roaming Fees. We pay fees to other wireless communications companies based on
airtime usage of our customers on other communications networks. It is expected
that reciprocal roaming rates charged between us and other carriers will
decrease. We do not have any significant minimum purchase requirements.
Clearinghouse Fees. We pay fees to an independent clearinghouse for
processing our call data records and performing monthly inter-carrier financial
settlements for all charges that we pay to other wireless companies when our
customers use their network, and that other wireless companies pay to us when
their customers use our network. We do not have any significant minimum purchase
requirements. These fees are based on the number of transactions processed in a
month.
Variable Interconnect. We pay monthly non-recurring charges associated with
the connection of our network with other carriers' networks. These fees are
based on minutes of use by our customers. This is known as interconnection. We
do not have any significant minimum purchase requirements.
Variable Long Distance. We pay monthly non-recurring usage charges to other
communications companies for long distance service provided to our customers.
These variable charges are based on our subscribers' usage, applied at pre-
negotiated rates with the other carriers. We do not have any significant minimum
purchase requirements.
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<PAGE>
Operating Expense
Operations and development. Our operations and development expense includes
all employee-based charges, including engineering operations and support, field
technicians, network implementation support, product development, and
engineering management. This expense also includes monthly recurring charges
directly associated with the maintenance of network facilities and equipment.
Operations and development expense is expected to increase as we expand our
coverage and add subscribers. In future periods, we expect that this expense
will decrease as a percentage of gross revenues.
Selling and marketing. Our selling and marketing expense includes all employee
based charges, including brand management, external communications, retail
distribution, sales training, direct, indirect, third party and telemarketing
support. In addition to employee based charges, we also record the excess cost
of handsets over the resale price as a cost of selling and marketing. We
distribute our products and services through direct and indirect sales efforts,
agents and telemarketing. Our direct sales and marketing efforts focus on
attracting and retaining small, medium and large business customers in our
target markets. We sell through company owned retail stores, indirect sales
partners, third party agents and parties that purchase and resell PCS from
carriers to the public in an effort to efficiently increase our consumer based
subscribers. Selling and marketing expense is expected to increase as we expand
our coverage and add subscribers. In future periods, we expect that this expense
will decrease as a percentage of gross revenues.
General and administrative. Our general and administrative expense includes
all employee based charges, including customer support, billing, information
technology, finance, accounting and legal services. Functions such as customer
support, billing, finance, accounting and legal services are likely to remain
centralized in order to achieve economies of scale. Although we expect general
and administrative expense to increase slightly, in future periods, we expect
this expense will decrease significantly as a percentage of gross revenues.
Depreciation and amortization. Depreciation of property and equipment is
computed using the straight-line method, generally over three to ten years,
based upon estimated useful lives. Leasehold improvements are amortized over the
lesser of the useful lives of the assets or the term of the lease. Network
development costs incurred to ready our network for use are capitalized.
Amortization of network development costs begins when the network equipment is
ready for its intended use and will be amortized over its estimated useful life
ranging from five to ten years. We began amortizing the cost of the PCS
licenses, microwave relocation costs, and capitalized interest in March 1999,
when PCS services commenced in certain basic trading areas. Amortization is
calculated using the straight-line method over 40 years. The AT&T agreements are
amortized on a straight-line basis over the related contractual terms, which
range from three to ten years. Amortization on the AT&T exclusivity agreement
long distance agreement and the intercarrier roamer services agreement began
once wireless services were available to its customers. Amortization of the
network membership license agreement began on July 17, 1998, the date of the
finalization of the AT&T transaction.
Capital expenditures. Our principal capital requirements for deployment of
our wireless network include installation of equipment and, to a lesser extent,
site development work.
Interest Income (Expense). Interest income is earned primarily on our cash and
cash equivalents. Interest expense through June 30, 1999 consists of interest
due on our senior credit facilities, vendor financing, and debt owed to the U.S.
government related to our licenses. Interest payable on the lucent series A
notes and the lucent series B notes on or prior to May 11, 2004 shall be payable
in additional series A and series B notes. Thereafter, interest shall be paid in
arrears in cash on each six month and yearly anniversary of the series A and
series B closing date or, if cash interest payments are prohibited under the
senior credit facilities or a qualifying high yield debt offering, in additional
series A and series B notes. The U.S. government financing receives quarterly
interest payments which commenced in July 1998 and continued for one year
thereafter, then quarterly principal and interest payments for the remaining 9
years.
Results of Operations
Six Months ended June 30, 1999 Compared to Six Months ended June 30, 1998
For the six months ended June 30, 1999, service revenue was approximately $6.2
million, equipment revenue totaled approximately $5.6 million and roaming
revenue was approximately $9.5 million. We began offering wireless services in
each of our major markets in the first quarter of 1999 and a large portion of
our revenue resulted from servicing AT&T's roaming customers in these markets.
We generated no revenue for the six months ended June 30, 1998.
Cost of revenue, consisting mainly of cost of equipment and fees paid to other
wireless companies when our customers use their networks, for the six months
ended June 30, 1999 was approximately $10.1 million. We did not generate any
cost for the six months ended June 30, 1998.
Operations and development expense for the six months ended June 30, 1999 was
approximately $15.5 million, as compared to approximately $1.2 million for the
six months ended June 30, 1998. This expense was primarily related to the
engineering and operating staff required to implement and operate our network.
The increase in operations and development expense
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<PAGE>
is mainly due to the commercial launch of our networks during the first half of
1999, primarily for expenses related to engineering and operating staff.
Selling and marketing expense for the six months ended June 30, 1999 was
approximately $20.9 million, as compared to approximately $1.1 million for the
six months ended June 30, 1998. This increase was due to salary and benefits for
sales and marketing staff, as well as market research. The increase in sales and
marketing expense is mainly due to beginning services in our domestic markets
during the six months ended June 30, 1999.
General and administrative expense for the six months ended June 30, 1999 was
approximately $22.4 million, as compared to approximately $6.9 million for the
six months ended June 30, 1998. The increase was due to the development and
growth of infrastructure and staffing related to information technology,
customer care and other administrative functions incurred in conjunction with
the commercial launch of our markets during the six months ended June 30,
1999.
Depreciation and amortization expense for the six months ended June 30, 1999
was approximately $16.5 million, as compared to approximately $96,000 for the
six months ended June 30, 1998. This increase was due to our commencing our
wireless network resulting in the depreciation of our fixed assets, as well as
the initiation of amortization on PCS licenses and AT&T agreements.
Interest expense, net of interest income, for the six months ended June 30,
1999 was approximately $14.0 million, as compared to approximately $305,000 for
the six months ended June 30, 1998. This increase in interest expenses was
related to borrowings under our senior credit facilities of $225.0 million and
the issuance of $60.0 million aggregate principal amount of notes under the
vendor financing provided by Lucent.
Year ended December 31, 1998 Compared to Year ended December 31, 1997
Revenue for the year ended December 31, 1998 was $29,231. This revenue
resulted from servicing AT&T's roaming customers in our Louisiana markets. We
began offering wireless services in each of our major markets in the first
quarter of 1999. We generated no revenue for the year ended 1997.
Operations and development expense for the year ended December 31, 1998 was
approximately $9.8 million. This expense was primarily related to an increase in
engineering and operating staff devoted to the implementation of future
operations of our network. There was no operations and development expense for
the year ended December 31, 1997.
Selling and marketing expenses for the year ended December 31, 1998 was
approximately $6.3 million, as compared to approximately $0.3 million for the
year ended December 31, 1997. This increase was due to salary and benefits for
sales and marketing staff as well as market research. The year-over-year
increase was due to the increase in corporate and regional sales and marketing
staff in order to prepare for domestic market launches in the first quarter of
1999.
General and administrative expense for the year ended December 31, 1998 was
approximately $26.2 million, as compared to approximately $2.6 million for the
year ended December 31, 1997. The year-over-year increase was due to the
development and growth of infrastructure and staffing related to information
technology, customer care and other administrative functions incurred in the
preparation for commercial launch of our markets in the first quarter of 1999.
Depreciation and amortization expense for the year ended December 31, 1998 was
approximately $1.6 million, as compared to approximately $11,000 for the year
ended December 31, 1997. This expense was related to depreciation of furniture,
fixtures and office equipment, as well as the initiation of amortization on AT&T
agreements.
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<PAGE>
Interest expense, net of interest income, for the year ended December 31, 1998
was approximately $7.2 million, as compared to approximately $0.4 million for
the year ended December 31, 1997. This interest expense was related to notes
payable to shareholders and affiliates. This increase in interest expense was
related to borrowings under the senior credit facilities of $225.0 million and
the issuance of $10.0 million aggregate principal amount of notes under the
vendor financing provided by Lucent.
From July 29, 1996 (inception) to December 31, 1996
Selling and marketing expense and general and administrative expense for the
period from July 29, 1996 (inception) to December 31, 1996 was approximately
$0.5 million, which were associated with salary, benefits and expenses of
administrative personnel, as well as legal and other costs associated with the
formation of TeleCorp.
Liquidity and Capital Resources
Since inception, our activities have consisted principally of:
. hiring a management team;
. raising capital;
. negotiating strategic business relationships;
. planning and participating in the PCS auction;
. initiating research and development;
. conducting market research; and
. developing our wireless services offering and network.
We have been relying on the proceeds from borrowings and issuances of capital
stock, rather than revenues, for our primary sources of cash flow. We began
commercial operations in December 1998 and began earning recurring revenues by
the end of the first quarter of 1999.
Cash and cash equivalents totaled $151.4 million at June 30, 1999, as compared
to $111.7 million at December 31, 1998. This increase was the result of incoming
cash provided by financing activities of $407.6 million, offset by $49.5 million
of cash used in operating activities and $318.4 million of cash used in network
development and investing activities.
During the six months ended June 30,1999, we increased long-term debt , net of
accrued interest, by $357.6 million and received $64.2 million of preferred
stock proceeds and receipt of preferred stock subscriptions receivable. Cash
outlays for capital expenditures required to develop and construct our network
totaled $203.2 million and we were required to deposit $28.9 million with the
FCC for PCS licenses during the six months ended June 30, 1999. Cash used in
operating activities of $49.5 million for the six months ended June 30, 1999
resulted from a net loss of $78.3 million that was partially offset by non-cash
charges of $26.1 million and changes in assets and liabilities of $2.7
million.
From inception through June 1998, our primary source of financing was notes
issued to our stockholders. In July 1996, we issued $0.5 million of subordinated
promissory notes totalling $2.8 million to our stockholders. We converted these
notes into 50 shares of our series A preferred stock in April 1997. In December
1997, we issued various promissory notes to our stockholders. We converted these
notes into mandatorily redeemable preferred stock in July 1998. From January 1
to June 30, 1998, we borrowed approximately $22.5 million in the form of
promissory notes to existing and prospective
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<PAGE>
stockholders to satisfy working capital needs. We converted these notes into our
equity in July 1998 in connection with the completion of the venture with
AT&T.
From inception through July 1999 we have issued 97,473 shares of series A
preferred stock, 198,080 shares of series C preferred stock, 47,175 shares of
series D preferred stock, 24,906 shares of series E preferred stock, 46,020
shares of series F preferred stock, 226,271 shares of class A common stock, 919
shares of class C common stock, 2755 shares of class D common stock; and 10
shares of voting preference stock. The issuances have been in connection with
capital infusions as well as with acquisition of licenses and other assets by
the company, as described below. The primary recipients of these shares were CB
Capital Investors, L.P; Equity-Linked Investors-II; Hoak Communications
Partners, L.P; Media/Communications Partners; AT&T Wireless PCS, Inc; TWR
Cellular, Inc; as well as Gerald Vento and Thomas Sullivan and other management.
See "Securities Ownership of Beneficial Owners and Management."
Our preferred stock is convertible into shares of our common stock at various
times and following various events as follows:
. our series A preferred stock is convertible into shares of our class A
common stock after July 17, 2006;
. our series C and series E preferred stock are convertible into shares
of our class A common stock upon an initial public offering of our
capital stock;
. our series D preferred stock automatically converts into shares of our
class A common stock upon an initial public offering of our capital
stock into shares of our senior common stock which in turn is
convertible into shares of our class A or class B common stock; and
. our series F preferred stock is convertible at any time into shares of
our class A common stock.
We may redeem:
. shares of our series A preferred stock after the tenth anniversary of
its issuance; and
. shares of our series B, series C and series D preferred stock at any
time;
at the liquidation preference for the shares being redeemed.
The holders of our series A, series B, series C, series D and series E
preferred stock have the right to require us to redeem their shares after the
twentieth anniversary of their issuance time at the liquidation preference for
the shares being redeemed.
The classes and series of our capital stock also have varied voting rights,
rankings, dividends rights and liquidation preferences which are fully described
under "Description of Capital Stock."
In connection with completion of the venture with AT&T, we received
unconditional and irrevocable equity commitments from our stockholders in the
aggregate amount of $128.0 million in return for the issuance of preferred and
common stock. As of June 30, 1999, approximately $55.5 million of the equity
commitments had been funded. The remaining equity commitments will be funded in
an installment of $36.3 million in July 2000 and $36.2 million in July
2001.
We received additional irrevocable equity commitments from our stockholders in
the aggregate amount of $5.0 million in return for the issuance of preferred and
common stock in connection with the Digital PCS acquisition. Our stockholders
funded $2.2 million of these equity commitments on April 30, 1999, and will fund
$1.4 million in each of July 2000 and July 2001.
We have received additional irrevocable equity commitments from our
stockholders in the aggregate amount of approximately $40.0 million in return
for the issuance of preferred and common stock in connection with the Puerto
Rico acquisition. We received $12.0 million of these commitments on May 24,
1999, and $6.0 million will be funded in December 1999 and $11.0 million will be
funded on each of May 24, 2000 and May 24, 2001.
We also received irrevocable equity commitments from our stockholders in the
amount of approximately $32.3 million in connection with Viper Wireless'
participation in the FCC's reauction of PCS licenses. We received approximately
$6.5 million of these equity commitments on May 14, 1999 and approximately $11.0
million on July 15, 1999, and we expect to receive the remaining approximately
$14.8 million on September 29, 1999. In the aggregate, we have obtained $205.3
million of equity commitments.
In July 1998, we entered into senior credit facilities with a group of lenders
for an aggregate amount of $525.0 million. Our senior credit facilities provide
for:
. a $150.0 million senior secured term loan that matures in January
2007,
. a $225.0 million senior secured term loan that matures in January
2008,
. a $150.0 million senior secured revolving credit facility that matures
in January 2007, and
. an uncommitted $75.0 million senior secured term loan in the form of
an expansion facility.
We must repay the term loans in quarterly installments, beginning in September
2002, and the commitments to make loans under the revolving credit facility are
automatically and permanently reduced beginning in April 2005. As of June 30,
1999, $225.0 million had been drawn under the senior credit facilities. See "Our
Indebtedness--Senior Credit Facilities."
In May 1998, we entered into a vendor procurement contract with Lucent, under
which we agreed to purchase radio, call connecting and related equipment and
services for the development of our network. Lucent agreed to provide us with
$80.0 million of junior subordinated vendor financing. This $80.0 million
consisted of $40.0 million aggregate principal amount of increasing rate Lucent
series A notes due 2012 and $40.0 million aggregate principal amount of
increasing rate Lucent series B notes due 2012.
As of June 30, 1999, we had outstanding approximately $41.7 million of the
Lucent series A notes, including $1.6 million of Lucent series A notes issued as
payment in kind, plus $0.1 million of additional accrued interest. The $41.7
million principal amount of Lucent series A notes is subject to mandatory
prepayment on a dollar for dollar basis out of the proceeds of future equity
offerings in excess of $130.0 million.
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<PAGE>
Lucent has agreed to make available up to an additional $80.0 million of
junior subordinated vendor financing in amounts of up to 30% of the value of
equipment, software and services provided by Lucent in connection with any
additional markets we acquire. Any notes purchased under this facility would be
divided equally between Lucent series A and series B notes. As a result of the
markets acquired in connection with the Puerto Rico acquisition, we have $15.0
million of availability under this facility, consisting of $7.5 million of
Lucent series A notes and $7.5 million of Lucent series B notes. The terms of
these Lucent series A and series B notes are identical to the terms of the
original Lucent series A and series B notes, with the exception of their
maturities. These notes will mature 6 months after the maturity of the notes. In
the event we acquire any new markets, we would have up to an additional $65.0
million available to us under this facility. See "Our Indebtedness--Vendor
Financing."
Below is a table of capital commitment to us:
<TABLE>
<CAPTION>
-----------------------------------------------------
Capital commitments Amount
-----------------------------------------------------
(in millions)
-----------------------------------------------------
<S> <C>
Senior credit facility $ 525.0
-----------------------------------------------------
Senior subordinated discount notes 327.6
-----------------------------------------------------
Cash equity 205.3
-----------------------------------------------------
Non-cash equity 148.0
-----------------------------------------------------
Vendor financing 80.0
-----------------------------------------------------
$1,285.9
-----------------------------------------------------
</TABLE>
The notes represent a large portion of our capital resources which do not have
required scheduled payments of principal or interest for five years from their
issue date. Accordingly, they represent a significant source of our liquidity
without creating a capital requirement in the near term.
As of June 30, 1999, we have approximately $20.7 million of debt owed to the
U.S. government related to our licenses. This debt is shown on our balance sheet
at $17.2 million net of discounts of $3.5 million reflecting the below market
interest rates on the debt. As of June 30, 1999, we owe the U.S. government $9.2
million less a discount of $1.1 million, for the acquisition of PCS licenses in
New Orleans, Memphis, Beaumont and Little Rock obtained during the 1997 auction.
The terms of the notes include: an interest rate of 6.25%, quarter interest
payments which commenced in July 1998 and continue for the one year thereafter,
then quarterly principal and interest payments for the remaining 9 years. The
promissory notes are collateralized by the underlying PCS licenses.
As of June 30, 1999, we have approximately $8.2 million of liabilities for
microwave relocation obligations. Approximately $5.7 million will be paid within
the next year, and the remaining $2.5 million will be paid in the following
year. We do not expect to incur significant additional microwave relocation
costs for our existing markets. During the six months ended June 30, 1999, we
completed the acquisition of additional PCS licenses from Digital PCS, Inc. and
Wireless 2000, Inc. As part of these acquisitions, we assumed additional U.S.
government financing with the FCC amounting to $11.5 million, less a discount of
$2.4 million. The terms of the notes include an interest rate of 6.125% for
notes assumed from Digital PCS, Inc. and 7.00% for notes assumed from Wireless
2000, Inc., quarterly interest payments for a two-year period and then quarterly
principal and interest pa yments for the remaining eight years.
In May 1998, we entered into a vendor procurement contract with Lucent under
which we will purchase up to $285.0 million of radio, call connecting and
related equipment and services for the development of our wireless
communications network. Through June 30, 1999, we have purchased approximately
$130.9 million of equipment and services from Lucent.
We have operating leases primarily related to retail store locations,
distribution outlets, office space and rent for our network development. The
terms of some of the leases include a reduction of rental payments and scheduled
rent increases at specified intervals during the term of the leases. We are
recognizing rent expense on a straight-line basis over the life of the lease,
which establishes deferred rent on the balance sheet. As of December 31, 1998,
the aggregate minimum rental commitments under non-cancelable operating leases
are as follow:
1999 $10,755,694
2000 10,752,666
2001 10,507,474
2002 10,369,758
2003 8,520,560
Thereafter 23,139,323
-----------
Total $74,045,475
===========
Rental expense, which is recorded ratably over the lease terms, was
approximately $2,000, $157,000, and $3.2 million for the period ended December
31, 1996 and for the years ended December 31, 1997 and 1998, respectively.
We have entered into a series of agreements for software licenses, consulting,
transition support and maintenance with various vendors. The total future
commitments under the agreements is approximately $6.0 million as of December
31, 1998.
We have entered into letters of credit to facilitate local business
activities. We are liable under the letters of credit for nonperformance of
certain criteria under the individual contracts. The total amount of outstanding
letters of credit was $1.4 million at December 31, 1998. The outstanding letters
of credit reduce the amount available to be drawn under our senior credit
facility.
From inception through December 31, 1998, cash outlays for capital
expenditures were approximately $108.7 million. The continued construction of
our network and the marketing and distribution of wireless communications
products and services will require substantial additional capital. We will incur
significant amounts of debt to implement our business plan and will be highly
leveraged. We estimate that our total capital requirements from our inception
until December 31, 2002 will be approximately $1.2 billion. These requirements
include:
. license acquisition costs;
. capital expenditures for network construction;
. operating cash flow losses and other working capital costs;
. debt service; and
. closing fees and expenses.
Capital expenditures from inception to June 30, 1999 were approximately $311.9
million. We estimate that capital expenditures will total approximately $285.0
million for the year ended December 31, 1999.
Our continuing network development will concentrate on launching service in
additional markets within our licensed areas, filling in gaps in areas within
our existing markets and expanding the coverage of our existing markets to
outlying areas. Our development plan is geared to meet or exceed the
requirements imposed by the FCC rules governing our licenses and our agreements
with AT&T. The FCC requirements focus on percentage of population covered by a
license, while the AT&T requirements also impose requirements to cover specific
markets by set dates. The AT&T requirements mandated that by July 17, 1999, we
covered at least 20% of our licensed population in the mainland United States
and had coverage in the core urban and suburban areas of Memphis and New Orleans
and specific surrounding areas. We exceeded this requirement. By May 25, 2000,
we must cover 30% of our licensed population in Puerto Rico and the U.S. Virgin
Islands and have launched in the core urban and suburban cities of the San Juan
metropolitan area. By July 17, 2000, we are required to cover 40% of our
licensed population in the mainland United States, to have launched in New
England, Little Rock and Missouri and enhanced our coverage in other markets. By
May 25, 2001 we must cover 40% of our licensed population in Puerto Rico and the
U.S. Virgin Islands, to have launched in the secondary cities throughout Puerto
Rico and enhanced our coverage in other markets. To date, we comply with all
these requirements. The additional development requirements concentrate on
expanding coverage to additional secondary cities and connecting highways and
filling in gaps in our core urban and suburban coverage and expanding capacity.
We are required to cover at least 55% of our licensed population in the mainland
United States by July 17, 2001, 70% by July 17, 2002 and 75% by July 17, 2003.
We must cover at least 55% of our licensed population in Puerto Rico and the
U.S. Virgin Islands by May 25, 2002, 70% by May 25, 2003 and 75% by May 25,
2004. In the event that we are unable to meet the construction and development
deadline, AT&T would have the right to terminate the exclusivity provision under
the stockholders agreement. See "Business--Government Regulation" and "Certain
Relationships and Related Transactions-AT&T Agreements" for a discussion of the
FCC and AT&T requirements.
We believe that the capital raised to date, which includes proceeds from the
offering of the outstanding notes and the funding of the irrevocable equity
commitments from our stockholders will be sufficient to meet our projected
capital requirements through December 31, 2002. The network development
requirements imposed by our agreements with AT&T create significant capital
requirements much of which will be covered by indebtedness we incur. We believe
that the capital we have raised to date as well as the other capital resources
currently available to us under our senior credit facilities and our committed
cash equity will be sufficient to meet our projected capital requirements
through December 31, 2002. Our ability to meet our capital requirements is
subject to our ability to construct our network and obtain customers in
accordance with our plans and assumptions and a number of other risks and
uncertainties including those discussed under the heading "Risk Factors." There
can be no assurance that the development of our network will be completed as
projected or that we will be able to generate positive cash flow. If any of our
projections are incorrect, we may not be able to meet our projected capital
requirements.
The agreements we have entered into with AT&T contain requirements regarding
the construction of our network. In many instances, these requirements are more
stringent than those imposed by the FCC. If we fail to meet AT&T's
requirements, AT&T could terminate the exclusivity of our relationship. The
construction of the remainder of our network involves risks of unanticipated
costs and delays. We will need to timely complete the construction of additional
phases of our network to meet AT&T's development requirements. See "Business -
Network Development and "Certain Relationships and Related Transactions - AT&T
Agreements."
Quantitative and Qualitative Disclosure About Market Risk
We are not exposed to fluctuations in currency exchange rates since all of our
services are invoiced in U.S. dollars. We are exposed to the impact of interest
rate changes on our short-term cash investments, consisting of U.S. Treasury
obligations and other investments in respect of institutions with the highest
credit ratings, all of which have maturities of three months or less. These
short term investments carry a degree of interest rate risk. We believe that
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<PAGE>
the impact of a 10% increase or decline in interest rates would not be material
to our investment income.
We use interest rate swaps to hedge the effects of fluctuations in interest
rates on our senior credit facilities. These transactions meet the requirements
for hedge accounting, including designation and correlation. These interest rate
swaps are managed in accordance with our policies and procedures. We do not
enter into these transactions for trading purposes. The resulting gains or
losses, measured by quoted market prices, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered upon
the completion of hedged transactions are expensed. Gains or losses associated
with interest rate swaps are computed as the difference between the interest
expense per the amount hedged using the fixed rate compared to a floating rate
over the term of the swap agreement. As of June 30, 1999, we have entered into
six interest rate swap agreements totaling $225.0 million to convert our
variable rate debt to fixed rate debt. The interest rate swaps had no material
impact on our consolidated financial statements as of and for the year ended
December 31, 1998 or the six month period ended June 30, 1999.
Year 2000
The year-2000 issue is the result of computer programs being written using two
digits, rather than four digits, to define the applicable year. Programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations, including an inability to process transactions, send invoices
or engage in similar normal business activities. Because we rely on computer
hardware and software, telecommunications and related service industries are
highly susceptible to the year-2000 issue.
Over the past two years, as we purchased the various components that comprise
our internal information technology systems, we received representations from
our vendors that these components were year-2000 compliant. We have begun the
process of evaluating our information technology systems to verify the accuracy
of the representations made by our vendors. Our costs to date have been
immaterial, and we anticipate that our total costs in evaluating our information
technology system will not exceed $5.0 million, including costs to build the
necessary redundancy into our systems. We expect to complete this evaluation by
the end of the third quarter of 1999.
Our non-information technology systems may also be susceptible to the year-
2000 issues. In particular, our network equipment that connects calls contains
embedded components that are date sensitive. We have received assurances from
Lucent that all of our network hardware purchased from them is year-2000
compliant.
We also depend upon the ability of AT&T, AT&T's roaming partners and
Electronic Data Systems to ensure that their software and equipment are year-
2000 compliant. We rely on AT&T to provide our customers with over-the-air
activation and roaming. We rely on Electronic Data Systems to provide
clearinghouse services.
Although our systems will be year-2000 compliant on a timely basis, there can
be no guarantee that the systems of third parties will be year-2000 compliant on
a timely basis or that their systems will be compatible with our systems. The
greatest risk to our ability to provide communications services is the failure
of our third party service providers to be year-2000 compliant, especially those
third party service providers that provide local access and some of the billing
systems upon which our long distance communications service relies. In the event
one of our third parties is not year-2000 compliant and their noncompliance
affects us, we believe that this effect will cause only a temporary disruption,
if at all, of our service. Thus, although we cannot estimate the material lost
revenue due to this worst case scenario, we do not believe that such losses, if
any, will be significant.
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<PAGE>
BUSINESS
We intend to become a leading provider of wireless communications services in
targeted markets in the south-central and northeast United States and in Puerto
Rico. We are the exclusive provider of PCS for AT&T in our markets. We were
founded in 1996 by Gerald T. Vento, Thomas H. Sullivan and private equity
investors to acquire strategic PCS licenses. In 1998, we entered into a venture
with AT&T in which AT&T contributed PCS licenses to us in exchange for an equity
interest in our company. In addition, we have the right to use the AT&T brand
name and logo together with our own brand name and logo, giving equal emphasis
to each. We are AT&T's preferred roaming partner in our markets and receive
preferred long distance rates from AT&T.
Our PCS licenses cover a population of approximately 16.0 million, including
those in the major population centers of:
. New Orleans and Baton Rouge, Louisiana;
. Memphis, Tennessee;
. Little Rock, Arkansas;
. Manchester, Concord and Nashua, New Hampshire;
. Worcester, Massachusetts, and San Juan, Puerto Rico; and
. vacation destinations such as Puerto Rico, the U.S. Virgin Islands,
Cape Cod and Martha's Vineyard.
As of August 16, 1999, we had over 50,000 subscribers. Our markets have
attractive economic and demographic characteristics and are experiencing strong
growth in use of wireless services. These markets, which attract over 24 million
visitors per year, are major roaming markets for AT&T's customers.
We have successfully launched our services in 15 markets, including all of our
major markets . In December 1998, we began servicing roaming customers in our
Louisiana markets and we carried more than 4.2 million minutes in the first 60
days of operation in those markets. We have a strong distribution presence in
our launched markets with 33 company-owned stores and more than 500 retail
outlets where customers can buy our services. Additionally, we market our
services through business-to-business representatives, telemarketing and the
Internet.
Our goal is to provide our customers with:
. simple, easy-to-use wireless services with coverage across the nation;
. superior call quality;
. personalized customer care; and
. competitive pricing
in the markets we serve. We believe that, as an AT&T affiliate, we will attract
customers through the national brand and coast-to-coast roaming provided by AT&T
and its roaming partners. We have also entered into an agreement with Triton PCS
and Tritel Communications, two other companies similarly affiliated with AT&T,
to adopt SunCom as a common regional brand that is co-branded with AT&T, giving
equal emphasis to each. We and the other SunCom companies are establishing the
SunCom brand as a basis for building a strong regional presence with a service
area covering a population of approximately 43.0 million.
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<PAGE>
Substantially all of our operations are conducted through TeleCorp
Communications and its subsidiaries. Mr. Vento and Mr. Sullivan provide
supervisory managerial services under a management agreement between TeleCorp
Management and us.
Recent Developments
On April 20, 1999, we completed the acquisition of PCS licenses covering the
Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading area from
Digital PCS. As consideration for these licenses, we issued to Digital PCS $2.3
million of our common and preferred stock, paid Digital PCS approximately $0.3
million in reimbursement of interest paid on U.S. government debt related to the
licenses and assumed $4.1 million of debt owed to the U.S. government related to
these licenses. This debt is shown on our balance sheet net of a discount of
$0.7 million reflecting the below market interest rate on the debt. These
licenses cover a population of approximately 1.6 million, including a population
of 1.2 million in Baton Rouge and Lafayette covered by licenses we already
owned. These licenses also cover areas contiguous to our existing licensed area,
including travel corridors, which provide us with opportunities to expand our
covered area.
On May 25, 1999, we completed the acquisition of a PCS license and related
assets covering the San Juan major trading area from AT&T. On May 24, 1999, we
sold to AT&T $40.0 million of our preferred stock. On May 25, 1999, we purchased
the license and related assets from AT&T for $95.0 million in cash. In addition,
we reimbursed AT&T $3.2 million for microwave relocation and $1.5 million for
other expenses it incurred in connection with the acquisition. This license
covers a population of approximately 4.0 million in Puerto Rico and the U.S.
Virgin Islands.
On June 2, 1999, we completed the acquisition of PCS licenses covering the
Alexandria, Lake Charles and Monroe, Louisiana basic trading areas from Wireless
2000. As consideration for these licenses, we issued to Wireless 2000
approximately $0.4 million of common and preferred stock, paid Wireless 2000
$0.2 million for its costs for microwave relocation related to the Monroe
license, $0.4 million in reimbursement of interest paid on government debt
related to the license and assumed $7.4 million of debt owed to the U.S.
government related to these licenses. This debt is shown on our balance sheet
net of a discount of $1.3 million reflecting the below market interest rate on
the debt. These licenses cover a population of approximately 0.8 million. These
licenses also cover areas contiguous to our existing licensed area, including
travel corridors, which provide us with opportunities to expand our covered
area. We have no present intention to develop the markets covered by the
Alexandria and Monroe licenses.
Our agreements with AT&T were extended to cover these markets, except for a
portion of the Monroe basic trading area, upon the closing of the Louisiana and
Puerto Rico acquisitions.
From time to time, we may enter into discussions regarding the acquisition of
other PCS licenses, including swapping our licenses for those of other PCS
license holders.
We participated in the FCC's reauction of PCS licenses for additional airwaves
through Viper Wireless. On April 20, 1999, the FCC announced that the reauction
ended, and Viper Wireless was the high bidder for additional airwaves in New
Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico, Jackson,
Tennessee and Beaumont, Texas. The FCC granted us all of these licenses.
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<PAGE>
At present, TeleCorp Holding owns 85% of Viper Wireless, and Mr. Vento and
Mr. Sullivan together own the remaining 15%. Mr. Vento and Mr. Sullivan together
have voting control over Viper Wireless. On September 13, 1999, we solicited the
approval of the FCC for the consolidation of Viper Wireless into us so that
TeleCorp Holding will own 100% of Viper Wireless. Any consolidation of Viper
Wireless into us will be subject to a final FCC order approving the
transaction. AT&T and our cash equity investors have committed an aggregate of
up to $32.3 million in exchange for additional shares of our preferred and
common stock.
The Wireless Communications Industry
Wireless communications systems use a variety of radio airwaves to transmit
voice and data. The wireless communications industry includes one-way radio
applications, such as paging or beeper services, and two-way radio applications,
such as PCS, cellular telephone and other technologies. Each application is
licensed and operates in a distinct radio airwave block.
Since the introduction of commercial cellular in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers has increased from an estimated 340,213 at the end of 1985 to over
69 million as of December 31, 1998, according to the Cellular Telecommunications
Industry Association, an international association for the wireless industry.
Paul Kagan Associates, an independent media and telecommunications association,
estimates that the number of wireless users will increase to 142 million by
2003, with PCS users representing nearly 34% of total users, a significant
increase over the approximately 11% of total users represented by PCS today. The
following chart illustrates the annual growth in U.S. wireless communications
customers, who use cellular, PCS or other two-way wireless services through
December 31, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Wireless Industry Statistics/1/
Total service revenues (in billions)......................... $ 7.8 $ 10.9 $ 14.2 $ 19.0 $ 23.6 $ 27.5 $ 33.1
Wireless subscribers at end of period (in millions).......... 11.0 16.0 24.1 33.8 44.0 55.3 69.2
Subscriber growth............................................ 46.0% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1%
Average monthly wireless bill................................ $68.68 $61.48 $56.21 $51.00 $47.70 $42.78 $39.43
Ending penetration........................................... 4.4% 6.2% 9.4 13.0% 16.3% 20.2% 25.0%
Digital subscribers (in millions)............................ -- -- -- -- -- -- 18.3
</TABLE>
Sources: Cellular Telecommunications Industry Association and Paul Kagan
Associates.
(1) Reflects domestic commercially operational cellular, PCS and enhanced
specialized mobile radio technology providers.
In the wireless communications industry, there are two principal services
licensed by the FCC for transmitting voice and data signals: PCS and cellular.
Personal communications services, or PCS, is a term commonly used in the United
States to refer to service carried over the 1850 MHz to 1990 MHz portion of the
radio airwaves. Megahertz, or MHz, is a method of measuring radio airwaves.
Cellular is a term commonly used in the United States to refer to service
carried over the 824 MHz to 893 MHz portion of the radio airwaves. Cellular
service is the predominant form of wireless voice communications service
available. Cellular systems were originally analog-based systems, although
digital technology has been introduced in some markets. PCS systems use digital
technology. Analog technology currently has several limitations, including lack
of privacy and limited capacity. Digital systems convert voice or data signals
into a stream of digits that is compressed before transmission, enabling a
single radio channel to carry multiple simultaneous signal transmissions. This
enhanced capacity, along with improvements in digital signaling, allows digital-
based wireless technologies to offer new and enhanced services, such as greater
call privacy and robust data transmission features, including mobile office
applications like facsimile, e-mail and wireless connections to computer/data
networks and including the Internet. See "--Government Regulation" for a
discussion of the FCC auction process and allocation of wireless licenses.
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<PAGE>
Operation of Wireless Communications Systems
Wireless communications system service areas, whether PCS, cellular or other
technologies, are divided into multiple units. Each unit contains a transmitter,
a receiver and signaling equipment to transmit wireless signals to individual
phones. This equipment is connected by telephone lines or microwave signals to
call connection equipment that uses computers to control the operation of the
communications system for the entire service area. The call connection
equipment site controls the connection of calls and the connection of the
wireless network to local telephone systems and long distance carriers. The
system controls the transfer of calls from equipment site to equipment site as a
subscriber's handset travels, coordinates calls to and from handsets, allocates
calls among the network equipment sites within the system and connects calls to
the local telephone system or to a long distance telephone carrier. Wireless
communications providers must establish agreements with local and long distance
carriers that allow them to pass calls, or interconnect, thereby integrating
their system with the existing communications system.
Because the signal strength of a transmission between a handset and a network
equipment site declines as the handset moves away from the network equipment
site, the wireless network monitors the signal strength of calls in progress.
When the signal strength of a call declines to a predetermined level, the call
connection equipment may transfer the call to another network equipment site
where the signal strength is stronger. If a handset leaves the service area of a
PCS or cellular system, the call is disconnected unless there is a technical
connection with the adjacent system. If there is a technical connection with the
adjacent system, the customer may roam onto the adjacent system.
Analog handsets that use the cellular portion of the airwaves are functionally
compatible with cellular systems in all markets in the United States. As a
result, these handsets may be used wherever a subscriber is located, as long as
a cellular system is operational in the area and either the service provider's
system covers such area or a roaming arrangement exists with a provider covering
the area.
Although PCS and cellular systems use similar technologies and hardware, they
operate on different portions of the airwaves and use different technical and
network standards. Use of advanced handsets makes it possible for users of one
type of system to roam on a different type of system outside of their service
area, and to transfer calls from one type of system to another if the
appropriate agreements are in place.
Currently, PCS systems operate under one of three principal digital signal
transmission technological standards that various operators and vendors have
proposed for use in PCS systems: TDMA, CDMA or GSM. TDMA and GSM are both time
division-based standards but are incompatible with each other and with CDMA.
Accordingly, a subscriber of a system that utilizes TDMA technology is unable to
use a TDMA handset when travelling in an area not served by TDMA-based PCS
operators, unless the subscriber carries a special handset that permits the
subscriber to use the analog or digital system on the cellular portion of the
airwaves in that area and the appropriate agreements are in place.
With an advanced handset, a user can place or receive calls using:
. a PCS system using the technological standard with which the handset is
compatible;
. a digital system on the cellular portion of the airwaves using the
corresponding technological standard; or
. an analog system on the cellular portion of the airwaves.
If a PCS system operated by the service provider or covered by a roaming
agreement is operating in the area, the call will be placed via this system. If
there is no PCS system providing coverage, the call will be placed through a
digital system on the cellular portion of the airwaves operating in the area and
providing coverage to the user, and if no digital system on the cellular portion
of the airwaves is providing coverage, the call will be connected over an analog
system that uses the cellular portion of the airwaves providing coverage. These
handsets allow for a call in progress to be handed off to an adjacent system,
whether the same mode or band or otherwise, without interruption if the
appropriate agreements are in place. Prior generations of handsets would cut off
the call when the handset left the coverage of one system and would require
the
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<PAGE>
customer to place the call again using the adjacent system.
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<PAGE>
Market Overview
We hold or will acquire basic trading area licenses within the following eight
major trading areas:
<TABLE>
<CAPTION>
Markets 1998 Populations Spectrum
- ------- -------------------- ----------------
(in thousands) (in MHz)
<S> <C> <C>
New Orleans, Louisiana
New Orleans................................................................... 1,402 35
Baton Rouge................................................................... 676 20
Lafayette..................................................................... 531 20
Lake Charles.................................................................. 279 15
Houma......................................................................... 272 25
Hammond....................................................................... 107 10
-------------------
Total.................................................................... 3,267
Memphis, Tennessee
Memphis....................................................................... 1,493 30
Jackson....................................................................... 276 35
Dyersburg..................................................................... 116 20
Blytheville, AR............................................................... 70 20
-------------------
Total.................................................................... 1,955
Little Rock, Arkansas
Little Rock................................................................... 926 30
Fort Smith.................................................................... 312 20
Fayetteville.................................................................. 291 20
Jonesboro..................................................................... 174 20
Pine Bluff.................................................................... 148 20
Hot Springs................................................................... 133 20
El Dorado..................................................................... 103 20
Russellville.................................................................. 95 20
Harrison...................................................................... 88 20
-------------------
Total.................................................................... 2,270
Boston, Massachusetts
Worcester, MA................................................................. 727 20
Manchester, NH................................................................ 584 20
Boston, MA (a)................................................................ 383 20
Hyannis, MA................................................................... 231 20
-------------------
Total.................................................................... 1,925
San Juan, Puerto Rico
Puerto Rico/San Juan.......................................................... 2,719 35
Mayaguez Aguadilla............................................................ 1,089 20
Virgin Islands................................................................ 106 20
-------------------
Total.................................................................... 3,914
St. Louis, Missouri
Springfield (b)............................................................... 283 20
Carbondale, IL................................................................ 216 20
Columbia...................................................................... 209 20
Cape Giradeau................................................................. 189 20
Quincy........................................................................ 181 20
Jefferson City................................................................ 156 20
Poplar Bluff.................................................................. 155 20
Mt. Vernon, IL................................................................ 121 20
Rolla......................................................................... 98 20
West Plains................................................................... 76 20
Kirksville.................................................................... 56 20
-------------------
Total.................................................................... 1,740
Houston, Texas
Beaumont...................................................................... 459 40
-------------------
Total.................................................................... 459
Louisville, Kentucky
Evansville, Indiana........................................................... 518 20
-------------------
Total.................................................................... 518
===================
Total Populations........................................................ 16,048
</TABLE>
Source: The 1998 PCS Atlas & Databook, Paul Kagan Associates, Inc. 1990 U.S.
Census.
(a) Rockingham and Stafford counties only.
(b) Camden, Cedar, Dallas, Douglas, Hickory, Laclede, Polk, Stone, Taney, Texas,
Webster and Wright counties only.
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<PAGE>
In addition, we hold or will hold licenses for the following basic trading
areas :
. Alexandria, Louisiana, which has a population of 209,000;
. Monroe, Louisiana, which has a population of 335,000; and
. Paducah, Kentucky, which has a population of 231,000.
We do not presently intend to develop markets covered by these additional
licenses.
The average population density of our markets is approximately 38% greater
than the national average.
Services and Features
We provide an array of wireless communications services and features through
our network.
Wireless Calling. Our primary service is wireless calling, featuring
advanced handsets, enhanced voice clarity, improved protection from
eavesdropping and a broad feature set. Our basic wireless service offering
includes caller ID, three-way conference calling, call waiting, voicemail,
paging and short-messaging.
Feature-Rich Handsets. As part of our basic service offering, we provide
easy-to-use, interactive menu-driven handsets that can be activated over the
air. These handsets primarily feature word prompts and easy-to-use menus rather
than numeric codes to operate handset functions. These handsets allow mobile
access to Internet services and will have the ability to interact with personal
computers.
Advanced Handsets. Through the use of handsets that are compatible with
wireless communications systems that operate using digital service on the PCS
portion of the airwaves, as well as digital and analog service on the cellular
portion of the airwaves, we offer customers coast-to-coast roaming across a
variety of wireless networks. These handsets incorporate a roaming database,
which can be updated over the air, that controls roaming preferences, typically
completing calls using the best available system from both quality and cost
perspectives. We offer our customers use of technologically advanced Nokia and
Ericsson handsets.
Extended Battery Life. Our advanced handsets offer significantly extended
battery life over earlier technologies, providing up to 14 days of stand-by
battery life. Handsets operating on a digital system are capable of "sleep-mode"
while turned on but not in use, thus improving efficiency and extending battery
life. We expect that this feature will increase usage, especially for incoming
calls, as users will be able to leave the phone on for significantly longer
periods. The use of these handsets further extends battery life by using a
digital system for roaming when in areas covered by digital systems.
Improved Voice Quality. We believe the version of TDMA we are using offers
significantly improved voice quality, more powerful error correction, less
susceptibility to call fading and enhanced interference rejection, which results
in fewer dropped calls, compared to earlier versions of TDMA.
Voice Privacy and Call Security. Digital technology is inherently more
secure than analog technologies. This security provides increased voice privacy
for our customer and enhanced fraud protection.
Paging and Short-Messaging. Our network has the capability to send and
receive pages and short text messages. These services allow customers to use
less expensive forms of wireless communications when conversation is not
necessary. We offer short-messaging as a bundled service on select packages and
as an extra feature available to all customers.
Pre-Paid Services. We offer our customers the option to subscribe for a pre-
paid service which enables them to better monitor and control their usage. Pre-
pay customers are able to use services within our licensed areas and to
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access all of AT&T's wireless network as well as those of its participating
roaming partners who have compatible equipment. We provide an expansive feature
set to our pre-pay customers, including caller ID and call waiting, and we
market the pre-paid services to a broad segment of customers.
Wireless Services Inside Buildings. As the use of wireless devices becomes
more widespread, consumers increasingly are demanding wireless services which
extend into office buildings, subways, airports, shopping centers and private
homes. We use large numbers of small cell sites to offer corporate users full
coverage inside buildings of outside calls and intra-office wireless
communications with dialing of office extensions without the need to dial the
complete telephone number. In addition, we are working with a number of hardware
and software suppliers to develop next generation wireless office services
including the use of small cell sites within a building that circumvents the
local carrier.
Data and Internet Services. Because of the quality of digital signal
transmission, wireless communications systems are suitable for the transmission
of wireless data services such as weather reports, sports summaries, fax
services, access to stock quote services, monitoring of alarm systems and remote
Internet access.
Marketing Strategy
Our marketing strategy has been developed on the basis of extensive market
research in each of our markets. This research indicates that limited coverage
of existing wireless systems, relatively high cost, inconsistent performance and
overall confusion about wireless services drive subscriber dissatisfaction and
reduce the attractiveness of wireless services for potential new subscribers.
We believe that our affiliation with the AT&T brand name and the distinctive
advantages of our TDMA network, combined with simplified, attractive pricing
plans, will allow us to capture significant market share from existing analog
providers using the cellular portion of the airwaves in our markets and to
attract new wireless users. We are focusing our marketing efforts on four
primary market segments:
. corporate accounts;
. current cellular users;
. individuals with the intent to purchase a wireless product within six
months; and
. pre-paid subscribers.
For each segment, we are creating a specific marketing program including a
service package, pricing plan and promotional strategy. Management believes
that targeted service offerings will increase customer loyalty and satisfaction,
reducing customer turnover.
Brand
We have formed Affiliate License Co. with Triton PCS and Tritel
Communications, other companies similarly affiliated with AT&T, to adopt a
common regional brand, SunCom. Each of the SunCom companies owns one-third of
Affiliate License Co., which owns the SunCom name. We and the other SunCom
companies license the SunCom name from Affiliate License Co. for use in each of
the company's licensed territories. We market our wireless services as "SunCom,
Member of the AT&T Wireless Network" and use the globally recognized AT&T brand
name and logo in equal size and prominence with the SunCom brand name and logo.
The use of the AT&T brand reinforces an association with reliability and
quality.
We and the other SunCom companies are establishing the SunCom brand as a
strong local presence with a service area covering a population of
approximately 43.0 million. We enjoy preferred pricing on equipment, handset
packaging and distribution by virtue of our affiliation with AT&T and the other
SunCom companies. We hope to achieve additional production and packaging
economies of scale by working with the other SunCom companies.
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Our agreements with Affiliate License Co. and Triton and Tritel provide for
the payment of $325,000 by each of the SunCom companies for the rights to use
the SunCom name, and the payment to Triton of those amounts which Triton used to
settle certain claims and acquire certain rights to the SunCom name. Triton
transferred all rights to the SunCom name to Affiliate License Co. The
agreement also provides that the licensees will use the SunCom name only as
allowed under their agreements with AT&T and subject to the quality standards in
those agreements. The parties agreed to cooperate in enforcing the rights to
use the SunCom name. See "Relationships and Related Transactions--AT&T
Agreements" and "--Other Related Party Transactions."
Pricing
Our pricing plans are competitive and straightforward, offering large buckets
of minutes, large local calling areas and usage enhancing features. We offer
distinctive pricing plans tailored for each of our market segments. One way we
differentiate ourselves from existing wireless competitors is through our
pricing policies. We offer pricing plans designed to encourage customers to
enter into long term service contract plans. We also offer shared minute pools,
which are available for businesses and families who have multiple wireless users
who want to share the bucket of minutes.
In May 1998, AT&T introduced "Digital One Rate," a suite of rate plans that
has caused a redefinition of the concept of local service area in the U.S.
wireless marketplace. These rate plans allow a customer to purchase a large
bucket of minutes per month for a low, fixed price, which can be used locally,
or practically anywhere in the United States, on AT&T's wireless network and
through AT&T's extensive network of roaming agreements. These plans also bundle
long distance and roaming charges. Subscribers can make calls to or from most
locations in the United States and pay no additional roaming fees or long
distance charges. The Digital One Rate and other flat rate plans are also
causing a shift in calling patterns in the wireless industry. Although these
plans are too new to predict the long-range effect on consumer behavior, it
appears that usage, and in particular long distance usage, has risen since the
introduction of these plans.
We offer our customers our national SunRate plans, which allow them to make
calls practically anywhere in the United States without paying additional
roaming or long distance charges. By contrast, competing flat rate plans
generally restrict flat rate usage to the competitors' owned networks. By virtue
of our roaming arrangements with AT&T and its roaming partners, we believe we
can offer a competitive national rate plan.
We believe the pre-paid subscriber segment represents a large market
opportunity, and we offer pricing plans that will drive growth in this category.
Pre-pay plans provide an opportunity for individuals whose credit profiles would
not otherwise allow them access to wireless communications to take advantage of
our services. In addition, our pre-pay plans provide an attractive alternative
for families and business users to control the usage of family members or
employees. We offer our pre-paid subscribers the same digital services and
features available to other customer segments. Typical pre-pay plans of
competitors, by contrast, provide low quality handsets and limited services and
features.
Bundling and Affinity Marketing
We may bundle our wireless communications services with other communications
services, including discounted long distance services, through strategic
alliances and resale agreements with AT&T and others. We also may offer service
options in partnership with local business and affinity marketing groups.
Examples of these arrangements include offering wireless services with:
. utility services;
. banking services;
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. cable television;
. Internet access; or
. alarm monitoring services
in conjunction with local information services or AT&T's Personal Network
program. These offerings provide the customer access to information, such as
account status, weather and traffic reports, stock quotes, sports scores and
text messages from any location.
Customer Care
We are committed to building strong customer relationships by providing
customers with service that exceeds expectations. We serve our customers from
our state-of-the-art facility in Memphis, Tennessee, which houses our customer
service, collections and anti-fraud personnel. Convergys, a leading provider of
outsourced call center services, provides backup call center support and
bilingual customer service from two facilities in Florida. We have implemented
a one call resolution approach to customer service through the use of customer
support tools, including access to online reference information. In addition, we
emphasize proactive and timely customer service, including welcome packages and
anniversary calls. Our Internet site provides our customers with access to new
service information, giving us an additional source of contact with our
customers. We support our customer service initiatives through employee
compensation plans based on subscriber quotas and retention. We use innovative
service features to improve customer satisfaction and reduce the cost of service
delivery. For example, pre-paid users hear a "whispered" announcement of time
remaining in their account before each call, which allows them to control usage
and reduces balance inquiries to customer service. We intend to expand our web-
based services to include online account specific information that allows
customers to check billing, modify service or otherwise manage their
accounts.
We are developing a state-of-the-art data warehouse to provide timely access
to critical business information that can be used to provide customers with
desired services, such as real-time billing and automated notification of
remaining account balances. We also intend to use the data warehouse to cross-
link billing, marketing and customer care systems to collect customer profile
and usage information. This information provides the tools necessary to
increase revenue by analyzing channel and product profitability and reduces
customer acquisition costs by more effectively implementing marketing
strategies.
Advertising
We believe that the most successful marketing strategy is to establish a
strong local presence in each of our markets. We are directing our media and
promotional efforts at the community level with advertisements in local
publications and sponsorship of local and regional events. We combine our local
efforts with mass market strategies and tactics to build the SunCom and AT&T
brands locally. Our media efforts include television, radio, newspaper,
magazine, outdoor and Internet advertisements to promote our brand. In addition,
we use newspaper and radio advertising and our web page to promote specific
product offerings and direct marketing programs for targeted audiences.
Sales and Distribution
We use a mix of sales and distribution channels, including a network of
company stores, nationally recognized retailers, a direct sales force for
corporate accounts and direct marketing channels such as telesales, neighborhood
sales and online sales. We work with AT&T's sales channels to cooperatively
exchange leads and develop new business.
We are taking advantage of over-the-air activation features intrinsic to
digital technology to separate activation of service from the sale of the phone.
By separating activation and sale, we are able to ensure that knowledgeable
staff is communicating with customers. This allows for better informed customers
at the point of activation, with basic
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training in the use of their handsets and appropriate expectations for their
wireless service provider. We believe that having better informed customers will
lead to reduced customer turnover. In addition, the separation of activation and
sale of handsets reduces the overall cost of the retail sales channel, because
retailers have less involvement and, as a result, lower sales commissions.
Company Stores
We make extensive use of company stores for the distribution and sale of our
handsets and services. Management believes that company stores offer a
considerable competitive advantage by providing a strong local presence, which
is required to achieve high penetration in suburban and rural areas. We also
believe that company stores offer one of the lowest customer acquisition costs
among our different distribution channels. Sales representatives in company
stores receive in-depth training to allow them to explain wireless
communications services simply and clearly. Company stores have three different
formats:
. flagship stores located in the principal retail district in each
market;
. express stores, a smaller retail format located in secondary markets;
and
. kiosks, deployed to maximize our retail presence in each market and
to take advantage of high traffic areas, such as shopping malls and
airports.
We have opened 33 company-owned stores.
Retail Outlets
We have negotiated distribution agreements with national and regional mass
merchandisers and consumer electronics retailers, including Circuit City,
Cellular Warehouse, Metrocall, Office Depot, Staples, Best Buy and Office Max.
In Puerto Rico, we have relationships with Farmacia El Amal, Let's Talk Wireless
and Beeper Connections. We currently have over 500 retail outlet locations
where customers can purchase our services. We choose these distributors based
upon their ability to reach our target customers in our service area. By
separating activation and sale of handsets we reduce retailer involvement,
which, in conjunction with the desirability of the AT&T name, we believe,
attracts retailers to our handsets. In some of these retail store locations, we
are implementing a store-within-a-store concept, which uses visual merchandising
to leverage the brand awareness created by both SunCom and AT&T advertising.
The ease of distribution of shrink-wrapped handsets appeals to mass
merchandisers who have altered their in-store merchandising to reflect the
changing wireless marketplace. We support their dedication of valuable floor
space to wireless communications products through a local team of retail
merchandisers, attention-grabbing point of sale materials and consumer
appeal.
Direct Sales
We focus our direct sales distribution channel on high-revenue, high-
profitability corporate users. Our direct corporate sales force consists of
dedicated professionals targeting the wireless decision maker within large
corporations. We also benefit from AT&T's national corporate accounts sales
force. AT&T, in conjunction with us, supports marketing of our services to
AT&T's large national accounts located in our service areas. We have formed
regional advisory groups as an additional way to interface with corporate
customers in our markets. These advisory groups are comprised of local business
leaders, who are also wireless users or prospective users, and are designed to
provide timely feedback regarding our proposed wireless offerings and establish
a customer base prior to launch. See "--Marketing Strategy."
Direct Marketing
We use direct marketing efforts such as direct mail and telemarketing. These
efforts are used to generate leads
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and stimulate prospects for our telemarketing department. Telesales allow us to
maintain low selling costs and to "up sell" additional features or customized
services.
Website
Our web page provides current information about us, our markets and our
product offerings. We are also establishing an online store on our website. The
web page conveys our marketing message and we expect it will generate customers
through online purchasing. We deliver all information that is required to make a
purchasing decision at our website. Customers are able to choose rate plans,
features, handsets and accessories. The online store will provide a secure
environment for transactions, and customers purchasing through the online store
will experience a similar business process to that of customers purchasing
service through other channels.
Network Development
We began commercial operations in December 1998 and have launched our services
in each of our major markets. Consistent with our strategy, we launched in
markets which have attractive characteristics for a high volume of wireless
communications usage, including metropolitan "downtown" areas, the surrounding
suburbs, well-utilized commuting and travel corridors, and popular leisure and
vacation destinations. Immediately upon launch, subscribers had access to coast-
to-coast coverage through roaming arrangements with AT&T and its roaming
partners, both inside and outside our licensed areas. Within each market,
geographic coverage will be based upon changes in wireless communications usage
patterns, demographic changes within our licensed areas and our experiences in
those markets. We currently provide coverage to approximately 68% of the
population of our licensed area. We define coverage to include an entire basic
trading area if we have a significantly developed system in that basic trading
area.
We are committed to making the capital investment required to develop a
superior network. We intend to invest approximately $50 per covered person for
the construction of our network, which we believe will ensure consistent quality
performance and result in a high level of customer satisfaction. Our capital
investment is designed to provide a highly reliable network as measured by
performance factors such as percentage of call completion and number of dropped
calls.
We intend to continue to meet our network development plan by using the
expertise of vendors recognized in the industry for providing high quality
services. Lucent is providing the necessary radio, call connecting and related
equipment for construction of our network. In addition, a number of other
experienced wireless vendors are assisting us in deploying our network.
Our continuing network development will concentrate on launching service in
additional markets within our licensed areas, filling in gaps in areas within
our existing markets and expanding the coverage of our existing markets to
outlying areas. Our development plan is geared to meet or exceed the
requirements imposed by the FCC rules governing our licenses and our agreements
with AT&T. The FCC requirements focus on percentage of population covered by a
license, while the AT&T requirements also impose requirements to cover specific
markets by set dates. The AT&T requirements mandated that by July 17, 1999, we
covered at least 20% of our licensed population in the mainland United States
and had coverage in the core urban and suburban areas of Memphis and New Orleans
and specified surrounding areas. We exceeded this requirement. By May 25,
2000, we must cover 30% of our licensed population in Puerto Rico and the U.S.
Virgin Islands and have launched in the core urban and suburban cities of the
San Juan metropolitan area. By July 17, 2000, we are required to cover 40% of
our licensed population in the mainland United States, to have launched in New
England, Little Rock and Missouri and enhanced our coverage in other markets.
By May 25, 2001, we must cover 40% of our licensed population in Puerto Rico and
the U.S. Virgin Islands, to have launched in the secondary cities throughout
Puerto Rico and enhanced our coverage in other markets. To date, we comply with
all these requirements. The additional development requirements concentrate on
expanding coverage to additional secondary cities and connecting highways and
filling in gaps in our core urban and suburban coverage and expanding capacity.
We are required to cover at least 55% of our licensed
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population in the mainland United States by July 17, 2001, 70% by July 17, 2002
and 75% by July 17, 2003. We must cover at least 55% of our licensed population
in Puerto Rico and the U.S. Virgin Islands by May 25, 2002, 70% by May 25, 2003
and 75% by May 25, 2004. In the event that we are unable to meet the
construction and development deadline, AT&T would have the right to terminate
the exclusivity provisions under the stockholders agreement. See "--Government
Regulation" and "Certain Relationships and Related Transactions-AT&T Agreements"
for a discussion of the FCC and AT&T requirements.
The network development requirements imposed by our agreements with AT&T
create significant capital requirements much of which will be covered by
indebtedness we incur. We believe that the capital we have raised to date as
well as the other capital resources currently available to us under our senior
credit facilities and our committed cash equity will be sufficient to meet our
projected capital requirements through December 31, 2002.
We have entered into an agreement with Lucent to purchase up to $285 million
of equipment, software and services for the development of our network. We pay
Lucent for equipment and software at Lucent's list prices less a discount based
on the return of the items purchased. Lucent has agreed to provide specified
technical support at no cost, and to provide us with incentive discount bonuses
upon our completing markets. The agreement provides for cooperative marketing
of our services. Lucent has agreed that the prices we pay and payment terms for
equipment, software and services will be no less favorable than those offered by
Lucent to any other affiliate of AT&T purchasing similar volumes. We have the
right to terminate the agreement at any time subject to paying for materials
already shipped. Lucent may terminate the agreement sixty days following our
material breach. The agreement contains indemnities and limitations on
liabilities for specific damages. Lucent provides us with warranties on
products they produce for specified periods of between 12 and 60 months. Lucent
has agreed to provide us with vendor financing. See "Our Indebtedness - Vendor
Financing."
Handsets
We purchase our handsets from Nokia and Ericsson at preferred prices through
our affiliation with AT&T and the other SunCom companies. Under a letter dated
April 6, 1999, Nokia has agreed to give us the same prices and marketing and
technical support as it gives AT&T because of our affiliation with AT&T. We
also have entered into an arrangement with Brightpoint, a leading distributor
for the wireless industry, for the packaging and distribution of our
handsets.
Network Construction
We have leased over 640 cell sites, including 149 that will be developed in
later phases of construction of our network, and we operate five sites
containing call connection equipment in four locations. We designed our network
to allow us to use existing sites, which minimizes the construction of new
towers and significantly reduces our need to obtain zoning approvals. Under an
agreement dated February 27, 1998, as amended, we have contracted Entel to help
us analyze some of our potential cell and tower sites and manage their
construction, with respect to zoning and other regulations.
Network Operations
We maintain a state-of-the-art network operations center and, to ensure
continuous monitoring and maintenance of our network, we have a disaster
recovery plan. The effective operation of our network requires:
. connection agreements and agreements to transmit signals from cell
sites to call connection equipment with other communications
providers;
. long distance connection;
. the implementation of roaming arrangements;
. the development of network monitoring systems; and
. the implementation of information technology systems.
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Connection
Our network is connected to the public telephone network that connects calls
to facilitate the origination and termination of traffic between our network and
both the local and long distance carriers. We have signed agreements with
numerous carriers, including, among others:
. BellSouth in New Orleans;
. Time Warner Telecom in Memphis;
. SBC Communications in Little Rock;
. Bell Atlantic in New England; and
. Puerto Rico Telephone in Puerto Rico.
These agreements are standard agreements that all parties enter into with all
qualifying carriers on generally the same terms. Each party pays the other for
the carrying or completion of calls on the other's network.
Long Distance
We have executed a wholesale long distance agreement with AT&T providing for
preferred rates for long distance services. See "Certain Relationships and
Related Transactions - AT&T Agreements."
Roaming
Through our arrangements with AT&T and via the use of advanced handsets, our
customers have roaming capabilities on AT&T's wireless network. Further, we have
the benefit of AT&T's roaming agreements with third party carriers at AT&T's
preferred pricing. These agreements, together with AT&T's wireless network,
cover approximately 98% of the U.S. population, including in-region roaming
agreements covering all of our launched service areas. AT&T has recently
experienced significant growth in roaming traffic in our markets.
Network Monitoring Systems
Our network operations center provides around-the-clock monitoring and
maintenance of our entire network. The network operations center is equipped
with sophisticated electronics that constantly monitor the status of all network
equipment sites and call connection equipment and record network traffic. The
network operations center provides continuous monitoring of system quality for
blocked or dropped calls, call clarity and evidence of tampering, cloning or
fraud. We designed our network operations center to oversee the interface
between customer usage, data collected by call connection equipment and our
billing systems. Usage reports, feature activation and related billing items are
managed on a timely and accurate basis. Our network operations center is located
in the Memphis site containing call connection equipment, and we also have back-
up network operations center capabilities in our Arlington, Virginia data
center.
Information Technology
We operate management information systems to handle customer care, billing,
network management and financial and administrative services. The systems focus
on three primary areas:
. network management, including service activation, pre-pay systems,
traffic and usage monitoring, trouble management and operational
support systems;
. customer care, including billing systems and customer service and
support systems; and
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. business systems, including financial, purchasing, human resources
and other administrative systems.
We have incorporated sophisticated network management and operations support
systems to facilitate network fault detection, correction and management,
performance and usage monitoring and security. System capabilities have been
developed to allow over-the-air activation of handsets and implement fraud
protection measures. We maintain stringent controls for both voluntary and
involuntary deactivations. Subscriber disconnections initiated by us are
minimized by:
. preactivation screening to identify any prior fraudulent or bad
debt activity,
. credit review;
. call pattern profiling to identify where activation and termination
policy adjustments are needed.
We entered into a long-term software license, development and implementation
agreement with LHS Communications Systems and CAP Gemini America to provide our
billing system, and we have engaged a variety of industry leaders such as Lucent
and Lightbridge to provide activation, fraud management and support systems.
TDMA Digital Technology
We have chosen digital TDMA technology for our network. TDMA technology
allows for:
. the use of advanced handsets which allow for roaming across the PCS
and cellular portion of the airwaves, including both analog and digital
technologies;
. enhanced services and features, such as short-messaging, extended
battery life, added call security and improved voice quality; and
. cell sites that are smaller and that will improve network coverage
with lower incremental investment.
This will enable us to offer customized billing options and to track billing
information per individual site, which is practical for advanced wireless
applications, such as systems using local transmission of voice messages between
a customer's phone and the network equipment and wireless office applications.
In addition, TDMA technology allows for three times the capacity of analog
systems.
Competition
We believe subscribers choose a wireless communications service provider
principally based upon network coverage, pricing, quality of service and
customer care. We believe that we enjoy advantages over our competitors:
. we offer our customers coverage where they live, work and play and
coast-to-
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. coast coverage immediately upon launch through our relationship
with AT&T and its roaming partners;
. our pricing plans are competitive and straightforward, offering
large buckets of minutes, large local calling areas with in-region
roaming capabilities to supplement our network and usage- enhancing
features;
. we believe that our TDMA digital technology provides better quality
features than analog wireless services and more enhanced technology;
. our digital network provides users with improved sound quality,
enhanced security, prolonged battery life and increased data transfer
capability over analog networks, and we believe that customers
increasingly will choose digital service over analog service;
. we operate a state-of-the-art care facility designed to provide
proactive customer service;
. our marketing plan includes at least four customer contacts
annually, including welcome calls, first bill calls and anniversary
calls, and we follow a "one call resolution" approach to customer
concerns;
. we market our wireless services to our customers giving equal
emphasis to the SunCom and AT&T brand names and logos;
. our market research indicates that association with the AT&T brand
name reinforces reliability and quality and significantly increases the
likelihood that potential customers will purchase our wireless
communications services services.
We compete directly with at least two cellular providers and other PCS
providers in each of our markets and against enhanced special mobile radio
operations in some of our markets. We compete with at least one analog, one CDMA
and one GSM operator in each of our markets other than Puerto Rico where there
is no GSM system is currently in operation. Most of the existing cellular
providers in our markets have an infrastructure in place and have been
operational for a number of years, with some of these competitors having greater
financial and technical resources than we do. These cellular operators may
upgrade their networks to provide services comparable to those offered by us. We
also compete with other PCS license holders in each of our markets:
. in New Orleans, we compete primarily against Radiofone and
BellSouth for cellular services, Sprint PCS and PrimeCo Personal
Communications for PCS, and Nextel for enhancced special mobile radio;
. in Memphis, we compete with GTE, SBC Communications and BellSouth
for cellular services, Powertel and Sprint PCS for PCS and Nextel for
enchanced special mobile radio;
. in Little Rock, we compete against ALLTEL and SBC Communications
for cellular services and Sprint PCS for PCS;
. in New England, we compete against SBC Communications, Bell
Atlantic and U.S. Cellular for cellular services and Sprint PCS and
Omnipoint Technologies for PCS;
. in Puerto Rico, we compete principally against Puerto Rico
Telephone Company and Cellular One for cellular services and Centennial
Cellular for
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PCS
We also compete with numerous resellers of wireless communications services in
each of our markets. Resellers purchase large volumes of services on a wireless
operator's network, usually at a discount, and resells the services to end users
under the reseller's own brand name. While the network operator receives some
revenue from the sale of services to the reseller, the operator is competing
with its own customer for sales to the end users. The principal resellers in our
markets include MCI in New England and Motorola in Puerto Rico. We have agreed
to resell services to AT&T in each of our markets should AT&T desire to do so.
We have not yet entered into any such arrangements with AT&T or any other party.
The FCC informally limits the amount of our minutes AT&T can resell to less
than a majority. If we would allow AT&T to resell more than a majority of our
minutes, the FCC may question our viability as a PCS provider.
As the most recent entrant into the market for wireless communications
services, we do not believe that we have obtained a significant share of the
market in any of our areas of operation. In fact, as a recent entrant, we face
significant competition from operators who have already established strong
market positions and have signed up many customers. Most of the existing
cellular operators have developed systems that have larger local and regional
coverage than we currently have or anticipate developing. We seek to compete by
offering a competitive product with attractive pricing plans and through our
extensive access to roaming, including in-region roaming, which gives us an
effective coverage area competitive with that of our principal competitors. We
have developed our pricing plans to be competitive and to emphasize the
advantages of our offerings. We may discount our pricing in order to obtain
customers or in response to downward pricing in the market for wireless
communications services.
We do not believe that we are at a significant competitive disadvantage to
competitors that can market wireless communications services together with other
services, such as traditional telephone service, cable television access or
Internet access. We may face such disadvantages in the future as a result of
modified offerings by our competitors or changes in consumer expectations if
such bundled offerings become common. If we were to become disadvantaged, we
would be forced to respond by modifying our pricing or seeking to offer
competitive bundled services. We may not be able to do so on profitable terms.
Our ability to compete successfully will depend, in part, upon our ability to
anticipate and respond to various competitive factors affecting the industry,
including the introduction of new services, changes in consumer preferences,
demographic trends, economic conditions and competitors' discount pricing
strategies, all of which could adversely affect our operating margins.
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Government Regulation
We are subject to substantial regulation by the FCC, state public utility
commissions and, in some cases, local authorities. Our principal operations are
classified as commercial mobile radio service by the FCC, subject to regulation
under Title II of the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, as a common carrier and subject to regulation
under Title III of the Communications Act as a radio licensee. The states are
preempted from regulating our entry into and rates for Commercial Mobile Radio
Service offerings, but remain free to regulate other terms and conditions of our
Commercial Mobile Radio Service services and to regulate other intrastate
offerings by us. Congress and the states regularly enact legislation, and the
FCC, state commissions and local authorities regularly conduct rulemaking and
adjudicatory proceedings that could have a material adverse effect on us and
other similarly situated carriers. In addition, our nature as a regulated entity
may adversely affect our ability to engage in, or rapidly complete, transactions
and may require us to expend additional resources in due diligence and filings
related to FCC and other requirements, as compared to unregulated entities.
FCC Common Carrier Regulation Under Title II
Under Title II of the Communications Act, we are:
. required to offer service upon reasonable request;
. prohibited from imposing unjust or unreasonable rates, terms or
conditions of service;
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. proscribed from unjustly or unreasonably discriminating among
customers;
. required to reserve communications capacity for law enforcement
surveillance operations and to make technical network changes to
facilitate this surveillance;
. required to make our services and products accessible to, and
usable by, Americans with disabilities, if readily achievable; and
. required to comply with limitations on our use of customer
proprietary network information.
Under the Telecommunications Act, we are entitled to benefits when negotiating
interconnection arrangements with other communications carriers, such as resale
rights, our customers being able to keep their old numbers when switching to us
and compensation equal to that of the carriers, but we are subject to those same
requirements when other carriers seek to interconnect with our network. The FCC
is still in the process of implementing some of these benefits. While the rates
of common carriers are subject to the FCC's jurisdiction, the FCC forbears from
requiring Commercial Mobile Radio Service carriers to file tariffs for their
services. Common carriers, including Commercial Mobile Radio Service providers,
are also prohibited under the Communications Act from unreasonably restricting
the resale of their services and are required to offer unrestricted resale.
There can be no assurance that the FCC will not choose to regulate common
carriers more comprehensively to promote competition under the
Telecommunications Act, which could have an adverse effect on our operations.
FCC Radio License Regulation Under Title III
Among other things, Title III of the Communications Act:
. does not permit licenses to be granted or held by entities
that have been subject to the denial of federal benefits;
. requires us to seek prior approval from the FCC to transfer
control of us or to assign our radio authorizations, including
subdividing our radio airwaves or partitioning geographic license
areas, except in very limited circumstances; and
. limits foreign ownership in radio licensees, including PCS
providers.
While we believe that we comply with Title III, any future violation of these
limitations could result in license revocation, forfeiture or the forced
restructuring of our ownership to comply with the rules, any of which could have
a material adverse effect on us. The Title III restrictions could also
materially adversely affect our ability to attract additional equity financing.
FCC Commercial Mobile Radio Service Regulation
The FCC rules and policies impose substantial regulations on commercial mobile
radio service providers.
Among other regulations, commercial mobile radio service providers such as
us:
. incur costs as a result of required contributions to federal
programs;
. are prohibited from acquiring or holding an attributable
interest in more than 45 MHz of combined PCS, cellular or analog
specialized mobile radio, used for taxi and truck dispatch, airwaves
in the same geographic area;
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. are required to provide manual roaming service to enable a
customer of one provider to obtain service while roaming in another
carrier's service area;
. are required to route emergency calls to public safety centers
and provide the public safety centers with information regarding the
originating number and the location of the caller; and
. will be required to allow subscribers to retain their telephone
numbers when changing service providers after March 31, 2000, in some
circumstances.
Any violation of the commercial mobile radio service regulations could result
in a revocation or forfeiture of our licenses that would have a material adverse
effect on us. In addition, there can be no assurance that the FCC will not
choose to regulate Commercial Mobile Radio Service providers more
comprehensively, which could have an adverse effect on our operations.
FCC Personal Communications Services Regulation
We are subject to service-specific regulations under the FCC's rules. Among
other things, these regulations provide that PCS licensees, such as us, are
granted licenses for a 10-year term, subject to renewal. Under these policies,
we will be granted a renewal expectancy that would preclude the FCC from
considering competing applications if we have:
. provided "substantial" performance, that is "sound, favorable
and substantially above a level of mediocre service just minimally
justifying renewal;" and
. substantially complied with FCC rules and policies and the
Communications Act.
While we intend to structure our operations to secure a renewal expectancy,
there can be no assurance that a renewal expectancy will be granted and, if the
renewal expectancy is not granted, that our licenses will be renewed. Our
failure to obtain renewal of our licenses would have a material adverse effect
on our operations.
These regulations also govern the transmission characteristics of PCS handsets
and network equipment sites and other technical requirements. PCS licensees are
required to comply with limits intended to ensure that these operations do not
interfere with radio services in other markets or in other portions of the
airwaves and to ensure emissions from mobile transmitters do not cause adverse
health effects. We are also subject to minimum construction requirements that
will require us to deploy facilities with service coverage of a particular
amount of the population of our licensed area within specified time periods.
While we intend to comply with all PCS regulations in effect, any violation of
the PCS regulations could result in a revocation or forfeiture that would have a
material adverse effect on us. In addition, there can be no assurance that the
FCC will not choose to regulate PCS licensees more comprehensively, which could
have an adverse effect on our operations.
Relocation of Fixed Microwave Licensees
Because PCS carriers use airwaves occupied by existing microwave licensees,
the FCC has adopted special regulations governing the relocation of incumbent
systems and cost-sharing among licensees that pay to relocate microwave
incumbents. Relocation usually requires a PCS operator to compensate an
incumbent for the costs of system modifications and new equipment required to
move the incumbent to new portions of the airwaves, including possible premium
costs for early relocation to alternate portions of the airwaves. The transition
plan allows most microwave users to operate in the PCS portion of the airwaves
for a one-year voluntary negotiation and an additional one-year mandatory
negotiation period following the issuance of the PCS license. These periods are
longer for public
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safety entities. We have entered into all necessary agreements for microwave
relocation. Relocated licensees may exercise their rights to move back to their
original sites in the event the new sites are inadequate. Any delay in the
relocation of microwave users to other portions of the airwaves also may affect
adversely our ability to operate our network. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FCC and Federal Aviation Administration Facilities Regulation
Because we will acquire antenna sites for use in our network, we will become
subject to FCC and Federal Aviation Administration regulations governing
registration of towers, the marking and lighting of structures and regulations
governing compliance with the National Environmental Policy Act of 1969, which
requires carriers to assess the impact of their operations on the environment,
including the health effects of radio airwave radiation on humans.
FCC Designated Entity and Small Business Regulation
TeleCorp Holding was the winning bidder for four licenses in the auction of
PCS licenses. With respect to those licenses, and additional licenses acquired
through later auctions and transactions, we:
(1) believe we qualify as a very small business and as entrepreneurs,
and
(2) intend to diligently pursue and maintain our qualification as a very
small business and as an entrepreneur in a manner intended to ensure
compliance with the applicable FCC rules.
We rely on representations of our investors to determine our compliance with
the FCC's rules applicable to PCS licenses. There can be no assurance, however,
that our investors or we will continue to satisfy these requirements during the
term of any PCS license granted to TeleCorp Holding or TeleCorp PCS, LLC, our
wholly owned subsidiary, or that we will be able successfully to implement
divestiture or other mechanisms included in our corporate charter that are
designed to ensure compliance with FCC rules. Any non-compliance with the FCC
very small business and entrepreneurs rules could subject us to penalties,
including a fine, revocation of our PCS licenses, acceleration of installment
payment obligations or retroactive loss of bidding credits.
Entrepreneurs. In order to hold a some of our PCS licenses, the qualifying
entity, an entrepreneur, and its affiliates must have had less than $125 million
in average gross revenues in the last two years and less than $500 million in
total assets at the time it filed its application to acquire the licenses. In
calculating revenues and assets for these purposes, the FCC includes the gross
revenues and total assets of our affiliates, those entities that hold
attributable interests in us and the affiliates of the entities. However, the
revenues and assets of affiliates are not attributable to the licensee if the
licensee maintains an organizational structure that satisfies control group
requirements. For at least five years after the initial licensing of a these
licenses, a licensee must continue to meet the control group requirements to
continue to qualify for the installment payment program and must continue to
meet the very small business requirements to continue to qualify for the bidding
credits received in the auction.
Very Small Business. We are also structured under the FCC's rules to qualify
as a very small business. A very small business is an entity that, together with
its affiliates and entities that hold interests in the applicant and their
affiliates, has average annual gross revenues of not more than $15 million for
the previous three calendar years. As a result of our classification as a very
small business, we were eligible for both a 25% bidding credit and for a
preferential installment payment program. In the more recent reauction, Viper
Wireless qualified as a very small business, eligible for the same bidding
credit, but the FCC ceased to provide installment payment financing.
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Control Group Requirements. To avoid attribution of the revenues and assets of
some of our investors, we are required to maintain a conforming control group
and to limit the amount of equity held by these entities on a fully-diluted
basis. These requirements mandate that the control group, among other things,
have and maintain both actual and legal control of the licensee. Under these
control group requirements:
. an established group of investors meeting the financial
qualifications must own at least three-fifths of the control group's
equity, or 15% of the licensee's overall equity, on a fully-diluted
basis and at least 50.1% of the voting power, in the licensee entity;
and
. additional members of the control group must hold, on a fully-
diluted basis, the remaining 10% equity interest in the licensee
entity.
Additional members may be non-controlling institutional investors, including
most venture capital firms. A licensee must have met the requirements at the
time it filed its application to acquire these licenses and must continue to
meet the requirements for five years following the date that a license is
granted. Beginning the fourth year of the license term, the FCC rules:
. eliminate the requirement that additional members hold the 10%
equity interest; and
. allow the qualifying investors to reduce the minimum required
equity interest from 15% to 10%.
If the FCC were to determine that we did not comply with the regulations, we
would be required to attribute the revenues of additional stockholders, which
would likely cause the loss of our status both as an entrepreneur and a very
small business. Loss of this status would have a materially adverse effect on
us.
FCC Transfer Restrictions. During the first five years of their license terms,
some of our PCS licensees may only transfer or assign their license, in whole or
in part, to other qualified entrepreneurs. The acquiring entities would take
over the license, or any portion of the license, subject to separately
established installment payment obligations. After five years, licenses are
transferable to entrepreneurs and non- entrepreneurs alike, subject to unjust
enrichment penalties. If transfer occurs during years six through ten of the
initial license term to a company that does not qualify for the same level of
auction preferences as the transferor, the sale would be subject to immediate
payment of the outstanding balance of the government installment payment debt
and payment of any unjust enrichment assessments as a condition of transfer. The
FCC has also initiated transfer disclosure regulations that require licensees
who transfer control of or assign a PCS license within the first three years to
file associated contracts for sale, option agreements, management agreements or
other documents disclosing the total consideration that the applicant would
receive in return for the transfer or assignment of its license. If the FCC
determines that a transferor or assignor is being unjustly enriched by a
proposed sale or transfer of a license, it may condition its approval of the
transaction on payment of money to the U.S. Treasury, accelerate installment
payments or require repayment of bidding credits.
State and Local Regulation
The FCC permits the states to:
. regulate terms and conditions of our commercial mobile radio
services other than rates and entry and may regulate all
aspects of our intrastate toll services;
. regulate the intrastate portion of services offered by local
telephone carriers, and therefore the rates we must pay to acquire
critical facilities from other common carriers;
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. administer numbering resources, subject to federal oversight;
and
. have other responsibilities that impact the nature and
profitability of our operations, including the ability to specify
cost-recovery mechanisms for network modifications to support
emergency public safety services.
States and localities also regulate construction of new antenna site facilities
and are responsible for zoning and developmental regulations that can materially
impact our timely acquisition of sites critical to our radio network. The states
and localities regularly conduct legislative, rulemaking and adjudicatory
proceedings on matters within their jurisdiction that could have a material
adverse effect on us and other similarly situated carriers. States may petition
the FCC to expand their jurisdiction over commercial mobile radio service rates
and entry. There can be no assurance that a state in which we operate will not
attempt to engage in more comprehensive regulation of our operations, which
could increase the costs of providing service and materially affect our ability
to operate in that state.
Emission and Hands-Free Regulation
Media reports have suggested that some radio airwave emissions from wireless
handsets may be linked to health concerns, including the incidence of cancer.
Data gathered in studies performed by manufacturers of wireless communications
equipment dispute these media reports. Further, a major industry trade
association and governmental agencies have stated publicly that the use of
wireless handsets does not pose any undue health risks. Nevertheless, concerns
regarding radio airwave emissions could have the effect of discouraging the use
of wireless handsets, which would decrease demand for our services.
The FCC recently revised the rules specifying the methods to be used in
evaluating radio airwave emissions from radio equipment, including wireless
handsets. The hand-held digital telephones that we offer to our customers comply
with the standards adopted under the new rules. These handsets may not comply
with any rules adopted by the FCC in the future. The failure of these handsets
to remain in compliance with applicable FCC rules and standards would decrease
demand for our services.
Recent studies have shown that hand-held digital telephones interfere with
medical devices, including hearing aids and pacemakers. The University of
Oklahoma Center for the Study of Wireless Electromagnetic Compatibility,
together with industry trade associations and other interested parties, are
currently studying the extent of, and possible solutions to, this interference.
If these studies demonstrate significant interference or create public concern
about interference, the results of these studies could decrease demand for our
services.
Measures that would:
. require hands free use of cellular phones while operating motor
vehicles;
. ban cellular phone use while driving;
. limit the length of calls while driving ; or
. require people to pull to the side of the road to use cellular
phones while driving,
have been proposed or are being considered in 12 state legislatures. We cannot
predict the success of the proposed laws concerning car phone use or the effect
on the use of cellular phones as a result of the publicity surrounding or
passage of these laws. In addition, more restrictive measures or measures aimed
at wireless services companies as opposed to users may be proposed or passed in
state legislatures in the future. The passage or proliferation of this
legislation could decrease demand for our services.
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Intellectual Property
The AT&T and globe design logo is a service mark registered with the U.S.
Patent and Trademark Office. AT&T owns the service mark. We use the AT&T and
globe design logo, on a royalty free basis, with equal emphasis on our SunCom
brand and logo, solely within our licensed area in connection with marketing,
offering and providing licensed services to end-users and resellers of our
services. Our license agreement with AT&T grants us the right and license to use
licensed marks on permitted mobile phones. This license agreement contains
numerous restrictions with respect to the use and modification of licensed
marks. See "Relationships and Related Transactions--AT&T Agreements."
We, Triton PCS and Tritel Communications have adopted a common brand, SunCom,
that is co-branded with equal emphasis with the AT&T brand name and logo. Each
of the SunCom companies owns one-third of Affiliate License Co., which owns the
SunCom name. We and the other SunCom companies license the SunCom name from
Affiliate License Co. We use the brand to market, offer and provide services to
end-users and resellers of our PCS. See "--Marketing Strategy," "Certain
Relationships and Related Transactions--Other Related Party Transactions."
Triton PCS recently paid $975,000 to settle a potential dispute regarding
prior use of a version of the SunCom brand. In connection with this settlement,
Triton PCS transferred the SunCom trademark to Affiliate License Co. for
$650,000. Each of the other SunCom companies agreed to pay $325,000 as a royalty
fee to license the trademark from Affiliate License Co.
Employees
As of June 30, 1999, we employed approximately 690 people. None of our
employees currently are represented by a union. We believe that our relations
with our employees are good.
Properties
We lease space for our call connection equipment in New Orleans, Boston and
Puerto Rico and for our network operators center, our call connection equipment
and our customer care and data center in Memphis. Further, we lease space for
our network equipment sites, and we lease office space for our headquarters and
regional offices.
Legal Proceedings
We are not a party to any lawsuit or proceeding which is likely, in the
opinion of management, to have a material adverse effect on our financial
position, results of operations and cash flows. We are a party to routine
filings and customary regulatory proceedings with the FCC relating to our
operations.
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THE EXCHANGE OFFER
Purpose and Effects
The outstanding notes were originally issued and sold on April 23, 1999 in the
principal amount at maturity of $575.0 million in a transaction exempt from the
registration requirements of the Securities Act. The outstanding notes may not
be reoffered, resold or transferred except under a registration statement filed
with the SEC or unless an exemption from the registration requirements of the
Securities Act is available.
The exchange offer is designed to provide to holders of outstanding notes an
opportunity to acquire exchange notes which, unlike outstanding notes, generally
will be freely transferable at all times, provided that the holder is not our
affiliate and not a broker-dealer or participating in a distribution of the
exchange notes. We believe that a holder may offer, sell or transfer the
exchange notes if the holder:
. acquired the exchange notes in the ordinary course of
business;
. has no intention of participating in a distribution of exchange
notes.
Based on no-action letters issued by the staff of the SEC to third parties in
other transactions, we believe that a holder of outstanding notes, but not a
holder who is our affiliate within the meaning of the Securities Act, who
exchanges outstanding notes for exchange notes in the exchange offer, generally
may offer the exchange notes for resale, sell the exchange notes and otherwise
transfer the exchange notes without further registration under the Securities
Act and without delivery of a prospectus that satisfies the disclosure
requirements of the Securities Act. This does not apply, however, to a holder
who is our affiliate within the meaning under the Securities Act. We also
believe that a holder may offer, sell or transfer the exchange notes only if the
holder acquires the exchange notes in the ordinary course of its business and is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the exchange
notes.
Any holder of outstanding notes using the exchange offer to participate in a
distribution of exchange notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired the outstanding notes
directly from us, but not as a result of market-making activities or other
trading activities. Consequently, the holder must comply with the registration
and prospectus delivery requirements of the Securities Act in the absence of an
exemption from such requirements. See "Plan of Distribution."
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where the outstanding notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of the exchange notes received in exchange for the
outstanding notes. The letter of transmittal which accompanies this prospectus
states that by so acknowledging and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended from time to time, in connection with the
resales of the exchange notes it receives in exchange for the outstanding notes
in the exchange offer. We will make this prospectus available to any
participating broker-dealer in connection with any resale of this kind for a
period of 90 days after the expiration date of the exchange offer. See "Plan of
Distribution."
Each holder of outstanding notes who wishes to exchange outstanding notes for
exchange notes in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such outstanding
notes, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
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. the exchange notes to be acquired by the holder and each
beneficial owner, if any, are being acquired in the ordinary course
of business;
. neither the holder nor any beneficial owner is our or any of our
subsidiaries' affiliate;
. any person participating in the exchange offer with the
intention or purpose of distributing exchange notes received in
exchange for the outstanding notes, including a broker-dealer that
acquired the outstanding notes directly from us, but not as a result
of market-making activities or other trading activities cannot rely
on the no-action letters referenced above and must comply with the
registration and prospectus delivery requirements of the Securities
Act, in connection with a secondary resale of the exchange notes
acquired by such person;
. if the holder is not a broker-dealer, the holder and each
beneficial owner, if any, are not participating, do not intend to
participate and have no arrangement or understanding with any person
to participate in any distribution of the exchange notes received in
exchange for outstanding notes; and
. if the holder is a broker-dealer that will receive exchange
notes for the holder's own account in exchange for the outstanding
notes, the outstanding notes to be so exchanged were acquired by the
holder as a result of market-making or other trading activities and
the holder will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such exchange notes
received in the exchange offer. However, by so representing and
acknowledging and by delivering a prospectus, the holder will not be
deemed to admit that it is an underwriter within the meaning of the
Securities Act.
Terms of the Exchange Offer
We will offer exchange notes in exchange for surrender of outstanding notes.
We will keep the exchange offer open for at least 30 days, or longer if required
by applicable law, after the date of notice of the exchange offer is mailed to
the holders of the outstanding notes.
Upon the terms contained in this prospectus and in the letter of transmittal
which accompanies this prospectus, we will accept any and all outstanding notes
validly tendered and not withdrawn before 5:00 p.m., New York City time, on the
expiration date of the exchange offer. We will issue an equal principal amount
of exchange notes in exchange for the principal amount of the outstanding notes
accepted in the exchange offer. Holders may tender some or all of their
outstanding notes under the exchange offer. Outstanding notes may be tendered
only in principal amounts at maturity of $1,000 and integral multiples of
$1,000.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that:
. the exchange notes will have been registered under the
Securities Act and therefore will not bear legends restricting their
transfer; and
. the exchange notes will not contain specific terms providing for
registration rights or an increase in the interest rate on the
outstanding notes under specific circumstances which are described in
the exchange and registration rights agreement.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture.
In connection with the exchange offer, holders of the outstanding notes do not
have any appraisal or dissenters' rights under law or the indenture. We intend
to conduct the exchange offer in accordance with the applicable
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requirements of the Exchange Act and the rules and regulations of the SEC
related to these offers.
We shall be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of acceptance to Bankers Trust
Company, exchange agent for the exchange offer. The exchange agent will act as
agent for the tendering holders for the purpose of receiving exchange notes from
us.
If any tendered outstanding notes are not accepted for exchange because of an
invalid tender, the occurrence of other events specified in this prospectus or
if the outstanding notes are submitted for a greater principal amount than the
holder desires to exchange, the certificates for the unaccepted outstanding
notes will be returned without expense to the tendering holder. If outstanding
notes were tendered by book-entry transfer in the exchange agent account at The
Depository Trust Company in accordance with the book-entry transfer procedures
described below, these non-exchanged outstanding notes will be credited to an
account maintained with The Depository Trust Company as promptly as practicable
after the expiration date of the exchange offer.
Each of the following is a registration default:
(1) neither the registration statement of which this prospectus is a part
nor a shelf registration statement with respect to the outstanding
notes is filed on or prior to June 22, 1999;
(2) neither of the registration statements is declared effective by the
SEC on or prior to October 19, 1999, the effectiveness target date, or
within 45 days after the publication of a change in applicable law or
interpretation of law by the SEC's staff that would require us to file
a shelf registration statement;
(3) we fail to complete the exchange offer on or prior to November 19,
1999; or
(4) the shelf registration statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of the
outstanding notes during the period specified in the exchange and
registration rights agreement.
In the event of a registration default, we must pay liquidated damages to each
holder of outstanding notes, during the period of one or more such registration
defaults, in an amount equal to $0.192 per week per $1,000 of accreted value of
the outstanding notes, which value would be the initial offering price plus any
amortization, held by such holder until the cure of all registration defaults.
Such interest will be payable on the next scheduled interest payment date.
We may file a shelf registration if:
. a change in law or SEC interpretations precludes our exchange
offer;
. we do not exchange validly tendered outstanding notes for
exchange notes by November 19, 1999;
. any initial purchaser of the outstanding notes who were not
eligible to exchange their outstanding notes in the exchange offer
and still hold their outstanding notes so request;
. any law or SEC interpretations preclude a holder from
participating in the exchange offer;
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. a holder receives exchange notes which are not freely
transferable; or
. we so elect.
Tendering holders of the outstanding notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes in
the exchange offer. We will pay all charges and expenses, other than transfer
taxes which may be imposed, in connection with the exchange offer. See "--
Transfer Taxes" below.
Expiration Date; Extensions; Amendment
The expiration date of the exchange offer is 5:00 p.m., New York City time, on
, 1999, unless we, in our reasonable discretion, extend the
exchange offer, in which case the expiration date shall be the latest date and
time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
the extension before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
. to delay accepting any outstanding notes, to extend the exchange
offer or to terminate the exchange offer if, in our reasonable
judgment, any of the conditions described below under "--Conditions
to the Exchange Offer" shall not have been satisfied, by giving oral
or written notice of the delay, extension or termination to the
exchange agent; or
. to amend the terms of the exchange offer in any manner.
We will give oral or written notice of any extension, amendment, non-
acceptance or termination to the holders of outstanding notes as promptly as
practicable. In the case of any extension, we will issue such notice as a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration
date.
Procedures for Tendering
To tender in the exchange offer, a holder must do the following:
. complete, sign and date the letter of transmittal, or a
facsimile of the letter of transmittal;
. have the signatures guaranteed if required by the instructions
to the letter of transmittal; and
. except as discussed in "--Guaranteed Delivery Procedures," mail
or otherwise deliver the letter of transmittal, or facsimile,
together with the outstanding notes and any other required documents,
to the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
The exchange agent must receive the outstanding notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before 5:00 p.m., New York City time, on the expiration date
for the tender to be effective. You may deliver your outstanding notes by using
the book-entry transfer procedures described below, as long as the exchange
agent receives confirmation of the book-entry transfer before the expiration
date.
The Depository Trust Company has authorized its participants that hold
outstanding notes on behalf of beneficial
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owners of outstanding notes through The Depository Trust Company to tender their
outstanding notes as if they were holders. To effect a tender of outstanding
notes, The Depository Trust Company participants should either:
. complete and sign the letter of transmittal, or a manually
signed facsimile of the letter, have the signature guaranteed if
required by the instructions to the letter of transmittal, and mail
or deliver the letter of transmittal to the exchange agent according
to the procedure described in "--Procedures for Tendering"; or
. transmit their acceptance to The Depository Trust Company
through its automated tender offer program for which the transaction
will be eligible and follow the procedure for book-entry transfer
described in "--Book-Entry Transfer."
By tendering, each holder will make the representations contained under the
heading "--Terms of the Exchange Offer." Each participating broker-dealer must
acknowledge that it will deliver a prospectus in connection with any resale of
exchange notes.
The tender of a holder and our acceptance of the tender will constitute a
binding agreement between the holder and us described in this prospectus and in
the letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the election and sole
risk of the holder of the outstanding notes. If such delivery is by mail, it is
recommended that registered mail, properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to assure
timely delivery. No letters of transmittal or outstanding notes should be sent
to us.
Any beneficial owner whose outstanding notes are registered in the name of a
broker-dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct it to tender
on the beneficial owner's behalf. If the beneficial owner wishes to tender on
its own behalf, the owner must, prior to completing and executing the letter of
transmittal and delivering outstanding notes, either:
. make appropriate arrangements to register ownership of the
outstanding notes in the owner's name; or
. obtain a properly completed bond power from the registered
holder.
If a letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in the letter of transmittal, the
outstanding notes must be endorsed or accompanied by a properly completed bond
power and signed by the registered holder as the registered holder's name
appears on the outstanding notes. The transfer of a registered ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution unless the outstanding notes are
tendered as follows:
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. by a registered holder who has not completed the box entitled
"--Special Issuance Instructions" or "--Special Delivery
Instructions" on the letter of transmittal; or
. for the account of an eligible guarantor institution.
An eligible guarantor institution is a transfer agent, registered by the
Securities and Exchange Commission to issue guarantees. If signatures on a
letter of transmittal or a notice of withdrawal are required to be guaranteed,
the guarantee must be by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, a commercial bank
or trust company having an office or correspondent in the United States or an
eligible guarantor institution.
If a letter of transmittal or any outstanding notes or bond are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will establish
a new account or use an existing account with respect to the outstanding notes
at the book-entry facility, The Depository Trust Company, to facilitate the
exchange offer. Subject to establishing the accounts, any financial institution
that is a participant in the book-entry transfer facility's system may make
book-entry delivery of outstanding notes by causing the book-entry transfer
facility to transfer the outstanding notes into the exchange agent's account in
accordance with that facility's procedures. Although delivery of the outstanding
notes may be effected through book-entry transfer into the exchange agent's
account at the book-entry transfer facility, the exchange agent must receive:
. an appropriate letter of transmittal properly completed and duly
executed; or
. an agent's message with any required signature guarantee;
and
. all other required documents
. before the expiration date of the exchange offer or within the
time period provided under guaranteed delivery procedures. Delivery
of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
The term agent's message means a message transmitted by The Depositary Trust
Company to the exchange agent, which states that The Depository Trust Company
has received an express acknowledgment from the participant in The Depository
Trust Company tendering the outstanding notes stating:
. the aggregate principal amount of outstanding notes which have
been tendered by such participant;
. that the participant has received and agrees to be bound by the
term of the letter of transmittal; and
. that we may enforce such agreement against the participant.
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We will determine in our reasonable discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered outstanding
notes and withdrawal of tendered outstanding notes , which 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. Unless waived, any defects or
irregularities in connection with tenders of outstanding notes must be cured
within a period of time that we shall determine.
Neither us, the exchange agent nor any other person shall incur any liability
for failure to give notice of any defect or irregularity with respect to any
tender of outstanding notes. Tenders of outstanding notes will not be deemed to
have been made until such defects or irregularities mentioned above have been
cured or waived. Any outstanding notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date of the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes
We will deliver exchange notes in exchange for outstanding notes promptly
following acceptance of the outstanding notes.
For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered outstanding notes when, as and if we have given oral or written
notice to the exchange agent. The exchange agent will act as agent for the
tendering holders of outstanding notes for the purposes of receiving exchange
notes. Under no circumstances will we or the exchange agent pay interest because
of any delay in making the payment or delivery.
If any tendered outstanding notes are not accepted for exchange because of an
invalid tender, the occurrence of other events or otherwise, we will return any
unaccepted outstanding notes, at our expense, to the tendering holders as
promptly as practicable after the expiration or termination of the exchange
offer.
Guaranteed Delivery Procedures
A holder who wishes to tender its outstanding notes and:
. whose outstanding notes are not immediately available;
. who cannot deliver outstanding notes, the letter of transmittal or any
other required documents to the exchange agent prior to the expiration
date; or
. who cannot complete the procedures for book-entry transfer, before the
expiration date;
may effect a tender if:
. the tender is made through an eligible guarantor institution;
. before the expiration date, the exchange agent receives from the
eligible guarantor institution a
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properly completed and duly executed notice of guaranteed delivery by
facsimile transmission, mail or hand delivery, the name and address of
the holder, the certificate numbers of outstanding notes and the
principal amount of outstanding notes tendered, stating that the tender
is being made and guaranteeing that, within three New York Stock
Exchange trading days after the expiration date, the letter of
transmittal together with the certificate representing the outstanding
notes, or a confirmation of book-entry transfer of the outstanding notes
into the exchange agent's account at the book-entry transfer facility,
and any other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange agent,
and
. the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the certificate
representing all tendered outstanding notes in proper form for transfer
or a confirmation of book-entry transfer of such outstanding notes into
the exchange agent's account at the book-entry transfer facility, and
all other documents required by the letter of transmittal.
Withdrawal of Tenders
Tenders of outstanding notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date of the exchange offer.
To withdraw a tender of outstanding notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address described below 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 numbers and principal amount of those outstanding notes or,
in the case of outstanding notes transferred by book-entry transfer, the
name and number of the account at the book-entry transfer facility to be
credited and otherwise comply with the procedures of the transfer agent;
. 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 be accompanied
by documents of transfer sufficient to have the trustee under the
indenture governing 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 such outstanding notes are to be
registered, if different from that of the person who deposited the
outstanding notes.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, before the release of this certificate,
the withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor institution unless the holder is an eligible
guarantor institution.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices, in our reasonable discretion, and
our determination shall be final and binding on all parties. Any outstanding
notes so withdrawn will be deemed not to have been validly tendered for purposes
of the exchange offer, and no exchange notes will be issued, unless the
withdrawn outstanding notes are validly retendered. Any outstanding notes which
have been tendered but which are not accepted for exchange will be returned to
the holder of the notes without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time before the
expiration date.
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Conditions to the Exchange Offer
Despite any other provision of the exchange offer, we will not be required to
accept for exchange, or to issue exchange notes in exchange for, any outstanding
notes, and may terminate or amend the exchange offer, if at any time before the
expiration date, any of the following events shall occur:
. the acceptance or issuance would violate applicable law or any
applicable interpretation of the staff of the SEC;
. any action or proceeding by or before any court or governmental
agency with respect to the exchange offer shall be instituted or
pending which, in our reasonable judgment, might impair our ability to
proceed with the exchange offer; or
. any law, statute, rule or regulation shall have been proposed,
adopted or enacted which, in our reasonable judgment, might materially
impair our ability to proceed with the exchange offer.
The above 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 our rights shall not be
deemed a waiver of any right and each right shall be deemed an ongoing right
which we may assert at any time and from time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
. refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
. extend the exchange offer and retain all outstanding notes
tendered before the expiration of the exchange offer, subject to the
rights of holders to withdraw these outstanding notes; or
. waive unsatisfied conditions and accept all properly tendered
outstanding notes that the holders did not withdraw. If this waiver
constitutes a material change to the exchange offer, we will promptly
disclose the waiver by a prospectus supplement that we will distribute
to the registered holders. We will also extend the exchange offer for
five to ten business days, depending upon the significance of the
waiver, if the exchange offer would otherwise have expired.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any outstanding notes, if
at the time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus is a part or the qualification
of the indenture under the Trust Indenture Act of 1939.
Exchange Agent
Bankers Trust Company has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at the addresses described below. Questions and requests for
assistance, requests for additional copies of the prospectus or the letter of
transmittal and requests for notices of guaranteed delivery should be directed
to the exchange agent, addressed as follows:
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BANKERS TRUST COMPANY
By Facsimile: By Mail:
(212) 669-0772 Bankers Trust Company
Attention: Customer Service Corporate Trust and Agency Group
Confirm by Telephone to: (212) 250-4730 Four Albany Street, 4th Floor
New York, New York 10006
Attention: Corporate Trust Services
<TABLE>
<S> <C>
By Hand before 4:30 p.m.: By Overnight Courier and By Hand after 4:30 p.m.:
Bankers Trust Company Bankers Trust Company
Corporate Trust and Agency Group Corporate Trust and Agency Group
Four Albany Street, 4th Floor Four Albany Street, 4th Floor
New York, New York 10006 New York, New York 10006
Attention: Anthony M. Nista, Assistant Treasurer Attention: Anthony M. Nista, Assistant Treasurer
</TABLE>
Delivery of this instrument to an address other than as described above or
transmission of instructions via fax transmission other than as described above
does not constitute a valid delivery.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will pay other expenses to be incurred in connection with the exchange
offer, including the fees and expenses of the exchange agent, accounting and
legal fees.
Transfer Taxes
Holders who tender their outstanding notes for exchange will not be obligated
to pay any transfer taxes in connection with the exchange, except that if a
holder of outstanding notes instructs us to register exchange notes in the name
of, or requests that outstanding notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder, or if a transfer tax is imposed for any reason other than the exchange
of outstanding notes in the exchange offer, the amount of any transfer taxes,
whether imposed on the registered holder of outstanding notes or any other
person, will be the responsibility of the registered tendering holder.
Consequences of Failure to Exchange
The outstanding notes of holders who do not exchange their outstanding notes
for exchange notes in the exchange offer will continue to have restrictions on
transfer because we issued the outstanding notes under exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, outstanding notes may not be
offered or sold, unless registered under the Securities Act, except under an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.
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We do not currently anticipate that we will register the outstanding notes
under the Securities Act. To the extent that outstanding notes are tendered in
connection with the exchange offer, any trading market for the outstanding notes
not tendered in connection with the exchange offer could be adversely affected.
The tender of outstanding notes in the exchange offer may have an adverse effect
upon, and increase the volatility of, the market prices of the outstanding notes
due to a reduction in liquidity.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the exchange offer will be expensed over the term of
the exchange notes.
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MANAGEMENT
Executive Officers and Directors
The table below describes information regarding our directors and executive
officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gerald T. Vento............................. 52 Chief Executive Officer and Chairman
Thomas H. Sullivan.......................... 37 Executive Vice President, Chief Financial Officer and Director
Julie Dobson................................ 42 Vice President and Chief Operating Officer
Michael R. Hannon........................... 39 Director
Scott Anderson.............................. 40 Director
Rohit M. Desai.............................. 60 Director
Gary Fuqua.................................. 48 Director
James M. Hoak............................... 55 Director
Mary Hawkins Key............................ 48 Director
William Kussell............................. 40 Director
William Laverack, Jr........................ 42 Director
Joseph O' Donnell........................... 57 Director
Michael Schwartz............................ 34 Director
James F. Wade............................... 43 Director
</TABLE>
Gerald T. Vento is our co-founder and the co-founder of our predecessor
company and has been Chief Executive Officer and a director since our inception.
He has been Chairman of our board since June 1999. From 1993 to 1995, Mr. Vento
was Vice Chairman and Chief Executive Officer of Sprint Spectrum(/TM/)/American
PCS. Under Mr. Vento's leadership, that partnership developed the first PCS
network in the United States. Mr. Vento also served as managing partner in a
joint venture with the Washington Post Company to build and operate the
company's systems in the United Kingdom prior to its sale in 1993 to TCI/US West
Communications. Mr. Vento has spent over twenty years in cable, telephone and
wireless businesses. Mr. Vento was the founder and Managing General Partner for
several communications companies, which he developed from inception, including
wireless and cable television properties throughout the United States and
PuertoRico.
Thomas H. Sullivan has been Executive Vice President and one of our directors
since our inception, and Chief Financial Officer since March 1999. Mr. Sullivan
served as President of TeleCorp Holding from 1996 to 1998 and has served as a
senior executive and founder of several wireless and wireline companies for the
past five years. From 1992 to 1998, Mr. Sullivan was a partner at McDermott,
Will & Emery, where he served as co-head of its telecommunications practice and
co-chairman of its corporate finance practice. In 11 years at McDermott, Will &
Emery, he counseled several of the country's largest cellular and PCS operators
including Sprint Spectrum(TM)/American PCS, L.P., Aerial Communications,
NorthCoast Communications and Bell Atlantic Mobile in both financial and
operational matters. Mr. Sullivan has served in varying capacities as consultant
and/or senior advisor to several telecommunications start-ups. Mr. Sullivan is a
director of Affiliate License Co.
Julie Dobson has served as our Chief Operating Officer since July 1998. Prior
to joining us, Ms. Dobson was President of Bell Atlantic Corporation Mobile
Systems(TM) New York/New Jersey Metro Region. She was responsible for sales,
marketing, customer service and the continued expansion of that company's
wireless communications network in the region. She also oversaw more than 1,500
employees and an extensive retail store network in 22 counties in New York and
northern and central New Jersey. Ms. Dobson had been with Bell Atlantic since
1980, when she began her career as an account executive in sales at Bell
Atlantic-Pennsylvania, and has served in a variety of positions in sales, sales
management and marketing over two decades.
Michael R. Hannon has been one of our directors since July 1998. Mr. Hannon is
a General Partner of Chase Capital Partners, a general partnership with
approximately $7.0 billion under management and one of our equity investors.
Chase Capital Partners invests in a wide variety of domestic and international
private equity opportunities including management buyouts, growth equity and
venture capital situations. Chase Capital Partners' sole limited
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partner is The Chase Manhattan Corporation, one of the largest bank holding
companies in the United States with assets totaling over $300.0 billion. Mr.
Hannon is currently a director of Formus Communications, Entertainment
Communications and Financial Equity Partners.
Scott Anderson has served as one of our directors since July 1998. Since 1997,
Mr. Anderson has served as Principal in Cedar Grove Partners, an investment and
consulting/advisory partnership, and since 1998, as Principal in Cedar Grove
Investments, a small "angel" capital investment fund. Mr. Anderson was an
independent board member of PriCellular Corp from March 1997 through June 1998,
when the company went private. He is a board member and advisory board member of
Tegic, a wireless technology licensing company, a board member of Tritel
Communications, a board member of Triton PCS and a board member of Xypoint, a
private emergency safety service company. He was employed by McCaw Cellular
Communications and AT&T from 1986 until 1997, where he last served as Senior
Vice President of the Acquisitions and Development group.
Rohit M. Desai has served as one of our directors since January 1998. He has
been the Chairman, President and Chief Investment Officer of Desai Capital
Management Incorporated, an equity investment firm with approximately $1 billion
under management, since 1984. Desai Capital Management is the investment advisor
to Equity-Linked Investors II and Private Equity Investors III, L.P., of which
Mr. Desai is the managing general partner. Desai Capital Management invests in a
variety of industries, including the media and telecommunications sectors. Mr.
Desai currently sits on the board of The Rouse Company, a developer and owner of
regional shopping centers and urban specialty retailing properties; Sunglass Hut
International, a specialty retailer of sunglasses and watch stations in over
2,000 locations in the United States, United Kingdom, Australia and various
other countries; Finlay Fine Jewelry Holdings, a retailer of fine jewelry in
approximately 1,000 department stores in the United States, United Kingdom and
France; and Independence Community Bankcorp, with headquarters in Brooklyn, New
York. He is also a director of various other private companies including
American Horizon and Penn National.
Gary Fuqua has served as one of our directors since July 1998. Mr. Fuqua has
managed corporate development activities at Entergy since 1998. In addition, Mr.
Fuqua oversees Entergy's non-regulated domestic retail businesses, including
District Energy, Entergy Security and Entergy's various telecommunications
businesses. Before he joined Entergy, Mr. Fuqua served as a Vice President with
Enron Ventures Corporation in London. He also founded and managed his own
company prior to joining Enron in 1988. He is a member of Entergy Enterprises'
board, and President of Entergy Technology Holdings. Mr. Fuqua is also a member
of the board of Tritel Communications.
James M. Hoak, Jr., has served as one of our directors since July 1998. Mr.
Hoak has served as Chairman and a Principal of Hoak Capital Corporation, a
private equity investment firm, since September 1991. He has also served as
Chairman of HBW Holdings, an investment bank, since July 1996. He served as
Chairman of Heritage Media Corporation, a broadcasting and marketing services
firm, from its inception in August 1987 to its sale in August 1997. From
February 1991 to January 1995, he served as Chairman and Chief Executive Officer
of Crown Media, a cable television company. From 1971 to 1987, he served as
President and Chief Executive Officer of Heritage Communications, a diversified
communications company, and as its Chairman and Chief Executive Officer from
August 1987 to December 1990. He is also a director of PanAmSat Corporation;
Pier 1 Imports; and Texas Industries.
Mary Hawkins Key has served as one of our directors since March 1999. She is
Senior Vice President of Partnership Operations for AT&T. Partnership operations
include AT&T's proportionate interests in active 850 MHz cellular markets such
as Bay Area Cellular Telephone, strategic alliances such as Rogers Cantel, and
AT&T's equity participation in affiliated new PCS businesses which are members
of the AT&T Wireless Network. Ms. Hawkins Key heads the multi-disciplinary team
which provides guidance, consulting and assistance to partnership operations in
virtually every area of the business. Ms. Hawkins Key joined AT&T's Messaging
Division in 1995, and subsequently became Chief Operating Officer for the 1100
employee division. While in this role, Ms. Hawkins Key served as business leader
of the team responsible for spinning off the Messaging business unit. Ms.
Hawkins Key is on the board of Triton PCS and is a partner committee member for
CMT Partners, the partnership which owns the Bay Area Cellular Telephone and
Kansas City Cellular Telephone companies.
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William Kussell has served as one of our directors since July 1998. Mr.
Kussell has served as President of Dunkin' Donuts marketing office since 1996,
as well as Retail Concept Officer for Allied Domecq Retailing USA since 1997. In
this role, Mr. Kussell leads the overall strategy for Dunkin' Donuts as well as
oversees the development of the Baskin Robbins Brand. Mr. Kussell has over 13
years of brand building marketing experience within several industries, ranging
from food to photography. He was Vice President of worldwide marketing for
Reebok where he helped build Reebok's worldwide brand image and led the entry
into the home fitness video and programming business.
William Laverack, Jr. has served as one of our directors since January 1998.
He has been a General Partner of J.H. Whitney, an investment firm focused on
private equity and mezzanine capital investments, since May 1993. J.H. Whitney
manages approximately $1 billion of capital and invests in several industry
areas including communications. Prior to J.H. Whitney, he was with Gleacher &
Co., Morgan Stanley, and J.P. Morgan. He is currently a director of Steel
Dynamics, and several private companies including NBX, PRAECIS Pharmaceuticals,
NeuroMetrix, Ariat International, and Qualitech Steel. Mr. Laverack is a
graduate of Harvard College, B.A., and Harvard Business School, M.B.A.
Joseph O'Donnell has served as one of our directors since July 1998. He is
the former Chairman and Chief Executive Officer of two major advertising
agencies: J. Walter Thompson Company Worldwide and Campbell-Mithum-Esty
Advertising. In his twenty-five year career in the advertising business, he has
had experience with the automotive, financial services, telecommunications and
retail industries. Since leaving the agency business in 1991, Mr. O'Donnell has
founded several marketing and/or communication related businesses, principally
Osgood, O'Donnell & Walsh LLC, a communications consulting company serving
companies such as Equitable Insurance, Chase Manhattan Bank,
PricewaterhouseCoopers LLP, Ford and Teligent. Mr. O'Donnell also sits on the
board of Unique Casual Restaurants.
Michael Schwartz has served as one of our directors since November 1998. Mr.
Schwartz joined AT&T in September of 1996. He is currently a Vice President in
AT&T's Acquisitions and Development group. From September 1996 through September
1998, Mr. Schwartz was Vice President and Chief Counsel of AT&T's Messaging
Division. Prior to joining AT&T, Mr. Schwartz was in private practice in the
Seattle office of Graham & James. Mr. Schwartz holds a B.A., magna cum laude, in
physics and a J.D., magna cum laude, from Harvard University.
James F. Wade has served as one of our directors since July 1998. He is
currently the Managing Partner of M/C Venture Partners, a $250 million private
equity fund and has been a General Partner in a series of predecessor funds
since 1987. M/C Venture Partners invests solely in the telecommunications and
information technology sectors. Mr. Wade's investments have included several
wireless telephony commitments throughout North America. Mr. Wade has been
responsible for developing the firm's involvement in the telecommunications
sectors, including cellular telephones, PCS and other technologies,
telecommunications service providers that compete with the incumbent local
telephone service providers, domestic and international paging, and local
multipoint distribution service that are wireless competitors to local telephone
service. Mr. Wade has been working with our management and the management of
TeleCorp Holding since 1995 and is on the board of six other private companies.
Mr. Wade graduated from the University of Notre Dame in 1978 with a B.B.A. in
Finance and received an M.B.A. from Harvard Business School in 1982.
Selection of Directors
Our board currently consists of 13 directors. Our directors are elected to
serve until they resign or are removed or are otherwise disqualified to serve or
until their successors are elected and qualified. Our directors are elected at
the annual meeting of stockholders.
The stockholders' agreement provides that any action of our board be approved
by the affirmative vote of a majority of our entire board, except in
circumstances where voting by particular classes of directors is required, and
that our board shall initially consist of 13 directors. The stockholders'
agreement also provides
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that the members of our board will initially be comprised of the following:
. three individuals selected by the cash equity investors who own a
majority of the class A common stock - currently Mr. Desai, Mr. Hoak
and Mr. Laverack serve in this capacity;
. each of Mr. Vento and Mr. Sullivan, so long as each remains an
officer and the management agreement with TeleCorp Management remains
in effect;
. two individuals selected by AT&T Wireless PCS in its capacity as
holder of the series A preferred stock, so long as AT&T Wireless PCS
and TWR Cellular together own at least two-thirds of the number of
shares of series A preferred stock authorized on May 14, 1999 by our
restated certificate of incorporation - currently Ms. Hawkins Key and
Mr. Schwartz serve in this capacity;
. three individuals selected by the holders of the voting
preference stock, which three individuals are reasonably acceptable to
the cash equity investors who own a majority of the class A common
stock - currently Mr. Fuqua, Mr. Hannon and Mr. Wade serve in this
capacity; and
. three individuals selected by the holders of the voting
preference stock, which three individuals are reasonably acceptable to
the holders of a majority of the class A common stock beneficially
owned by the cash equity investors and AT&T Wireless PCS - currently
Mr. Anderson, Mr. Kussell and Mr. O'Donnell serve in this capacity.
The stockholders' agreement provides that our board will be reduced in size to
be comprised of 7 directors upon the later to occur of the following:
. the date that the holders of shares of our voting preference
stock votes as a class with the holders of our class A voting common
stock; and
. the date on which:
. the class A voting common stock is registered pursuant to an
effective registration statement under the Securities Act;
. the aggregate gross proceeds received by us in connection with
such registration statement equals or exceeds $20 million; and
. the class A voting common stock is listed for trading on the New
York Stock Exchange or the American Stock Exchanged or authorized
for trading on NASDAQ.
If our board is to be reduced to 7 directors, the parties to the stockholders'
agreement agreed to vote all of the shares of class A voting common stock and
voting preference stock to cause the election of the following 7 individuals to
our board:
. two individuals selected by holders of a majority in interest of
the common stock beneficially owned by the cash equity investors;
. two additional individuals selected by holders of a majority in
interest of the common stock beneficially owned by the cash equity
investors which are acceptable to Mr. Vento and Mr. Sullivan, so long
as they remain officers, and AT&T Wireless PCS;
. two individuals employed by us and selected by Mr. Sullivan and
Mr. Vento, so long
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as they remain officers, one of whom shall be
acceptable to the holders of a majority in interest of the class A
voting common stock beneficially owned by the cash equity investors
and AT&T Wireless PCS; and
. one individual elected by AT&T Wireless PCS in its capacity as
the holder of series A preferred stock so long as it has the right to
nominate one director in accordance with our restated certificate of
incorporation.
Compensation of Directors
It is not anticipated that the representatives of the cash equity investors
who serve on our board or any committee of our board, such as Mr. Hannon, Mr.
Anderson, Mr. Desai, Mr. Fuqua, Mr. Hoak, Mr. Laverack and Mr. Wade, will
receive cash compensation for their service on our board. Other non-employee
members of our board or its committees receive a quarterly stipend of $1,875,
$1,000 for attending each board or committee meeting and $500 for participating
in each teleconference. It is anticipated that these directors may also receive
stock options. All members of our board or any committee of our board, including
members who are our employees, will be reimbursed for out-of-pocket expenses in
connection with attendance at meetings.
Committees of the Board of Directors
Our bylaws provide that our board may establish committees to exercise powers
delegated by our board. Under that authority, our board has established an
executive committee, an audit committee and a compensation committee.
The stockholders' agreement provides that the executive committee be comprised
of 5 individuals as follows:
. one of the directors elected by AT&T Wireless PCS in its capacity
as holder of our series A preferred stock - currently there is a
vacancy;
. one of the directors selected by the cash equity investors -
currently Mr. Desai serves in this capacity;
. Mr. Vento, who is our Chief Executive Officer, so long as he is
an officer of us;
. one of the directors selected by the holders of our voting
preference stock who was reasonably acceptable to the holders of a
majority in interest of our class A voting common stock beneficially
owned by the cash equity investors - currently Mr. Hannon serves in
this capacity; and
. one of the directors selected by the holders of our voting
preference stock who was reasonably acceptable to the holders of a
majority in interest of the class A voting common stock owned by the
cash equity investors and AT&T Wireless PCS - currently Mr. O'Donnell
serves in this capacity.
The audit committee is comprised of:
. Mr. Anderson;
. Mr. Fuqua;
. Mr. Laverack; and
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. Mr. Wade.
The compensation committee is comprised of:
. Mr. Anderson;
. Mr. Desai;
. Mr. Hoak;
. Mr. Kussell; and
. Mr. Schwartz.
Executive Compensation
The following table contains information about the cash and other compensation
that we paid in the 1998 fiscal year to Mr. Vento, our Chief Executive Officer,
and the four other most highly paid executive officers. Our employees are
eligible for annual cash bonuses. These bonuses are generally earned in the year
prior to which they are paid based upon achievement of corporate and individual
performance objectives; however some bonuses are specified in employment
agreements. The bonuses earned in 1997 were paid in 1998 and are not included in
this table. The bonuses in the table were earned in 1998 and were paid in 1999.
Other annual compensation consists of amounts reimbursed for relocation expenses
and any taxes that we paid on behalf of the executive for the reimbursement. We
effected a 100-to-1 stock split of all our common stock, senior common stock and
series F preferred stock on August 31, 1999. We have not restated historical
amounts to reflect the stock split. We have reflected the stock split in share
amounts listed as on or subsequent to August 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------------------------- ---------------------------------
Other Annual
Compensation Restricted Stock
Name and Principal Position Salary($) Bonus($) ($) Awards($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald T. Vento $213,461(a) $157,500(b) $ 5,994(c) $ 0
Chief Executive Officer and
Chairman
Thomas H. Sullivan 206,931(d) 125,000(e) 106,637(f) 0
Executive Vice President and Chief
Financial Officer
Julie Dobson 114,423(g) 155,000 66,134(h) 127,238(i)
Vice President and Chief
Operating Officer
Robert Dowski(j) 181,196(k) 101,251(l) 5,514(m) 40,640(n)
Chief Financial Officer
Steven Chandler 118,808(o) 45,000(p) 114,475(q) 14,541(r)
General Manager
</TABLE>
______________________________
(a) This amount consists of $111,538 that TeleCorp Management paid to Mr. Vento
out of amounts we paid to TeleCorp Management under the management
agreement and $101,923 that TeleCorp Holding paid to Mr. Vento.
(b) This amount does not include $62,500 in bonus that TeleCorp Holding paid to
Mr. Vento in 1998 earned in 1997.
(c) This amount consists of $5,994 that we paid on behalf of Mr. Vento into our
401(k) plan.
(d) This amount consists of $92,947 that TeleCorp Management paid to Mr.
Sullivan out of amounts we paid to TeleCorp Management under the management
agreement and $113,984 that TeleCorp Holding paid to
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Mr. Sullivan.
(e) This amount does not include $51,500 that TeleCorp Holding paid to Mr.
Sullivan in 1998 earned in 1997.
(f) This amount consists of $103,637 in relocation expenses that TeleCorp
Management paid to Mr. Sullivan out of amounts that we paid to TeleCorp
Management under the management agreement and $3,000 that we paid on
behalf of Mr. Sullivan in our 401(k) plan.
(g) This amount consists of $114,423 that TeleCorp Communications paid to Ms.
Dobson.
(h) This amount consists of $66,134 in relocation expenses that TeleCorp
Communications paid to Ms. Dobson.
(i) Consists of 2,287 shares of series E preferred stock, valued at $52 per
share, and 3,459 shares of class A common stock, valued at $2.40 per
share, issued under our restricted stock grant plan on July 16,
1998.
(j) Mr. Dowski ceased to be employed with us as of March 8, 1999, except for
transition support.
(k) This amount consists of $72,692 that TeleCorp Holding paid to Mr. Dowski
and $108,504 that TeleCorp Communications paid to Mr. Dowski.
(l) This amount does not include $9,803 that TeleCorp Holding paid to Mr.
Dowski in 1998 earned in 1997.
(m) This amount consists of $5,514 that we paid on behalf of Mr. Dowski into
our 401(k) plan.
(n) Consists of 714.340 shares of series E preferred stock, valued at $52 per
share, and 1,456 shares of class A common stock, valued at $2.40 per
share, issued under our restricted stock grant plan on July 16, 1998. On
March 8, 1999, we repurchased 577 of Mr. Dowski's shares of series E
preferred stock and 1,316 of Mr. Dowski's shares of class A common stock
for a total of approximately $19, which is not reflected in the
table.
(o) This amount consists of $54,519 that TeleCorp Holding paid to Mr.
Chandler and $64,288 that TeleCorp Communications paid to Mr. Chandler.
(p) This amount does not include $7,228 that TeleCorp Holding paid to Mr.
Chandler in 1998 earned in 1997 or $6,000 that TeleCorp Communications
paid to Mr. Chandler in 1998 earned in 1997.
(q) This amount consists of $111,995 in relocation expenses that TeleCorp
Communications paid to Mr. Chandler and $2,480 that we paid on behalf of
Mr. Chandler into our 401(k) plan.
(r) Consists of 256 shares of series E preferred stock and 520.92 shares of
class A common stock issued under our restricted stock grant plan on July
16, 1998.
Restricted Stock Grant Plan
We established the TeleCorp PCS, Inc. 1998 Restricted Stock Plan to award key
employees shares of our series E preferred stock and class A common stock. Each
award is subject to a five- or six-year vesting schedule that depends on the
employee's date of hire, with unvested shares being redeemed by us for $0.01 per
share upon termination of employment. The shares granted are subject to the same
transfer restrictions and repurchase rights as our shares held by AT&T and other
investors. See "Description of Capital Stock." As of July 1, 1999, 6,687 shares
of series E preferred stock and 12,297 shares of class A common stock are
outstanding under this plan. We repurchased an additional 1,155 shares of series
E preferred stock and 2,633 shares of class A common stock from our
stockholders, which we had granted under this plan, and we have regranted some
of these repurchased shares under this plan.
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1999 Stock Option Plan
On July 22, 1999, we implemented the 1999 Stock Option Plan to award employees
and members of our board options to acquire shares of our class B common stock.
The options will be exercisable over a 10 year period. They will vest ratably
over a three to four year period. The exercise prices will be equal to the
estimated fair value of the underlying shares of class B common stock. The plan
restricts option holders from exercising their options until:
. an initial public offering of our class A common stock occurs
that raises aggregate proceeds of at least $20.0 million;
. we sell all or substantially all of our assets; or
. we sell all or substantially all of our outstanding capital stock
is sold.
We have reserved 587,159 shares of our class B common stock for issuance under
this plan.
On July 22, 1999, our board approved the grant of options to purchase 189,520
shares of class B common stock under our plan at an exercise price of $0.02 per
share. We effected these grants on August 31, 1999.
Management Agreement
Under the management agreement, TeleCorp Management, under our oversight,
review and ultimate control and approval, assists us with:
. administrative services, such as accounting, payment of all bills
and collection;
. operational services, such as engineering, maintenance and
construction;
. marketing services, such as sales, advertising and promotion;
. regulatory services, such as tax compliance, FCC applications and
regulatory filings; and
. general business services, such as supervising employees,
budgeting and negotiating contracts.
Mr. Vento and Mr. Sullivan own TeleCorp Management.
TeleCorp Management has agreed to provide the services of Mr. Vento and Mr.
Sullivan in connection with the performance of TeleCorp Management's obligations
under the management agreement. Mr. Vento and Mr. Sullivan have agreed to devote
their entire business time and attention to providing these services, provided
that they may devote reasonable periods of time to other enumerated
activities.
We reimburse TeleCorp Management for all out of pocket expenses it incurs for
the retention of third parties on our behalf. We pay TeleCorp Management fees of
$550,000 per year, payable in monthly installments. TeleCorp Management is also
entitled to a potential annual bonus equal to up to 50% of the management fee
based upon the achievement of objectives established by the compensation
committee of our board for a particular calendar year. In 1998, we paid bonuses
totaling approximately $285,000 to TeleCorp Management.
The
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management agreement has a five-year term. We may terminate the management
agreement immediately in some circumstances including:
. indictment of Mr. Vento or Mr. Sullivan for a felony;
. a material breach which remains uncured after 30 days written notice;
. the failure of TeleCorp Management to provide to us the services of
Mr. Vento and Mr. Sullivan;
. an event of default on any of our credit agreements for borrowings of
$25.0 million or more as a result of our failure to comply with their
terms; or
. acceleration of any of our indebtedness over $25.0 million.
TeleCorp Management may terminate the agreement voluntarily upon 30 days written
notice to us. TeleCorp Management may also terminate the agreement if:
. Mr. Vento and Mr. Sullivan are removed as directors or are demoted or
removed from their respective offices or there is a material
diminishment of Mr. Vento's and Mr. Sullivan's responsibilities, duties
or status, which diminishment is not rescinded within 30 days after the
date of receipt by our board from Mr. Vento and Mr. Sullivan of their
respective written notice referring to the management agreement and
describing the diminishment; or
. we relocate our principal offices without TeleCorp Management's
consent to a location more than 50 miles from our principal offices in
Arlington, Virginia.
If TeleCorp Management terminates the agreement for reasons other than its
right to terminate upon 30 days written notice, or if we terminate the agreement
because of a breach by TeleCorp Management or we fail to comply with any of our
credit agreements for borrowed money in the amount of $25.0 million or more,
TeleCorp Management will be entitled to their management fee and annual bonus.
Their annual bonus will be determined as follows:
. if the date of termination is on or prior to June 30 or any applicable
calendar year, the annual bonus will be equal to a pro rata portion of
the annual bonus in respect of that year, as determined based upon our
achievement of the objectives for that year;
. if the date of termination is after June 30 of any applicable calendar
year, the annual bonus will be equal to the annual bonus payable in
respect of that year, as determined based upon our achievement of the
objectives for that year,
in either instance payable upon the later to occur of 30 days after
certification of our financial statements for that year and the last day of the
month after which a new management service provider is retained by us, and
TeleCorp Management has nominated a successor person or persons, who are
acceptable to our board, and:
. who would not cause a significant detrimental effect on our
eligibility to hold our PCS licenses and to realize the benefits, if
any, that we derive from TeleCorp Management's status as a very small
business;
. to whom our voting preference common stock and class C common stock
shall be transferred by Mr. Vento and Mr. Sullivan.
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. The management agreement protects us if TeleCorp Management does not
nominate an acceptable person or persons to provide to us management
services to us.
The shares of class A common stock and series E preferred stock that Mr. Vento
and Mr. Sullivan received under the securities purchase agreement vest in
accordance with the following schedule, which is contained in the management
agreement:
<TABLE>
<CAPTION>
Vesting Date Percent of
Shares
<S> <C>
July 17, 1998 20%
July 17, 2000 15%
July 17, 2001 15%
July 17, 2002 15%
July 17, 2003 15%
</TABLE>
The remaining shares vest according to the completion of different steps in
our minimum construction plan and the closing of our transactions for additional
licenses.
We are obligated to repurchase from Mr. Vento and Mr. Sullivan, and they are
required to sell to us, their shares of our series E preferred stock or our
class A common stock, following the termination of the management agreement for
any reason, in the amounts and upon the following conditions:
. 4,664 shares of our class A common stock if the termination occurs
prior to an extraordinary event, which is a merger between us and
another entity after giving effect to which our cash equity investors
would beneficially own less than 33% of the equity interests in the
surviving entity, the sale of substantially all of our assets, or the
date of an initial public offering of our capital stock;
. the shares of our class A common stock that have not already vested if
the termination occurs after an extraordinary event; and
. the amount of our class A common stock, up to 18,656 shares, and our
series E preferred stock, up to 18,219 shares, that have not yet
vested.
Upon the occurrence of an extraordinary event, we are obligated to repurchase
from Mr. Vento and Mr. Sullivan, and they are required to sell to us, a
percentage of their 4,664 shares of our class A common stock. The percentage of
shares to be repurchased is determined by the internal rate of return realized
by our cash equity investors. The percentage of Mr. Vento's and Mr. Sullivan's
4,664 shares of our class A common stock to be repurchased is determined as
follows:
. if the internal rate of return realized by our cash equity investors
is less than 30%, we must repurchase a total of 4,664 shares of our
class A common stock from Mr. Vento and Mr. Sullivan;
. if the internal rate of return realized by our cash equity investors
is 30% or more but less than 35%, we must repurchase a total of 2,332
shares of our class A common stock from Mr. Vento and Mr. Sullivan; and
. if the internal rate of return realized by our cash equity investors
is more than 35%, we do not repurchase any shares of our class A common
stock.
During the term of the management agreement, and under limited circumstances
for a period following termination, TeleCorp Management, Mr. Vento and Mr.
Sullivan are prohibited from assisting or becoming associated with any person or
entity, other than as a holder of up to 5% of the outstanding voting shares
of
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any publicly traded company, that is actively engaged in the business of
providing mobile wireless communications services in our territory, and from
employing any person who was employed by us unless that person was not employed
by us for a period of at least six months.
Employee Agreements
On July 17, 1998, we entered into an employee agreement with Ms. Dobson, under
which she serves as our Chief Operating Officer at a base annual salary of
$250,000. Ms. Dobson is eligible under the employee agreement, at our board's
discretion, to receive an annual bonus in an amount up to 50% of her base annual
salary.
On July 17, 1998, we entered into an employee agreement with Mr. Chandler,
under which he serves as our General Manager at a base annual salary of
$145,000. Mr. Chandler is eligible under the employee agreement, at our board's
discretion, to receive an annual bonus in an amount up to 30% of his base annual
salary.
Both Ms. Dobson's and Mr. Chandler's employee agreements provide that they are
employees-at-will. We will reimburse the reasonable expenses that the executives
incur while performing their services under the employee agreements and the
executives may participate in our employee benefit plans available to employees
of comparable status and position.
If an executive should die, we will pay any amounts that we owe the executive
under the employee agreements accrued prior to the death to the executive's
estate, heirs and beneficiaries. All family medical benefits under the employee
agreements for the benefit of the executive will continue for six months after
death. Termination for cause is:
. engaging in misconduct which has caused demonstrable and serious
injury, financial or otherwise, to us or our reputation;
. being convicted of a felony or misdemeanor as evidenced by a judgment,
order or decree of a court of competent jurisdiction;
. failing to comply with our board's directions, or neglecting or
refusing to perform the executive's duties or responsibilities, unless
changed significantly without the executive's consent; or
. violating the employee agreement or restricted stock grant plan.
If we terminate an executive for cause, or an executive voluntarily quits, we
will pay the executive any amounts that we owe the executive accrued prior to
the cessation of employment. If we terminate an executive other than for cause,
we will pay the executive an amount equal to such executive's then annual base
salary, at normal payroll intervals, as well as continue to cover the executive
under our employee benefit plans for 12 months.
Under the employee agreements, the executives are subject to confidentiality
provisions, and have agreed, for one year after cessation of employment with us,
to non-competition and non-solicitation provisions and to limit public
statements concerning us.
Separation Agreement
On March 8, 1999, we entered into a separation agreement with Mr. Dowski.
Under such separation agreement, we agreed to pay Mr. Dowski:
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. $17,500 per month for 12 months;
. a lump sum of $105,000, representing a 1998 bonus;
. a lump sum equal to earned but unpaid or unused vacation;
. $4,300 as reimbursement for relocation expenses, including taxes
payable by Mr. Dowski on the sum; and
. a lump sum equal to outstanding travel and expense reimbursement.
We also agreed to continue covering Mr. Dowski under our employee benefit plans
for 12 months. We will continue to pay a duplicate housing relocation benefit to
Mr. Dowski through July 1999.
In addition, we repurchased 577 shares of Mr. Dowski's series E preferred
stock and 1,316 of Mr. Dowski's shares of class A common stock for approximately
$19 in accordance with his share grant agreement concerning such restricted
stock.
The separation agreement contained mutual releases by Mr. Dowski and us of the
other. In addition, in the separation agreement, Mr. Dowski confirmed his
confidentiality agreements with us, and his one-year non-competition, non-
solicitation and limitation on public speaking agreements.
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SECURITIES OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table describes, as of September 14, 1999, on a pro forma basis,
after giving effect to our Viper Wireless transaction, the number of shares of
each class of our voting stock beneficially owned by:
. each of our directors;
. key executive officers;
. each person known by us to beneficially own more than 5% of the
outstanding shares of any class of our voting capital stock at such
date;
. all of our directors and executive officers , as a group, 30
persons.
We effected a 100-to-1 stock split of all our common stock, senior common
stock and series F preferred stock on August 31, 1999. We have not restated
historical amounts to reflect the stock split. We have reflected the stock split
in share amounts listed as on or subsequent to August 31, 1999. As of September
14, after giving pro forma effect to our Viper Wireless transaction, the
following shares were outstanding:
. 97,473 shares of series A preferred stock;
. 210,608 shares of series C preferred stock;
. 49,417 shares of series D preferred stock;
. 24,906 shares of series E preferred stock;
. 4,826,141 shares of series F preferred stock;
. 23,879,899 shares of class A common stock;
. 91,846 shares of class C common stock;
. 275,539 shares of class D common stock; and
. 1,000 shares of voting preference stock.
See "Description of Capital Stock." Except as otherwise indicated, the address
for each stockholder is c/o TeleCorp, 1010 N. Glebe Road, Suite 800, Arlington,
Virginia 22201.
In accordance with the beneficial ownership provisions of the Securities
Exchange Act of 1934 for purposes of this table, a person is deemed to be the
beneficial owner of any shares of common stock if the person has or shares
voting power or investment power with respect to the common stock, or has the
right to acquire beneficial ownership at any time within 60 days of the date of
the table. As used here, voting power is the power to vote or direct the voting
of shares and investment power is the power to dispose or direct the disposition
of shares.
Under the terms of our restated certificate of incorporation, until the
occurrence of defined events, and subject to specific rights granted to holders
of other classes of our capital stock, the holders of voting preference common
stock possess 50.1% of the voting power of all shares of our capital stock, and
the holders of class A common stock possess 49.9% of the voting power of all
shares of our capital stock. If, under circumstances described under
"Description of Capital Stock," we receive FCC approval for the class A common
stock and voting preference common stock to vote as a single class, the class A
common stock and the voting preference common stock will vote as a single class
on all matters and be granted one vote per outstanding share. Holders of some of
our other classes of our capital stock have been granted voting rights regarding
matters specifically affecting those classes. Finally, so long as AT&T
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continues to own not less than two-thirds of the shares of series A preferred
stock it owned on July 16, 1998, it will have the right to nominate two members
of our board, or one member following other events. See "Description of Capital
Stock."
<TABLE>
<CAPTION>
Class A Voting Preference
Common Stock Common Stock
----------------------------- -----------------------------
Number of Percentage of Number of Percentage of
Stockholder Shares Class Shares Class
- ----------- ---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
CB Capital Investors, L.P............................ 4,899,238(a) 20.76% 0 0%
Equity-Linked Investors -II.......................... 4,650,492(b) 19.71 0 0
Hoak Communications Partners, L.P.................... 3,487,793(c) 14.78 0 0
Whitney Equity Partners. L.P......................... 2,906,428(d) 12.32 0 0
Media/Communications Partners........................ 1.868,453(e) 7.92 0 0
AT&T Wireless PCS, Inc............................... 5,118,936(f) 18.01 0 0
TWR Cellular, Inc.................................... 5,118,936(f) 18.01 0 0
Gerald T. Vento...................................... 1,609,854(g) 6.82 500 50
Thomas H. Sullivan................................... 1,042,380(h) 4.42 500 50
Michael R. Hannon.................................... 4,899,238(i) 20.76 0 0
Rohit M. Desai..................................... 4,650,492(j) 19.71 0 0
James M. Hoak........................................ 3,487,793(k) 14.78 0 0
William Laverack, Jr................................. 2,906,428(l) 12.32 0 0
Gary Fuqua........................................... 0 0 0 0
James F. Wade........................................ 1,868,453(m) 7.92 0 0
Scott Anderson....................................... 2,500(n) * 0 0
William Kussell.................................... 2,500(o) * 0 0
Joseph O' Donnell.................................. 2,500(p) * 0 0
Michael Schwartz..................................... 5,118,936(f) 18.01 0 0
Mary Hawkins Key..................................... 5,118,936(f) 18.01 0 0
Julie Dobson......................................... 518,213(q) 2.20 0 0
Robert Dowski........................................ 13,945(r) * 0 0
Steven Chandler...................................... 57,342(s) * 0 0
All directors and executive officers, as a group, 30
persons.............................................. 26,777,264(t) 94.20
</TABLE>
_______________
* Less than one percent.
(a) Includes shares held by TeleCorp Investment Corp., LLC. Does not include
9,082 shares of class C common stock or 65,793 shares of class D common
stock held by these stockholders. These shares under some circumstances are
convertible into shares of class A common stock. Does not include 50,571
shares of series C preferred stock held by these stockholders. These shares
are convertible under some circumstances into shares of class A common stock
or class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." These shares may also be deemed to be
beneficially owned by Mr. Hannon. Mr. Hannon disclaims beneficial ownership
of all of these shares. The address of the stockholders is 380 Madison
Avenue, 12th Floor, New York, New York 10017.
(b) Includes shares held by Private Equity Investors III, L.P. Does not include
8,710 shares of class C common stock or 62,876 shares of class D common
stock held by these stockholders. These shares, under some circumstances,
are convertible into shares of class A common stock. Does not include 48,038
shares of series C preferred stock held by these stockholders. These shares
are convertible under some circumstances into shares of class A common stock
or class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." These shares may also be deemed to be
beneficially owned by Mr. Desai. Mr. Desai disclaims beneficial ownership of
all these shares. The address of the
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stockholders is 540 Madison Avenue, 36th Floor, New York, New York 10022.
(c) Includes shares held by HCP Capital Fund, L.P. Does not include 6,532 shares
of class C common stock or 47,159 shares of class D common stock held by
these stockholders. These shares, under some circumstances, are convertible
into shares of class A common stock. Does not include 36,028 shares of
series C preferred stock held by these stockholders. These shares are
convertible under some circumstances into shares of class A common stock or
class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." These shares may also be deemed to be
beneficially owned by Mr. Hoak. The address of the stockholders is One
Galleria Tower, 13355 Noel Road, Suite 1050, Dallas, Texas 75240.
(d) Includes shares held by J.H. Whitney III, L.P. and Whitney Strategic
Partners III, L.P. Does not include 5,444 shares of class C common stock or
39,300 shares of class D common stock held by these stockholders. These
shares, under some circumstances, are convertible into shares of class A
common stock. Does not include 30,023 shares of series C preferred stock
held by these stockholders. These shares are convertible under some
circumstances into shares of class A common stock or class B common stock,
which is convertible into class A common stock. See "Description of Capital
Stock." These shares may also be deemed to be beneficially owned by Mr.
Laverack. The address of the stockholders is 177 Broad Street, 15th Floor,
Stamford, Connecticut 06901.
(e) Consists of shares held by Media/Communications Partners III Limited
Partnership and Media/Communications Investors Limited Partnership. Does not
include 3,452 shares of class C common stock or 25,038 shares of class D
common stock held by these stockholders. These shares, under some
circumstances, are convertible into shares of class A common stock. Does not
include 19,282 shares of series C preferred stock held by these
stockholders. These shares are convertible under some circumstances into
shares of class A common stock or class B common stock, which is convertible
into class A common stock. See "Description of Capital Stock." These shares
may also be deemed to be beneficially owned by Mr. Wade. The address of the
stockholders is 75 State Street, Suite 2500, Boston, Massachusetts
02109.
(f) Consists of 2,532,495 shares of series F preferred stock held by AT&T
Wireless PCS, 1,803,646 shares of series F preferred stock held by TWR
Cellular and 490,000 shares of series F preferred stock issuable to AT&T
Wireless PCS in connection with the Viper Wireless transaction. Does not
include 6,764 shares of class D common stock held by AT& T Wireless PCS.
These shares may also be deemed to be held by Mr. Schwartz, Ms. Hawkins Key
and various AT&T affiliates. Mr. Schwartz and Ms. Hawkins Key disclaim
beneficial ownership of all of these shares. Does not include 97,473 shares
of series A preferred stock or 49,417 shares of series D preferred stock
held by this stockholder. Series A preferred stock is convertible into
shares of class A common stock only after July 17, 2006. Series D preferred
stock is convertible under some circumstances into shares of senior common
stock, which is convertible into class A common stock. See "Description of
Capital Stock." The address of the stockholders is c/o AT&T Wireless PCS,
Inc., 7277 164th Avenue, N.E., Redmond, Washington 98052.
(g) Includes 159,244 shares held by TeleCorp Investment Corp. II, L.L.C. Mr.
Vento serves as a manager and is a stockholder of this entity. Does not
include 34,124 shares of class C common stock or 1,015 shares of class D
common stock held by this stockholder or 3,678 shares of class D common
stock held by TeleCorp Investment Corp. II, L.L.C. These shares, under some
circumstances, are convertible into shares of class A common stock. Does not
include 490 shares of series C preferred stock or 11,235 shares of series E
preferred stock held by this stockholder or 1,670 shares of series C
preferred stock owned by TeleCorp Investment Corp. II, L.L.C. These shares
are convertible under some circumstances into shares of class A common stock
or class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock."
(h) Includes 159,244 shares held by TeleCorp Investment Corp. II, L.L.C. Mr.
Sullivan serves as a manger and is a stockholder of this entity. Does not
include 21,156 shares of class C common stock or 226 shares of class D
common stock held by this stockholder or 3,678 shares of class D common
stock held by TeleCorp Investment Corp. II, L.L.C. These shares, under some
circumstances, are convertible into shares of class A common stock. Does not
include 109 shares of series C preferred stock or 6,984 shares of series E
preferred stock held by this stockholder or 1,670 shares of series C
preferred stock owned by TeleCorp Investment Corp. II, L.L.C. These shares
are convertible under some circumstances into shares of class A common stock
or class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock."
(i) Includes shares of our capital stock owned by CB Capital Investors, L.P. and
TeleCorp Investment Corp., LLC. Mr. Hannon serves as Vice President of CB
Capital Investors, L.P. Includes 9,082 shares of class C common stock and
65,793 shares of class D common stock held by the stockholders. These
shares, under some circumstances, are convertible into shares of class A
common stock. Does not include 50,571 shares of series C preferred stock
held by these stockholders. These shares are convertible under
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some circumstances into shares of class A common stock or class B common
stock, which is convertible into class A common stock. See "Description of
Capital Stock." Mr. Hannon disclaims beneficial ownership of all of these
shares. The address of the stockholder is c/o CB Capital Investors, L.P.,
380 Madison Avenue, 12th Floor, New York, New York 10017.
(j) Consists of shares owned by Equity-Linked Investors-II and Private Equity
Investors III, L.P. Mr. Desai serves as managing general partner of each of
these stockholders. Does not include 8,710 shares of class C common stock or
62,876 shares of class D common stock held by these stockholders. These
shares, under some circumstances, are convertible into shares of class A
common stock. Does not include 48,038 shares of series C preferred stock
held by these stockholders. These shares are convertible under some
circumstances into shares of class A common stock or class B common stock,
which is convertible into class A common stock. See "Description of Capital
Stock." Mr. Desai disclaims beneficial ownership of all of these shares. The
address of this stockholder is 540 Madison Avenue, 36th Floor, New York, New
York 10022.
(k) Consists of shares owned by Hoak Communications Partners, L.P. and HCP
Capital Fund, L.P. Mr. Hoak serves as Principal and Chairman of the manager
of these stockholders, shareholder of the manager and General Partner of
Hoak Communications Partners, L.P. and limited partner and shareholder of
the General Partner of HCP Capital Fund, L.P. Does not include 6,532 shares
of class C common stock or 47,159 shares of class D common stock held by
these stockholders. These shares, under some circumstances, are convertible
into shares of class A common stock. Does not include 36,028 shares of
series C preferred stock held by these stockholders. These shares are
convertible under some circumstances into shares of class A common stock or
class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." The address of these stockholders is c/o
Hoak Communications Partners, L.P., One Galleria Tower, 13355 Noel Road,
Suite 1050, Dallas, Texas 75240.
(l) Consists of shares owned by Whitney Equity Partners, L.P., J.H. Whitney III,
L.P. and Whitney Strategic Partners III, L.P. Mr. Laverack serves as
Managing Member of J.H. Whitney Equity Partners, L.L.C., which is a General
Partner in Whitney Equity Partners, L.P., Managing Member of J.H. Whitney
Equity Partners III, L.L.C. which is a General Partner in J.H. Whitney III,
L.P. and Whitney Strategic Partners III, L.P. Does not include 5,444 shares
of class C common stock or 39,300 shares of class D common stock held by
these stockholders. These shares, under some circumstances, are convertible
into shares of class A common stock. Does not include 30,023 shares of
series C preferred stock held by these stockholders. These shares are
convertible under some circumstances into shares of class A common stock or
class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." The address of these stockholders is c/o
Whitney Equity Partners, L.P., 177 Broad Street, 15th Floor, Stamford,
Connecticut 06901.
(m) Consists of shares owned by Media/Communications Investors Limited
Partnership and Media/Communications Partners III Limited Partnership. Mr.
Wade serves as President of M/C Investor General Partner-J, Inc., which is a
General Partner in Media Communications Investors Limited Partnerships and
Manager of M/C III, L.L.C., which is a General Partner in Media
Communications Partners III Limited Partnership. Does not include 3,452
shares of class C common stock or 25,038 shares of class D common stock held
by these stockholders. These shares, under some circumstances, are
convertible into shares of class A common stock. Does not include 19,282
shares of series C preferred stock held by these stockholders. These shares
are convertible under some circumstances into shares of class A common stock
or class B common stock, which is convertible into class A common stock. See
"Description of Capital Stock." The address of these stockholders is c/o
Media/Communications Partners, 75 State Street, Suite 2500, Boston,
Massachusetts 02109.
(n) Does not include 159,244 shares of class A common stock and 3,678 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of which
Cedar Grove Partners, LLC owns 4.49%. Mr. Anderson is a principal of Cedar
Grove Partners, LLC. Includes vested options to purchase 2,500 shares of
class B common stock but does not include unvested options to purchase 7,500
shares of class B common stock.
(o) Does not include 159,244 shares of class A common stock and 3,678 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of which
Mr. Kussell owns 2.99%. Includes vested options to purchase 2,500 shares of
class B common stock but does not include unvested options to purchase 7,500
shares of class B common stock.
(p) Does not include 159,244 shares of class A common stock and 3,678 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of which
Mr. O'Donnell owns 2.39%. Includes vested options to purchase 2,500 shares
of class B common stock but does not include unvested options to purchase
7,500 shares of class B common stock.
(q) Does not include 159,244 shares of class A common stock and 3,678 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of which
Ms. Dobson owns 5.99%. Does not include 3,120 shares of series E preferred
stock held by this stockholder. These shares are convertible under some
circumstances into shares of class A common stock or class B common stock,
which is convertible into class A common stock.
(r) Does not include 137 shares of series E preferred stock held by this
stockholder. These shares are convertible
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under some circumstances into shares of class A common stock or class B
common stock, which is convertible into class A common stock. See
"Description of Capital Stock."
(s) Does not include 159,244 shares of class A common stock and 3,678 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.C., of which
Mr. Chandler owns 5.99%. Includes vested options to purchase 250 shares of
class B common stock but does not include unvested options to purchase 750
shares of class B common stock.
(t) Includes shares held by members of management and our cash equity investors
that may be deemed to be beneficially owned by members of our board. These
members of our board disclaim beneficial ownership. The 14 members of our
senior management team hold approximately 14% of our common stock. Does not
include shares held by Mr. Dowski, whom we no longer employ. Does not
include options that have been approved but not granted under our 1999 Stock
Option Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AT&T Agreements
On January 23, 1998, we and AT&T announced the formation of a venture under
which we are financing, constructing and operating a wireless communications
network using the AT&T and SunCom brand names and logos together, giving equal
emphasis to both. AT&T contributed licenses to us in exchange for an equity
interest in us. The venture provides the basis for an alliance between us and
AT&T to provide wireless communications services in particular markets. These
agreements are unique and were heavily negotiated by the parties. The parties
entered into these agreements as a whole, and, taken as a whole, the terms of
these agreements were no more favorable to any of the parties than could have
been obtained from third parties negotiated at arm's length. AT&T, as a result
of these agreements, owns shares of our capital stock. The terms of the venture
and the alliance are described in a number of agreements, and we summarize these
agreements. These summaries are qualified by reference to the agreements. Copies
of the agreements are attached as exhibits to the registration statement.
Securities Purchase Agreement
Under a securities purchase agreement, dated as of January 23, 1998, as amended,
among:
. our cash equity investors which include:
. AT&T Wireless PCS Inc.;
. TWR Cellular, Inc.;
. CB Capital Investors, L.P.;
. Desai Associates;
. Hoak Capital Corporation;
. J. H. Whitney & Co.;
. Entergy Technology Holding Company, who has since transferred all of
our capital stock that it owned;
. M/C Partners;
. One Liberty Fund III, L.P.;
. Toronto Dominion Investments, Inc.;
. Northwood Capital Partners;
. and:
. the former stockholders of TeleCorp Holding;
. Mr. Vento and Mr. Sullivan; and
. us,
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we received PCS licenses from AT&T Wireless PCS and TWR Cellular in exchange for
shares of our series A preferred stock, series D preferred stock and series F
preferred stock. Under the securities purchase agreement, the cash equity
investors agreed to contribute $128.0 million to us in exchange for shares of
our series C preferred stock, class A voting common stock, class C common
stock, and class D common stock. In addition, the securities purchase agreement
provides that, upon the closing by us of an acquisition of PCS licenses covering
populations of one million or more people, the cash equity investors will
contribute an additional $5.0 million to us in exchange for additional shares of
our series C preferred stock and class A common stock. Approximately $39.0
million of the contributions to be made by the cash equity investors were made
upon the closing of the transactions contemplated by the securities purchase
agreement, which occurred on July 17, 1998, and the remainder of the
contributions will be made over a three-year period. The obligations of each of
the cash equity investors to make its remaining contributions are:
. irrevocable and unconditional, and not subject to counterclaim,
set-off, deduction or defense, or to abatement, suspension, deferment,
diminution or reduction for any reason whatsoever; and
. under a pledge agreement between the cash equity investors and
us, secured by a pledge of all shares of our capital stock issued to
the cash equity investor under the securities purchase agreement.
See "Management Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Under the securities purchase agreement, Mr. Vento and Mr. Sullivan exchanged
their shares of stock in TeleCorp Holding for shares of our series E preferred
stock, class A common stock, class C common stock and class D common stock. Mr.
Vento and Mr. Sullivan also each received five shares of our voting preference
stock in exchange for shares of stock we previously issued to them. The other
former stockholders of TeleCorp Holding exchanged their shares of stock in
TeleCorp Holding for shares of our series C preferred stock, class A common
stock, class C common stock and class D common stock. The table below indicates
the contribution made by each of the parties to the securities purchase
agreement, their contribution and the consideration received:
<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. AT&T Wireless PCS Inc. . PCS licenses covering some of the . 30,650 shares of our series A
Basic Trade Areas preferred stock
or other areas within the St. Louis . 15,741 shares of our series D
Major Trade Areas the preferred stock
Louisville-Lexington-Evansville . 15,325 shares of our series F
Major Trade Area, and the preferred stock
Boston-Providence Major Trade Area
- ----------------------------------------------------------------------------------------------------------------------------
. TWR Cellular, Inc. . PCS licenses covering the Little Rock, . 36,073 shares of our series A
Arkansas Major Trade Area and covering preferred stock
some of the Basic Trade Areas . 18,526 shares of our series D
or other areas within the preferred stock
Memphis-Jackson Major Trade Area . 18,036 shares of our series F
preferred stock
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. CB Capital Investors, L.P. . $27,782,014 . 30,102 shares of our series C
. 363 class A shares of TeleCorp preferred stock
Holding . 28,654 shares of our class A common
. 2,296 class C shares of TeleCorp stock
Holding . 91 shares of our class C common
. 58 series A preferred shares of stock
TeleCorp Holding . 596 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Desai Associates . $27,782,014 . 27,782 shares of our series C
preferred stock
. 26,369 shares of our class A common
stock
. 87 shares of our class C common
stock
. 572 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Hoak Capital Corporation . $19,172,794 . 20,837 shares of our series C
preferred stock
. 19,777 shares of our class A common
stock
. 65 shares of our class C common
stock
. 429 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. J.H. Whitney & Co. . $17,363,760 . 17,364 shares of our series C
preferred stock
. 16,481 shares of our class A common
stock
. 54 shares of our class C common
stock
. 357 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Entergy Technology Holding Company . $13,891,009 . 15,051 shares of our series C
. 1,974 class B shares of TeleCorp preferred stock
Holding . 14,327 shares of our class A common
. 685 class C shares of TeleCorp stock
Holding . 344 shares of our class D common
. 58 series A preferred shares of stock
TeleCorp Holding
- -----------------------------------------------------------------------------------------------------------------------------------
. M/C Partners and M/C Investors . $10,418,256 . 11,578 shares of our series C
. 363 class A shares of TeleCorp preferred stock
Holding . 11,031 shares of our class A
. 2,296 class C shares of TeleCorp common stock
Holding . 35 shares of our class C common
. 58 series A preferred shares of stock
TeleCorp Holding . 227 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. One Liberty Fund III, L.P. . $3,472,754 . 5,004 shares of our series C
. 837 class A shares of TeleCorp preferred stock
Holding . 4,633 shares of our class A common
. 2,273 class C shares of TeleCorp stock
Holding . 13 shares of our class C common
. 77 series A preferred shares of stock
TeleCorp Holding . 86 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Toronto Dominion Investments, Inc. . $3,472,754 . 3,473 shares of our series C
preferred stock
. 3,296 shares of our class A common
stock
. 11 shares of our class C common
stock
. 71 shares of our class D common
stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Northwood Capital Partners and . $2,430,928 . 3,591 shares of our series C
Northwood Ventures . 363 class A shares of TeleCorp preferred stock
Holding . 3,450 shares of our class A common
. 2,296 class C shares of TeleCorp stock
Holding . 9 shares of our class C common stock
. 58 series A preferred shares of . 62 shares of our class D common
TeleCorp Holding stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Gilde Investment Fund B.V. . 8 class A shares of TeleCorp . 15 shares of our series C preferred
Holding stock
. 23 class C shares of TeleCorp . 13 shares of our class A common
Holding stock
. 1 series A preferred share of . less than 1 share of our class C
TeleCorp Holding common stock
. less than 1 share of our class D
common stock
- -----------------------------------------------------------------------------------------------------------------------------------
. TeleCorp Investment Corp., L.L.C. . 2,659 class C shares of TeleCorp . 2 shares of our class C common stock
Holding . 12 shares of our class D common
. 58 series A preferred shares of stock
TeleCorp Holding . 1,160 shares of our series C
preferred stock
- -----------------------------------------------------------------------------------------------------------------------------------
. Gerald T. Vento . $450,000 . 5 shares of our voting preferred
. 1,788 class A shares of TeleCorp common stock
Holding . 450 shares of our series C preferred
stock
. 8,729 shares of our series E
preferred stock
. 11,207 shares of our class A common
stock
. 341 shares of our class C common
stock
. 9 shares of our class D common stock
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
. Thomas H. Sullivan . $100,000 . 5 shares of our voting preferred
. 1,112 class A shares of TeleCorp common stock
Holding . 100 shares of our series C preferred
stock
. 5,426 shares of our series E
preferred stock
. 6,796 shares of our class A common
stock
. 212 shares of our class C common
stock
. 2 shares of our class D common stock
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Our cash equity investors also committed in the securities purchase agreement
to make additional irrevocable equity contributions in the aggregate amount of
$5.0 million in return for the issuance of preferred and common stock in
connection with the Digital PCS acquisition. In addition, upon the closing of
the transactions contemplated by the securities purchase agreement, we also
issued to other members of management shares of our series E preferred stock and
class A common stock. Up to 35.71% of the class A common stock issued to members
of management are under our restricted stock plan. Shares issued under the
restricted stock plan are subject to forfeiture according to a schedule if
employment of the stockholder with us is terminated within six years after the
closing of the securities purchase agreement.
Stockholders' Agreement
General. The stockholders' agreement, dated as of July 17, 1998, among AT&T
Wireless PCS, TWR Cellular, the cash equity investors, Mr. Vento, Mr. Sullivan
and us sets guidelines for our management and operations and restricts the sale,
transfer or other disposition of our capital stock.
Board of Directors. Our board currently consists of 13 directors. Our
directors are elected to serve until they resign or are removed or are otherwise
disqualified to serve or until their successors are elected and qualified. Our
directors are elected at the annual meeting of stockholders.
The stockholders' agreement provides that any action of our board be approved
by the affirmative vote of a majority of our entire board, except in
circumstances where voting by particular classes of directors is required. The
stockholders' agreement also provides that our board shall initially consist of
13 directors, comprised of the following:
. three individuals selected by the cash equity investors who own a
majority of the class A common stock;
. each of Mr. Vento and Mr. Sullivan, so long as each remains one
of our officers and the management agreement between us and TeleCorp
Management remains in effect;
. two individuals selected by AT&T Wireless PCS in its capacity as
holder of the series A preferred stock, so long as AT&T Wireless PCS
and TWR Cellular together own at least two-thirds of the number of
shares of series A preferred stock authorized on May 14, 1999 in our
restated certificate of incorporation;
. three individuals selected by the holders of the voting
preference stock, which three individuals are reasonably acceptable to
the
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cash equity investors who own a majority of the class A common stock;
and
. three individuals selected by the holders of the voting
preference stock, which three individuals are reasonably acceptable to
the holders of a majority of the class A common stock beneficially
owned by the cash equity investors and AT&T Wireless PCS.
The stockholders' agreement provides that our board will be reduced to 7
directors upon the later to occur of the following:
. the date that the holders of shares of our voting preference
stock vote as a class with the holders of our class A voting common
stock; and
. the date on which:
. the class A voting common stock is registered pursuant to an
effective registration statement under the Securities Act;
. the aggregate gross proceeds received by us in connection with
such registration statement equals or exceeds $20 million; and
. the class A voting common stock is listed for trading on the New
York Stock Exchange or the American Stock Exchange or authorized for
trading on NASDAQ.
If our board is reduced to 7 directors, the parties to the stockholders'
agreement agreed to vote all of the shares of class A voting common stock and
voting preference stock to cause the election of the following 7 individuals to
our board:
. two individuals selected by holders of a majority in interest of
the common stock beneficially owned by the cash equity investors;
. two additional individuals selected by holders of a majority in
interest of the common stock beneficially owned by the cash equity
investors, which two individuals are acceptable, in each of their
discretion, to Mr. Vento and Mr. Sullivan, so long as they remain our
officers, and AT&T Wireless PCS;
. two individuals employed by us and selected by Mr. Sullivan and
Mr. Vento, so long as they remain our officers, one of whom shall be
acceptable, in each of their reasonable discretion, to the holders of
a majority in interest of the class A voting common stock beneficially
owned by the cash equity investors and AT&T Wireless PCS; and
. one individual elected by AT&T Wireless PCS in its capacity as
the holder of series A preferred stock so long as it has the right to
nominate one director in accordance with our restated certificate of
incorporation.
. The stockholders' agreement also addresses the composition of our
board committees. See "Management."
Exclusivity. The parties to the stockholders' agreement have agreed that,
during the term of the stockholders' agreement, neither they nor any of their
respective affiliates will provide or resell, or act as the agent for any person
offering, within the areas covered by our licenses, wireless communications
services initiated or terminated using TDMA and portions of the airwaves
licensed by the FCC, except that AT&T and its affiliates may:
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. resell or act as agent for us in connection with wireless
communications services initiated or terminated using TDMA and
portions of the airwaves licensed by the FCC;
. provide or resell wireless communications services to or from
specific locations, provided that any equipment sold in connection
with the service must be capable of providing wireless communications
services initiated or terminated using TDMA and portions of the
airwaves licensed by the FCC; and
. resell wireless communications services initiated or terminated
using TDMA and portions of the airwaves licensed by the FCC for
another person in any area where we have not placed a system into
commercial service.
Additionally, with respect to some markets identified in the intercarrier
roamer services agreement with AT&T Wireless Services, each of us and AT&T
Wireless PCS has agreed to cause our respective affiliates in their home carrier
capacities to:
. program and direct the programming of customer equipment so that
the other party, in its capacity as the serving carrier, is the
preferred provider in these markets; and
. refrain from inducing any of its customers to change such
programming.
AT&T Wireless PCS has retained certain PCS licenses within the areas covered
by our licenses for which we have a right of negotiation in the event of a
proposed transfer.
If we materially breach any of our obligations, including if:
. AT&T Wireless PCS and its affiliates decide to adopt a new
technology standard other than TDMA in a majority of its markets, and
we decline to adopt the new technology; or
. we fail to meet specified network, audio and system performance
quality standards;
AT&T Wireless PCS may terminate its exclusivity obligations under the
stockholders' agreement after the applicable cure periods.
We and the other parties amended the stockholders' agreement to terminate the
exclusivity provisions with regard to populations of approximately 100,000 that
overlapped with the coverage area of licenses AT&T purchased from Vanguard
Cellular in Strafford, New Hampshire. We have agreed with AT&T to exchange our
licenses covering these populations for licenses covering other populations.
These exchanged populations will be covered under the scope of our agreements
with AT&T.
Construction. The stockholders' agreement requires us to construct a PCS
system in the areas covered by our licenses according to a minimum construction
plan, which requires us to construct a system in areas covering:
. 20% of the total 1990 population of the area covered by our
licenses by July 17, 1999, focusing on designated areas of Memphis and
New Orleans;
. 40% of the total 1990 population of the area covered by our
licenses by July 17, 2000, focusing on designated areas of New
England, Little Rock and Missouri and enhancing coverage in all
markets;
. 55% of the total 1990 population of the area covered by our
licenses by July 17, 2001, focusing on secondary cities and the
important associated connecting highways;
. 70% of the total 1990 population of the area covered by our
licenses by July 17, 2002, continuing to expand the secondary cities
and enhancing coverage of the core areas; and
. 75% of the total 1990 population of the area covered by our
licenses by July 17, 2003, focusing on adding capacity sites and
filling in the remaining suburban areas.
In addition to the minimum construction plan, we are bound to do the
following:
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. arrange for all necessary microwave relocation for our licenses
and AT&T's retained licenses;
. ensure compatibility of our systems with the majority of systems
in Louisiana, Oklahoma, Minnesota, Illinois and Texas, excluding
Houston;
. satisfy the FCC construction requirements in the areas covered by
our licenses and AT&T's retained licenses;
. offer service features such as call forwarding, call waiting and
voicemail with respect to our systems, causing our systems to comply
with AT&T's network, audio and system performance quality standards;
and
. refrain from providing or reselling services other than long
distance services that constitute wireless communications services
initiated or terminated using TDMA and portions of the airwaves
licensed by the FCC or that are procured from AT&T.
Disqualifying Transaction. If AT&T and an entity that:
. derives annual revenues from communications businesses in excess
of $5 billion;
. derives less than one-third of its aggregate revenues from
wireless communications; and
. owns FCC licenses to offer, and does offer, mobile wireless
communications services serving more than 25% of the residents, as
determined by Equifax Marketing Decision Systems Inc., within the
areas covered by our licenses,
. merge, consolidate, acquire or dispose of assets to each other,
or otherwise combine,
. then AT&T, upon written notice to us, may terminate some of its
exclusivity obligations where the territory covered by our licenses
overlaps with commercial mobile radio service licenses of the business
combination partner. Upon the termination, we have the right to cause
AT&T, TWR Cellular, or any transferee that acquired any shares of
series A preferred stock, series D preferred stock or series F
preferred stock owned by AT&T Wireless PCS on July 17, 1998, and any
shares of our common stock into which any of these shares are
converted, to exchange their shares into shares of series B preferred
stock. The share exchange will be proportionate to the overlap of
residents in the overlapping territory.
Once so converted, we may redeem the shares of series B preferred stock at any
time in accordance with our restated certificate of incorporation. Currently,
only Sprint, SBC Communications, Bell Atlantic and BellSouth satisfy the
criteria for a business combination partner.
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Under some circumstances, if AT&T proposes to sell, transfer or assign to any
person that is not an affiliate of AT&T, any PCS system owned and operated by
AT&T Wireless PCS and its affiliates in any of the St. Louis, Missouri,
Louisville, Kentucky, or Boston, Massachusetts basic trading areas, then AT&T
must provide us with the opportunity to offer for sale jointly with AT&T, for a
90-day period, wireless communications services in the applicable subject
markets and the portion of the areas covered by our licenses that are included
in the major trading area that includes these basic trading areas.
Acquisition of Licenses. The stockholders' agreement provides that we may
acquire any cellular license that our board has determined is a demonstrably
superior alternative to constructing a PCS system within the corresponding areas
covered by our licenses, if:
. a majority of the population covered by the license is within the
areas covered by our licenses;
. AT&T Wireless PCS and its affiliates do not own commercial mobile
radio service licenses in the area covered by the license; and
. our ownership of the license will not cause AT&T Wireless PCS or
any affiliate to be in breach of any law or contract.
Vendor Discounts; Roaming Agreements. AT&T Wireless PCS has agreed in the
stockholders' agreement that, if we so request, it will use all commercially
reasonable efforts:
. to assist us in obtaining discounts from any AT&T Wireless PCS
vendor with whom we are negotiating for the purchase of any
infrastructure equipment or billing services; and
. to enable us to become a party to the roaming agreements between
AT&T Wireless PCS and its affiliates and operators of other cellular
and PCS systems.
Resale Agreements. Under the stockholders' agreement, we, upon the request of
AT&T Wireless PCS, will enter into resale agreements relating to the areas
covered by our licenses under which AT&T will resell our services. The rates,
terms and conditions of service that we provide are to be at least as favorable,
and to the extent permitted by applicable law, more favorable, to AT&T Wireless
PCS, taken as a whole, as the rates, terms and conditions that we provide to
other customers.
Subsidiaries. The stockholders' agreement provides that all of our
subsidiaries must be direct or indirect wholly owned subsidiaries. The
stockholders' agreement also provides that, without the prior written consent
of, or right of first offer to, AT&T Wireless PCS, we and our subsidiaries may
not:
. sell or dispose of a substantial portion of our assets or the
assets of any of our subsidiaries; or
. liquidate, merge or consolidate until we meet minimum
construction requirements.
Restrictions on Transfer. The stockholders' agreement restricts the sale,
transfer or other disposition of our capital stock, such as by giving rights of
first offer, drag along and tag along rights, and providing demand and piggyback
registration rights.
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If one of our stockholders desires to transfer any or all of its shares of
preferred or common stock, other than voting preference stock and class C common
stock, the selling stockholder must first give written notice to us and:
. if the selling stockholders is a cash equity investor or any
other type of stockholder, to AT&T Wireless PCS; and
. if the selling stockholder is AT&T Wireless PCS or TWR Cellular,
to each cash equity investor.
The stockholders who receive notice from the selling stockholders may acquire
all, but not less than all, of the shares offered to be sold at the price
offered by the selling stockholder. If none of the existing stockholders opt to
purchase the shares of the selling stockholder, the selling stockholder can sell
its shares to any other person on the same terms and conditions as originally
offered to the existing stockholders. The right of first offer does not apply
to our repurchase of any shares of our class A voting common stock or class E
preferred stock from one of our employees in connection with the termination of
the employee's employment with us.
A stockholder may not transfer 25% or more of any of the following shares of
our capital stock, whether alone or with other stockholders or whether in one
transaction or a series of transactions:
. series A preferred stock;
. series C preferred stock;
. series D preferred stock;
. series E preferred stock;
. series F preferred stock;
. senior common stock;
. voting preference stock;
. class A voting common stock;
. class B non-voting common stock;
. class C common stock; or
. class D common stock,
unless the proposed transfer includes an offer to AT&T Wireless PCS, the cash
equity investors and Mr. Vento and Mr. Sullivan to join in the transfer. Class
C common stock and class D common stock shall count as one class of stock for
purposes of the 25% test. If a selling stockholder receives an offer from a
bona fide purchaser to transfer a selling stockholder's shares, the selling
stockholder must follow procedures included in the stockholders' agreement to
include the other stockholders in the proposed transfer.
Our stockholders also have demand and piggyback registration rights. In some
circumstances and after the passing of a period of time after our stock is
listed on the New York Stock Exchange, American Stock Exchange or NASDAQ,
stockholders may demand that we register some or all of their securities with
the SEC under the Securities Act. Also, if we propose to register any shares of
our class A voting common stock or securities convertible into or exchangeable
for class A voting common stock with the SEC under the Securities Act, we must
notify all stockholders of our intention to do so, and our stockholders may
include in our
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registration their shares of class A voting stock or securities convertible into
or exchangeable for class A voting common stock.
Amendments. Amendments to the stockholders' agreement require the written
consent of holders of:
. a majority of the shares of the class A common stock, including
AT&T Wireless PCS;
. two-thirds of the class A common stock beneficially owned by the
cash equity investors; and
. two-thirds of the class A common stock beneficially owned by Mr.
Vento and Mr. Sullivan.
Termination. The stockholders' agreement will terminate upon the earliest to
occur of:
. the receipt of the written consent of each party;
. July 17, 2009; and
. under circumstances, the date on which a single stockholder
beneficially owns all of the outstanding shares of class A common
stock.
Network Membership License Agreement
Under a network license agreement dated as of July 17, 1998 between AT&T and
us, AT&T granted to us a royalty-free, non-transferable, non-sublicensable, non-
exclusive, limited license to use some of their licensed marks, including:
. the logo containing the AT&T name and globe design;
. the expression "Member, AT&T Wireless Services Network"; and
. AT&T colors, graphics and overall configurations,
. solely in connection with licensed activities. These licensed
activities include:
. providing to our customers and resellers of our PCS, solely
within the areas covered by our licenses, mobile wireless
communications services initiated or terminated using TDMA and
frequencies licensed by the FCC to us for commercial mobile radio
service provided in accordance with the agreements between us and
AT&T; and
. marketing and offering the licensed services within the areas
covered by our licenses with limited advertising outside our licensed
area.
The license agreement also grants to us the right to use licensed marks on
specified mobile phones distributed to our customers.
Except in specified instances, AT&T has agreed not to grant to any other
person a right to provide or resell, or act as agent for any person offering,
wireless communications services initiated or terminated using TDMA and
portions of the airwaves licensed by the FCC under the licensed marks. AT&T
retains all rights of ownership in the licensed marks, subject to its
exclusivity obligations to us, in both the areas
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covered by our licenses and all other areas.
The license agreement restricts our use and modification of any of the
licensed marks. Although we may develop our own marks, we may not use them
together with the licensed marks without the prior approval of AT&T. Any
services we market or provide using the licensed marks must be of comparable
quality to similar services that AT&T markets and provides in areas that are
comparable to the areas covered by our licenses. We may take into account
commercial reasonableness and the relative stage of development of the licensed
areas, among other things, to determine what is comparable service. We must also
provide sufficiently high quality services to provide maximum enhancement to and
protection of the licensed marks, such as attaining specified levels of network
quality, audio quality and system performance. The license agreement also
defines specific testing procedures to determine compliance with these standards
and affords us with a grace period to cure any instances of noncompliance.
Following the cure period, we must stop using the licensed marks until we comply
with the standards, or we may be deemed to be in breach of the license
agreement and we may lose our rights to the licensed marks.
We may not assign, sublicense or transfer, by change of control or otherwise,
any of our rights under the license agreement, except that the license agreement
may be, and has been, assigned to our lenders under our senior credit
facilities. After the expiration of any applicable grace and cure periods under
our senior credit facilities, the lenders may then enforce our rights under the
license agreement and assign the license agreement to any person with AT&T's
consent.
The initial term of the license agreement is for a period of five years, which
will be automatically renewed for an additional five-year period if each party
gives written notice to the other party of our election to renew the term of the
license agreement and neither party gives a notice of non-renewal.
The license agreement may be terminated by AT&T at any time in the event of
our significant breach and the exhaustion of any applicable cure periods, which
include:
. our misuse of any licensed marks;
. our bankruptcy;
. our licensing or assignment of any of our rights under the
license agreement, except as permitted by the terms of the license
agreement;
. our loss of the licenses acquired from AT&T;
. our failure to maintain AT&T's quality standards in any material
respect; or
. our change in control.
Our rights under the license agreement are also subject to the minimum
construction plan set forth in the stockholders' agreement. For more
information concerning the minimum construction plan, see the discussion under
"Stockholders' Agreement" under the heading "A&T Agreements." After the initial
term, AT&T may also terminate the license agreement in connection with a
disqualifying transaction.
Upon closing of the Digital PCS acquisition, the license agreement was
automatically amended to include the Baton Rouge, Houma, Hammond and Lafayette,
Louisiana basic trading areas under its scope. Upon closing of the Puerto Rico
acquisition, the license agreement was automatically amended to include the San
Juan major trading area under its scope. Upon the closing of the Wireless 2000
acquisition, the license agreement was automatically amended to include the
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Alexandria, Lake Charles Basic Trade Area and other counties under the Monroe,
Louisiana basic trading area under its scope.
Intercarrier Roamer Service Agreement / Roaming Administration Service Agreement
Intercarrier Roamer Service Agreement. We entered into the intercarrier
roamer services agreement dated as of July 17, 1998 with AT&T Wireless Services
and several of its affiliates. We have agreed with AT&T Wireless that each
party, in its capacity as a serving provider, will provide services to each
others customers where it has a license or permit to operate a wireless
communications system. Each home carrier whose customers receive service from a
serving provider will pay to the serving provider all of the serving provider's
charges for wireless service and all of the applicable charges. Each serving
provider's service charges per minute or partial minute for use for the first
three years will be fixed at a declining rate.
Each home carrier whose customers receive service from the other serving
provider under the intercarrier roamer service agreement shall pay to the
serving carrier who provided the service 100% of the serving carrier's charges
for commercial mobile radio service and 100% of the toll charges. The service
charges for some of our basic trading areas, including the Boston major trading
area, is the lesser of $0.10 per minute and the actual average retail rate
charged by AT&T Wireless to its Boston customers roaming into our markets
located within the Boston major trading area, but not less than the actual
average retail rate charged by AT&T Wireless to its Boston customers in its
Boston market. In our other basic trading areas, the service charges begin at
$0.25 per minute and decrease each year of the term by $0.05 per minute until
July 17, 2002, at which point the service charge will be the lesser of $0.10 per
minute and the actual average retail rates charged by AT&T Wireless to its
customers roaming into our markets, but not less than the actual average retail
rate charged by AT&T Wireless to its customers. The toll rate is $0.05 per long
distance minute and $0.02 per local minute. International toll rates shall not
be more than AT&T tariff rates.
The intercarrier roamer service agreement has a term of 20 years, which is
automatically renewed on a year-to-year basis unless terminated by either party
upon 90 days prior written notice after 10 years. The intercarrier roamer
service agreement may be terminated earlier by either party immediately by
either party upon written notice to the other of a default of the other party. A
party will be in default under the intercarrier roamer service agreement upon
any of the following:
. materially breaches any material term of the intercarrier roamer
service agreement and the breach continues for thirty days after
receipt of written notice of the breach from the nonbreaching party;
. voluntary liquidation or dissolution or the approval by the
management or owners of a party of any plan or arrangement for the
voluntary liquidation or dissolution of the party; or
. bankruptcy or insolvency of a party.
The intercarrier roamer service agreement may also be suspended by either
party immediately upon written notice to the other party of the existence of a
breach of the agreement, whether or not the breach constitutes a default, if the
breach materially affects the service being provided to the customers of the
non-breaching party. While the suspension is in effect, either in whole or in
part, the parties shall work together to resolve as quickly as possible the
difficulty that caused the suspension. When the party who originally gave
notice of suspension concludes that the problem causing the suspension has been
resolved, that party shall give to the other written notice to this effect, and
the agreement will resume in full effect within five business days after the
parties have mutually agreed that the problem has been resolved. Neither party
may assign or transfer its rights and obligations under the intercarrier roamer
service agreement without the written consent of the other party, except to an
affiliate or an assignee of its license.
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Upon closing of the Digital PCS acquisition, the intercarrier roamer service
agreement was automatically amended to include the Baton Rouge, Houma, Hammond
and Lafayette basic trading areas under its scope. Upon closing of the Puerto
Rico acquisition, the intercarrier roamer service agreement was automatically
amended to include the San Juan major trading area under its scope. Upon closing
of the Wireless 2000 acquisition, the intercarrier roamer service agreement was
automatically amended to include the Alexandria, Lake Charles and other counties
under the Monroe, Louisiana basic trading areas under its scope.
Roaming Administrative Service Agreement. AT&T Wireless provides to other
providers of wireless communications services various administrative services,
such as monthly reporting and billing, fraud settlement functions, and rate
monitoring. Under the roaming administrative service agreement dated as of July
17, 1998 between AT&T Wireless and us, AT&T Wireless has agreed to make
available to us the benefits of the intercarrier roaming services agreements it
has entered into with other wireless carriers, subject to the consent of the
other wireless carriers and to our remaining a member in good standing of the
North American Cellular Network.
The roaming administrative service agreement has an initial term of two years,
which is automatically renewed on a year-to-year basis unless terminated by
either party upon 90 days prior written notice after ten years. Either party may
terminate the roaming administrative service agreement for any reason at any
time upon 180 days prior written notice. Either party may also terminate the
roaming administrative service agreement:
. upon a material breach of the other party that is not cured or
for which cure is not reasonably begun within 30 days after written
notice of the claimed breach; or
. immediately by either party, after reasonable prior notice, if
the other party's operations materially and unreasonably interfere
with its operations and the interference is not eliminated within 10
days.
AT&T Wireless can terminate the roaming administrative service agreement if:
. we are no longer a member in good standing of the North American
Cellular Network; or
. the agreement under which AT&T Wireless receives roaming
administration services is terminated or expires; provided, however,
that AT&T Wireless will offer to resume its services in the event that
it extends or continues that agreement.
Neither party may assign or transfer its rights and obligations under the
roaming administrative service agreement without the written consent of the
other party, except to an affiliate or an assignee of its license, except that
AT&T Wireless may subcontract its duties.
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Resale Agreement
The stockholders' agreement provides that, from time to time, we will enter
into a resale agreement with AT&T Wireless PCS or other of its affiliates. The
resale agreement will grant to AT&T Wireless the right to purchase from us our
wireless services on a non-exclusive basis within a designated area and resell
access to, and use of, our services. AT&T Wireless will pay charges for any
services that are resold, including usage, roaming, directory assistance and
long distance charges, and taxes and tariffs, if any, according to a specified
rate schedule. Each resale agreement will have an initial term of ten years that
will be automatically renewed on a year-to-year basis unless terminated by
either party upon 90 days prior written notice. AT&T Wireless will be able to
terminate each resale agreement for any reason at any time upon 180 days prior
written notice.
In addition, AT&T has agreed to extend the terms of any resale agreement to
include the Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading
areas in connection with the Digital PCS acquisition, the San Juan major trading
areas in connection with the Puerto Rico acquisition and the Alexandria, Lake
Charles and other counties under the Monroe, Louisiana basic trading areas in
connection with the Wireless 2000 acquisition.
Long Distance Agreement
Under the long distance agreement dated as of December 21, 1998 between AT&T
Wireless and us, we purchase interstate and intrastate long distance services
from AT&T Wireless at preferred rates. We then resell these long distance
services to our customers. We can only obtain these preferred rates if we
continue our affiliation with AT&T Wireless.
The long distance agreement has a term of up to three years.
The long distance agreement requires that we meet a minimum traffic volume
during the term of the agreement, which are adjusted at least once each calendar
year at the time specified by AT&T Wireless. The minimum traffic volume
commitments may be adjusted more frequently upon mutual agreement by AT&T
Wireless and us. During the first year, we set the minimum traffic volume
commitment in our sole discretion. After the first calendar year, the commitment
may be increased by any amount or decreased by any amount up to ten percent at
our discretion. We may reduce the minimum traffic volume commitments by more
than ten percent with AT&T Wireless' permission. If we fail to meet the volume
commitments, we must pay to AT&T Wireless the difference between the expected
fee based on the volume commitment and the fees based on actual volume.
The long distance services we purchase from AT&T Wireless may only be used in
connection with:
. our commercial mobile radio services;
. calls that originate on our network; and
. those commercial mobile radio services that share our call
connection equipment.
Puerto Rico License
In a series of transactions, we acquired a license and related assets
covering the San Juan major trading area from AT&T Wireless PCS on May 25, 1999.
The following transactions took place ultimately to effect the acquisition of
the license and related assets from AT&T Wireless PCS:
. on May 24, 1999, we sold to AT&T for $40.0 million 30,750 shares
of our series A preferred stock, 10,250 shares of our series D
preferred stock, and 10,000 shares of our series F preferred stock
under a preferred stock purchase agreement;
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. on May 24, 1999, we sold to our cash equity investors 39,997
shares of our series C preferred stock and 39,997 shares of our class
A common stock in exchange for an aggregate amount of $40.0 million in
cash under a stock purchase agreement, which will be funded over a
three-year period.
. on May 25, 1999, we purchased the license for the San Juan Major
Trade Area and related assets, which included 27 constructed cell
sites, call connection equipment and leases for additional cell sites,
from AT&T for $95.0 million in cash under an asset purchase agreement;
and
. we reimbursed AT&T $3.2 million for microwave relocation and $1.5
million for other expenses it incurred in connection with this
acquisition.
In addition, Mr. Vento and Mr. Sullivan were issued fixed and variable awards of
5,643 and 9,212 restricted shares of our series E preferred stock and class A
common stock, respectively, in exchange for their interest in Puerto Rico
Acquisition Corporation. Puerto Rico Acquisition Corporation was a special
purpose entity wholly-owned by Mr. Vento and Mr. Sullivan. The fixed awards
typically vest over a five-year period. The variable awards vest based upon
certain events taking place, including our reaching milestones in our minimum
construction plan.
The San Juan Major Trade Area covers a population of approximately 4 million
in Puerto Rico, as well as the U.S. Virgin Islands. Our agreements with AT&T
were automatically amended to include the San Juan Major Trade Area under the
scope of those agreements.
Management Agreement
As of July 17, 1998, we entered into the management agreement with TeleCorp
Management, a company owned by Mr. Vento and Mr. Sullivan. Under the agreement,
TeleCorp Management will provide to us administrative, operational, marketing,
regulatory and general business services. TeleCorp Management receives an
annual fee of approximately $0.5 million and reimbursement of out-of-pocket
expenses from us, and is eligible for an annual bonus based upon achievement of
particular objectives determined by the compensation committee of our board. In
addition, the management agreement provides that some shares owned by Mr. Vento
and Mr. Sullivan vest based upon meeting minimum construction requirements for
our network. Mr. Vento and Mr. Sullivan have agreed to devote substantially
their entire business time and attention to the services provided under the
management agreement.
The management agreement has a term of five years and may be terminated
earlier by either party in some circumstances, including by us in the event
TeleCorp Management:
. commits fraud;
. fails to maintain adequately our debt; or
. one of the principals of TeleCorp Management is indicted for a
felony;
and by TeleCorp Management in the event Mr. Vento and Mr. Sullivan:
. are removed from our board; or
. are demoted or their duties are materially diminished.
TeleCorp Management, Mr. Vento and Mr. Sullivan are subject to non-
competition, non-solicitation and
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confidentiality provisions upon termination of the management agreement. In
addition, we must repurchase our shares owned by Mr. Vento and Mr. Sullivan in
the event of termination. For the 1998 fiscal year, we paid approximately $0.5
million for management services and bonuses under the management agreement. See
"Management--Management Agreement."
The terms of this agreement were no more favorable to the parties than they
could have obtained from third parties negotiated at arms' length.
Other Related Party Transactions
Relationship with WFI/Entel Technologies and other Site Acquisition Service
Providers
We receive site acquisition, construction management, program management,
microwave relocation and engineering services under a services agreement with
WFI/Entel Technologies. Payments under the agreement were approximately $30.7
million in the 1998 fiscal year. At the time of entering into the master
services agreement, Mr. Vento was a senior officer, and he and Mr. Sullivan were
the controlling stockholders, of WFI/Entel Technologies. Mr. Vento is our chief
executive officer and chairman of our board and Mr. Sullivan is our executive
vice president, chief financial officer and a director. In February 1998, they
sold their interests in WFI/Entel Technologies. The terms of this agreement were
no more favorable to the parties than they could have obtained from third
parties negotiated at arms' length.
American Towers, Inc. provides us with network site leases for PCS deployment
and a master site lease agreement. Mr. Hannon, one of our directors and
beneficial owners, has a noncontrolling interest in American Towers. The terms
of these lease agreements were no more favorable to the parties than they could
have obtained from third parties negotiated at arms' length.
Relationship with the Initial Purchasers of the Outstanding Notes in the
Original Private Offering
Chase Securities Inc. was one of the initial purchasers of the outstanding
notes. Chase Securities Inc. and its affiliates perform various investment
banking and commercial banking services from time to time for us and our
affiliates. Chase Securities Inc. acted as our lead manager for our offering of
the outstanding notes. The Chase Manhattan Bank, an affiliate of Chase
Securities Inc., is the agent bank and a lender under our senior credit
facilities. Michael R. Hannon, a member of our board, is a General Partner of
Chase Capital Partners, an affiliate of Chase Securities Inc. In addition, CB
Capital Investors, L.P., an affiliate of Chase Capital Partners , is one of our
cash equity investors and owns shares of our common and preferred stock. For
further information concerning these relationships, see "Management,"
"Securities Ownership of Beneficial Owners and Management" and "Plan of
Distribution." The terms of our senior credit facilities were no more favorable
to the parties than they could have obtained from third parties negotiated at
arms' length.
BT Alex. Brown Incorporated, one of the initial purchasers of the outstanding
notes, is an affiliate of Bankers Trust Company, the documentation agent and one
of the lenders under our senior credit facilities for $525.0 million, as well as
the trustee under the indenture and the exchange agent. We have also entered
into other transactions with Bankers Trust Company. See "Description of the
Notes--Concerning the Trustee" and "Plan of Distribution." The terms of our
senior credit facilities and of these transactions were no more favorable to the
parties than they could have obtained from third parties negotiated at arms'
length.
Relationships with Tritel Communications and Triton PCS
We have formed Affiliate License Co. with Triton PCS and Tritel Communications
to adopt a common brand,
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SunCom, that is co-branded with AT&T on an equal emphasis basis. Under the
agreement, we, Triton PCS and Tritel Communications each own one third of
Affiliate License Co., the owner of the SunCom name. We and the other SunCom
companies license the SunCom name from Affiliate License Co. Mr. Sullivan is a
director of Affiliate License Co. The terms of this agreement were no more
favorable to the parties than they could have obtained from third parties
negotiated at arms' length.
Triton PCS recently paid $975,000 to settle a potential dispute regarding its
prior use of a version of the SunCom brand. In connection with this settlement,
Triton PCS transferred the SunCom trademark to Affiliate License Co. for
$650,000. Each of the other SunCom companies agreed to pay $325,000 as a
royalty fee to license such trademark from Affiliate License Co.
AT&T owns stock in us and in Tritel Communications, and we may be deemed
affiliates by virtue of common ownership. Mr. Anderson and Mr. Fuqua, two of our
directors who were elected by our cash equity investors, also serve as directors
of Tritel Communications. See "Management." AT&T, CB Capital Investors and
Equity-Linked Investors own stock in us and in Triton PCS, and we may be deemed
affiliates by virtue of common ownership. Ms. Hawkins Key and Mr. Anderson, two
of our directors who were elected by AT&T Wireless PCS, also serve as directors
of Triton PCS. See "Management."
Tritel Communications owned a controlling interest in Digital PCS at the
time we acquired licenses from Digital PCS. Tritel Communications may be deemed
an affiliate of Digital PCS. In addition, at the time we acquired licenses from
Digital PCS, Mr. Anderson and Mr. Fuqua were directors of Digital PCS. See
"Business--Recent Developments." The terms of this agreement were no more
favorable to the parties than they could have obtained from third parties
negotiated at arms' length.
Relationship with Other Entities
TeleCorp Holding. TeleCorp Holding, our predecessor company, was incorporated
to participate in the FCC's auction of licenses in April 1997. TeleCorp Holding
raised money from investors to develop any licenses it obtained in the auction.
TeleCorp Holding successfully obtained licenses in the New Orleans, Memphis,
Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando basic trading
areas. In August 1997, TeleCorp Holding transferred the Houston, Tampa,
Melbourne and Orlando basic trading areas to four newly-formed entities created
by TeleCorp Holding's stockholders:
. THC of Houston;
. THC of Tampa;
. THC of Melbourne; and
. THC of Orlando;
and issued notes in the aggregate amount of approximately $2.7 million to these
entities to develop these licenses. These licenses were transferred along with
the related operating assets and liabilities in exchange for investment units
consisting of class A, B and C common stock and series A preferred stock in
August 1997. Concurrently, TeleCorp Holding distributed the investment units, on
a pro rata basis, in a partial stock redemption to TeleCorp Holding's existing
stockholder group. As a result of this distribution, TeleCorp Holding no longer
retains any ownership equity interest in the newly formed entities. TeleCorp
Holding performed administrative and management services and paid costs on
behalf of these entities for the year ended December 31, 1997 worth the
aggregate amount of $0.7 million. In 1998, upon the closing of the agreements
with AT&T, TeleCorp Holding paid approximately $2.0 million to the four THC
entities as payment of the notes, offset by the approximately $0.7 million in
services and costs. We, TeleCorp Holding, THC of Houston, THC of Tampa, THC of
Melbourne, THC of Orlando, TeleCorp WCS and Telecorp LMDS have common
stockholders in Mr. Sullivan and Mr. Vento.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arms' length.
TeleCorp WCS. On May 5, 1997, TeleCorp Holding lent approximately $3.0
million to TeleCorp WCS, Inc. in exchange for interest-free notes from TeleCorp
WCS. On May 5, 1997, TeleCorp Holding received equity investments in exchange
for the right to receive:
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. the notes from TeleCorp WCS;
. any cash, notes or other assets received by TeleCorp Holding on
behalf of the notes; or
. any capital stock into which the notes were converted.
TeleCorp WCS repaid approximately $2.7 million of the notes with cash to
TeleCorp Holding, and TeleCorp Holding forwarded this cash to the equity
investors. TeleCorp WCS issued a note in the amount of approximately $0.3
million directly to the investors on behalf of the remaining $0.3 million
outstanding under the notes. TeleCorp WCS converted these notes into capital
stock issued to the investors in 1998.
Mr. Sullivan and Mr. Vento are officers and directors of, and stockholders in,
us and own 2,875 and 4,625 shares of class C common stock of TeleCorp WCS,
respectively, which represents 60% of its outstanding class A common stock. At
the time of entering into the transactions with TeleCorp WCS, Mr. Sullivan and
Mr. Vento were stockholders in TeleCorp Holding.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arms' length.
TeleCorp Investment Corp.; TeleCorp Investment Corp. II. TeleCorp Investment
Corp. owns 1,142.25 shares of our class A common stock, 1.86 shares of our class
C common stock, 12.23 shares of our class D common stock and 1,160.17 shares of
our series C preferred stock. Some of our stockholders own stock in TeleCorp
Investment Corp., as follows:
. CB Capital Investors, one of our cash equity investors, owns an
80% equity interest;
. Mr. Sullivan and Mr. Vento each own a 2.4% equity interest;
. Steven Chandler owns a 2.0% equity interest; and
. Robert Dowski owns a 1.6% equity interest.
In addition, TeleCorp Investment Corp. II was formed to purchase from Entergy
Technology Holding Corporation 1,592.44 shares of class A common stock and 36.78
shares of class D common stock. The purchase of shares was concluded on July
15, 1999. Mr. Vento, Mr. Sullivan, Ms. Dobson, and Steven Chandler each own
5.99%, and James Bartholomew Hawley and William Kussell each own 2.99% of
TeleCorp Investment Corp. II. Mr. Vento and Mr. Sullivan serve as managers of
TeleCorp Investment Corp. II.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arms' length.
Viper Wireless. Viper Wireless was formed to participate in the FCC's
reauction of PCS licenses in most of our markets. TeleCorp Holding owns 85% of
Viper Wireless, and Mr. Vento and Mr. Sullivan collectively own the remaining
15%. Mr. Vento and Mr. Sullivan collectively have voting control over Viper
Wireless. On September 29, 1999, we solicited the approval of the FCC for the
consolidation of Viper Wireless into us so that TeleCorp Holding will own 100%
of Viper Wireless. Any consolidation of Viper Wireless into us will be subject
to a final FCC order approving the transaction.
AT&T and some of our other cash equity investors have committed an aggregate
of approximately $32.3 million in exchange for additional shares of our
preferred and common stock in connection with the Viper Wireless reauction.
AT&T will receive one share each of our series A preferred stock and our series
E preferred stock, and each of our cash equity investors will receive one share
each of our class A common stock and our series E preferred stock, for each
$1,000 of the pro rata portion of the amount we invested in Viper Wireless,
which is based upon their portion of the aggregate amount. As part of this
financing, we paid approximately $0.5 million to Chase Securities, Inc., an
initial purchaser and an affiliate of one of our cash equity investors, for
placement advice.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arms' length.
On April 20, 1999, the FCC announced that the reauction ended, and Viper
Wireless was the higher bidder for
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additional portion of the airwaves in New Orleans, Houma and Alexandria,
Louisiana, San Juan, Puerto Rico, Jackson, Tennessee and Beaumont, Texas. The
FCC has granted us all of these licenses. AT&T and the investors funded
approximately $6.5 million of their commitment on May 14, 1999 and approximately
$11.0 million on July 15, 1999, and approximately $14.8 million will be funded
on September 29, 1999.
Relationship with Toronto Dominion
Toronto Dominion Investments, one of our cash equity investors, and TD
Securities (USA), an affiliate of Toronto Dominion Investments, which is a
lender under our senior credit facilities for $525.0 million, may be deemed to
be under common control by virtue of their relationship to each other and to us.
The terms of our senior credit facilities were no more favorable to the parties
than they could have obtained from third parties negotiated at arms' length.
Relationships with Stockholders
From inception through June 1998, our primary source of financing was notes
issued to our stockholders. In July 1996, we issued $0.5 million of subordinated
promissory notes to our stockholders. These notes were converted into 50 shares
of our series A preferred stock in April 1997. In December 1997, we issued
various promissory notes to our stockholders. These notes were converted into
mandatorily redeemable preferred stock in July 1998. From January 1, 1998 to
June 30, 1998, we borrowed approximately $22.5 million in the form of promissory
notes to existing and prospective stockholders to satisfy working capital needs.
These notes were converted into equity in July 1998 in connection with the
completion of the venture with AT&T.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arms' length.
Relationship with McDermott, Will & Emery
We use the services of a law firm, McDermott, Will & Emery, to which Mr.
Sullivan, our executive vice president, chief financial officer and a member of
our board, is counsel. Prior to July 1998, Mr. Sullivan was a partner of
McDermott, Will & Emery. For the 1998 fiscal year, we paid McDermott, Will &
Emery approximately $2.1 million. The terms of these arrangements were no more
favorable to the parties than they could have obtained from third parties
negotiated at arms' length.
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OUR INDEBTEDNESS
Senior Credit Facilities
On July 17, 1998, we entered into senior credit facilities for $525.0 million
with several lenders, including The Chase Manhattan Bank, as administrative
agent and issuing bank, TD Securities (USA) Inc., as syndication agent, and
Bankers Trust Company, as documentation agent.
The senior credit facilities provide for:
. a $150.0 million senior secured term loan, the tranche A term
loan, which matures in January 2007;
. a $225.0 million senior secured term loan, the tranche B term
loan, which matures in January 2008;
. a $150.0 million senior secured revolving credit facility, which
matures in January 2007; and
. an uncommitted $75.0 million senior secured term loan in the form
of an expansion facility, which will mature no sooner than January
2008.
The tranche A term loan must be repaid, beginning in September 2002, in 18
consecutive quarterly installments. The amount of each of the first six
installments is $3.75 million. The amount of each of the next four installments
is $9.4 million. The amount of each of the last eight installments is $11.25
million. The tranche B term loan is required to be repaid, beginning in
September 2002, in 22 consecutive quarterly installments. The amount of each of
the first 18 installments is $0.6 million. The amount of each of the last four
installments is $54.0 million. The commitment to make loans under the revolving
credit facility automatically and permanently is reduced, beginning in April
2005, by virtue of eight consecutive quarterly reductions. The amount of each of
the first four reductions is $12.5 million. The amount of each of the last four
reductions is $25.0 million.
We may select the rate at which interest accrues on all loans. We may choose a
eurodollar loan, which accrues at the London interbank offering rate, multiplied
by the ratio of which one is the numerator and one minus the aggregate of
maximum reserve percentages, including any marginal, special, emergency or
supplemental reserves expressed as a decimal, established by the Board of
Governors of the Federal Reserve system that applies to the administrative agent
regarding eurocurrency funding is the denominator, and added to the applicable
margin. The applicable margin in the case of eurodollar loan means:
. a rate between 1.25% and 2.75% per annum, depending upon our
leverage ratio, with respect to the tranche A Term loan and the
revolving credit loans; and
. 3.25% per annum, with respect to the tranche B term loan.
Alternatively, we may choose an alternative rate loan, which accrues at the
higher of either the administrative agent's prime rate and the federal funds
effective rate, the weighted average on overnight federal funds transactions as
published by the Federal Reserve Bank of New York, plus 0.50% plus the
applicable margin. The applicable margin in the case of an alternative rate loan
means:
. a rate between 0.25% and 1.75% per annum, depending on our
leverage ratio with respect to the tranche A term loan and the
revolving credit loans; and
. 2.25% per annum, with respect to the tranche B term loan.
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Interest on any overdue amounts will accrue at a rate per annum equal to 2.00%
plus the rate otherwise applicable to these amounts.
The terms of the senior credit facilities require us to pay an annual
commitment fee between 0.50% and 1.25%, depending on the percentage drawn, of
the unused portion of the revolving credit facility. The term loans are payable
quarterly in arrears, and a separate agent's fee is payable to the
administrative agent. The senior credit facilities also require us to purchase
an interest rate hedging contract covering an amount equal to at least 50% of
the total amount of our outstanding indebtedness, excluding indebtedness which
earns interest at a fixed rate.
The tranche A term loan automatically will be reduced to the extent its
undrawn portion exceeds $50.0 million in July 2000 by the amount of the excess.
The term loans will be prepaid, and commitments under the revolving credit
facility will be reduced, in an aggregate amount equal to:
(1) 50% of the excess cash flow of each fiscal year beginning with the
fiscal year ending December 31, 2001;
(2) 100% of the net proceeds of asset sales outside of the ordinary
course of business, in excess of a $1.0 million annual threshold, or
unused insurance proceeds;
(3) 100% of the net cash proceeds of issuances of debt obligations, other
than debt obligations permitted by the senior credit agreement,
including the issuance of the notes; and
(4) 100% of the net cash proceeds of issuances of equity securities,
other than in connection with our equity investments;
provided that the prepayments and reductions described under clauses (3) and (4)
will not be required if, after giving effect to the issuance:
(A) our leverage ratio would be less than 5.0 to 1.0; and
(B) in the case of clause (4), we would be in pro forma compliance with
each covenant contained in the senior credit agreement.
We may establish the expansion facility so long as, both before and after
giving effect to it, no default exists under the senior credit agreement and we
are in pro forma compliance with each of the financial covenants contained in
the senior credit agreement. No lender is required to participate in the
expansion facility. Each of our existing and future domestic subsidiaries
unconditionally guarantees all our obligations under the senior credit
facilities. The facilities and the credit facility subsidiary guarantees, and
any related hedging contracts provided by the lenders under the senior credit
facilities, are secured by substantially all of our assets and the assets of
each of our existing and future domestic subsidiaries, including a first
priority pledge of all of the capital stock held by us or any of our
subsidiaries; provided that the pledge of shares of foreign subsidiaries will be
limited to 65% of the outstanding shares of the foreign subsidiaries. Under the
senior credit facilities, no action may be taken against our licenses unless and
until the requisite approval is obtained from the FCC. We have organized
special purpose subsidiaries to hold our licenses, our real property and our
equipment. Each single purpose subsidiary is prohibited from incurring any
liabilities or obligations other than:
. the credit facility subsidiary guarantee issued by it;
. obligations under the security agreement entered into by it in
connection with the senior credit facilities;
. obligations resulting from regulatory requirements; or
. taxes and liabilities incurred in the ordinary course of its
business incident to its business
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or necessary to maintain its existence.
The senior credit agreement contains covenants customary for facilities
similar to the senior credit facilities, including covenants that restrict,
among other things:
. the incurrence of indebtedness and the issuance of particular
equity securities;
. the creation of liens;
. sale and lease-back transactions, mergers, consolidations and
liquidations;
. particular investments, loans, guarantees, advances and
acquisitions;
. sales of assets;
. hedging agreements;
. specific payments, including the payment of dividends or
distributions in respect of capital stock and prepayments of the
notes;
. some transactions with affiliates;
. the entering into of particular restrictive agreements; and
. the amendment of particular material agreements.
The senior credit agreement requires us to maintain specified ratios, including:
. a senior debt to capital ratio;
. a senior debt to EBITDA ratio;
. a total debt to EBITDA ratio;
. an interest coverage ratio; and
. a fixed charges ratio;
and to satisfy specified tests, including tests relating to:
. the minimum population covered by our network;
. the minimum number of subscribers to our services;
. the minimum aggregate service revenue per subscriber; and
. limits on capital expenditures.
In particular, we may not permit the following ratio to exceed 0.5 to 1.0:
the numerator is senior debt and the denominator is the sum of:
(1) all of our indebtedness and the indebtedness of our subsidiaries
which matures, in more than one year, whether, by its terms renewal
or extension; plus
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(2) other equity contributions; plus
(3) commitments of the cash equity investors to purchase shares of our
capital stock under the securities purchase agreement.
The denominator is known as total capital. However, if:
(1) our cash equity investors have satisfied in full in cash all
commitments to purchase shares of our capital stock under the
securities purchase agreement; and
(2) our network is substantially complete in markets that cover more than
60% of the aggregate number of residents within the areas that our
licenses cover,
the ratio of senior debt to total capital may exceed 0.5 to 1.00, but may not
exceed 0.55 to 1.00. In the above contingency, the aggregate number of residents
is determined by the Donnelley Marketing Service Guide published in 1995. The
senior credit agreement also contains customary representations, warranties,
indemnities, conditions precedent to borrowing and events of default.
Borrowings under the senior credit facilities are available to finance capital
expenditures related to the construction of our network, the acquisition of
related businesses, working capital needs and subscriber acquisition costs.
Vendor Financing
In May 1998, we entered into a vendor procurement contract with Lucent, under
which we agreed to purchase radio, call connecting and related equipment and
services for the development of our network. In connection with the procurement
contract, Lucent agreed to provide us with $80.0 million of junior subordinated
vendor financing. In addition, Lucent has agreed to make available up to an
additional $80.0 million of junior subordinated vendor financing in amounts up
to 30% of the value of equipment, software and services provided by Lucent in
connection with any additional markets we acquire. We have $15.0 million of
availability under the vendor expansion facility agreement as a result of the
Puerto Rico acquisition. The expiration date for any notes issued under the
vendor expansion facility is the date which is six months after the scheduled
maturity of the notes.
Under a note purchase agreement dated as of May 11, 1998, between Lucent and
us, we have issued to Lucent $40.0 million aggregate principal amount of Lucent
series A notes due 2012. All proceeds from the sale of these notes are to be
used to develop our network in designated areas.
We had also issued to Lucent $40.0 million aggregate principal amount of
Lucent series B notes due 2012. We repaid these notes with the proceeds from
the offering of the outstanding notes. Upon the completion of the offering of
the outstanding notes, Lucent's commitment to provide us with $40.0 million of
Lucent series B notes terminated.
We have a commitment from Lucent to purchase an additional $7.5 million of
Lucent series A notes and $7.5 million of Lucent series B notes under to the
vendor expansion facility in connection with the Puerto Rico acquisition. The
obligation of Lucent to purchase notes under the vendor expansion facility is
subject to a number of conditions, including the requirement that we have
received particular cash equity contributions in respect of each additional
market and that we irrevocably commit to purchase one wireless call connection
equipment site and 50 network equipment sites for each additional market from
Lucent.
The original $40.0 million principal amount of the Lucent series A notes is
due in 2012. We must prepay this amount out of any proceeds of future equity
offerings over $130.0 million. The $5.0 million of equity to be contributed in
connection with our recent Louisiana acquisitions are excluded in determining
whether the $130.0 million threshold has been met. Any Lucent series A notes
issued under the vendor expansion facility will mature six months after the
notes, but will be subject to mandatory prepayment on a dollar for dollar basis
out of the proceeds of
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future equity offerings in excess of $175.7 million, exclusive of all cash
equity received in the offering of the outstanding notes, our recent
acquisitions of licenses in Puerto Rico and Louisiana and licenses in the recent
reauction and the funding of equity commitments in connection with these
acquisitions.
Any Lucent series B notes issued under the vendor expansion facility will
mature six months after the notes, but in no event later than May 1, 2012, and
will be subject to mandatory prepayment on a dollar for dollar basis out of the
net proceeds of any future public or private offering or sale of debt
securities, exclusive of borrowings under the senior credit agreement.
The Lucent series A notes, including any Lucent series A notes issued under
the vendor expansion facility, will initially accrue interest at a rate of 8.5%
per annum. If the Lucent series A notes are not redeemed in full on or prior to
January 1, 2001, the rate will increase by 1.5% per annum on each January 1
thereafter, beginning January 1, 2002, provided that the maximum interest rate
will not exceed 12 1/8% which is 50 basis points per annum over the initial
yield on the notes. Interest on the Lucent series A notes will be payable semi-
annually, provided that prior to May 11, 2004, interest will be payable in
additional Lucent series A notes and subsequently will be payable in cash,
unless prohibited by the senior credit facilities or the indenture.
Any Lucent series B notes issued under the vendor expansion facility will
initially accrue interest at a rate of 10% per annum. If the Lucent series B
notes are not redeemed in full on or prior to January 1, 2000, the rate will
increase by 1.5% per annum on each January 1 beginning on January 1, 2001,
provided that the maximum interest rate will not exceed 12 1/8% which is 50
basis points per annum over the initial yield on the notes. Interest on the
Lucent series B notes will be payable semi-annually, provided that prior to May
11, 2004, interest will be payable in additional Lucent series B notes and
subsequently will be payable in cash unless prohibited by the terms of the
senior credit facilities or the indenture.
Upon a change of control, we must repay the Lucent series A and series B
notes at their principal amount plus a premium. We will not be required to pay a
premium on any required repayment of the Lucent series A notes prior to May 31,
2007 or of the Lucent series B notes prior to May 31, 2005. After those dates,
the premiums will initially be equal to one-half of the interest rate on the
series of notes being repaid. The premiums will decrease ratably in each year
after the first year following the dates upon which the premiums first become
payable. The Lucent series A and series B notes may not be prepaid, however, if
prohibited by the terms of the senior credit facilities, the indenture or other
indebtedness that ranks senior to the Lucent series A and series B notes. In the
event a change of control occurs prior to May 1, 2002 in the case of the Lucent
series A notes, or in the case of the Lucent series B notes, May 1, 2000, the
Lucent series A and series B notes may be prepaid in accordance with the
optional prepayment provisions.
Under the note purchase agreement, Lucent may not engage in any remarketing
efforts of the Lucent series A or series B notes, or unused commitments relating
to the Lucent series A or series B notes, prior to January 23, 2000. If Lucent
has not completed specified sales in respect of the Lucent series A or series B
notes then outstanding prior to January 1, 2003, we must pay Lucent up to 3% of
the then outstanding principal amount of all the Lucent series A and series B
notes to defray any actual marketing distribution and other costs incurred by
Lucent in connection with any sales remarketing.
The Lucent series A notes may be prepaid without payment of a premium at any
time prior to May 1, 2002. In addition, the Lucent series A notes may be prepaid
at any time after May 1, 2002 without payment of a premium to the extent Lucent
or its affiliates have retained them. The Lucent series B notes may be prepaid
without payment of a premium at any time prior to May 1, 2000. In addition, the
Lucent series B notes may be prepaid at any time after May 1, 2000 without
payment of a premium to the extent Lucent or its affiliates have retained them.
If we are subject to any bankruptcy or related procedures or there is any
default in the payment of our debt, including borrowings under the senior credit
facilities and the notes, that ranks senior in right of payment to the Lucent
series A and series B notes, we will pay the senior debt in full before we make
payments on the Lucent series A and series B notes. If a default, other than a
payment default, occurs with respect to any debt senior to the
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Lucent series A notes and series B notes, the holders of more than $25.0 million
principal amount of the defaulted senior debt may prohibit us from making any
payments on the Lucent series A notes or series B notes for up to 179 days.
Events of default under the note purchase agreement include, subject to cure
periods:
. the failure to pay principal or interest under the agreement when
due;
. violation of covenants;
. inaccuracy of representations and warranties;
. cross-default for other indebtedness;
. bankruptcy;
. material judgments; and
. termination of the procurement contract.
Government Debt
In connection with our purchase of our licenses, we issued to the FCC secured
installment payment plan notes in an aggregate principal amount of $9.2 million.
This debt is shown on our balance sheet at a value of $8.0 reflecting a discount
of $1.2 million reflecting the below market interest rate on the debt. The FCC
notes are due April 28, 2007, and bear interest at a rate of 6.25% per annum. In
addition, we assumed $4.1 million in aggregate principal amount of additional
secured installment payment plan notes in connection with the Digital PCS
acquisition. This debt is shown on our balance sheet at a value of $3.0 million
reflecting a discount of $1.1 million reflecting the below market interest rate
on the debt. The Digital PCS notes are due August 21, 2007, and bear interest at
a rate of 6.125% per annum. In connection with the Wireless 2000 acquisition, we
assumed $7.4 million in aggregate principal amount of additional secured
installment payment plan notes. This debt is shown on our balance sheet at a
value of $6.1million reflecting a discount of $1.3 million reflecting the below
market interest rate on the debt. The Wireless 2000 notes are due September 17,
2006, and bear interest at a rate of 7.0% per annum. A security agreement
secures the FCC notes, Wireless 2000 notes and Digital PCS notes, which grants
the FCC a first priority security interest in the license for which the
applicable note was issued. In the event of a default under the FCC notes,
Wireless 2000 notes or Digital PCS notes, the FCC may revoke the licenses for
which the defaulted notes were issued.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock, as described in our restated certificate of
incorporation dated August 31, 1999, consists of:
. 190,401,000 shares of common stock, par value $0.01 per share,
consisting of:
. 95,000,000 shares of class A common stock
. 95,000,000 shares of class B common stock
. 100,000 shares of class C common stock
. 300,000 shares of class D common stock
. 1,000 shares of voting preference common stock
. 12,595,000 shares of preferred stock, par value $0.01 per share,
consisting of:
. 100,000 shares of series A preferred stock
. 200,000 shares of series B preferred stock
. 215,000 shares of series C preferred stock
. 50,000 shares of series D preferred stock
. 30,000 shares of series E preferred stock
. 5,000,000 shares of series F preferred stock
. 7,000,000 shares of senior common stock
As of September 14, 1999, and after giving pro forma effect to our Viper
Wireless transaction, our outstanding capital stock consisted of:
. 23,879,999 shares of class A common stock
. 91,846 shares of class C common stock
. 275,539 shares of class D common stock
. 1,000 shares of voting preference common stock
. 97,473 shares of series A preferred stock
. 210,608 shares of series C preferred stock
. 49,417 shares of series D preferred stock
. 24,906 shares of series E preferred stock
. 4,826,141 shares of series F preferred stock
On July 22, 1999, our board approved a 100-for-1 stock split. This stock
split was effected on August 31, 1999. We have not restated any of the
historical information in this registration statement to reflect this stock
split, though do reflect the stock split for share amounts on or subsequent to
August 31, 1999. The following summaries of particular provisions of the common
stock and the preferred stock are not complete and are subject to, and qualified
by, the provisions of our restated certificate of incorporation and bylaws.
Subject to any required approval of holders of any shares of any class or series
of preferred stock, our board has the power, by resolution, to issue additional
shares of preferred stock with the preferences, rights and designations as it
shall determine.
Voting Rights
Subject to the rights of specific classes of stock to vote as a class on some
matters, the holders of the class A common stock are entitled to 4,990,000 votes
and the holders of voting preference common stock are entitled to 5,010,000
votes of all outstanding capital stock. No other class of capital stock has the
right to vote on any matter except as required by law. In addition, for so long
as AT&T and its affiliates continue to hold at least two-thirds of the shares of
series A preferred stock they held as of May 14, 1999, they will be entitled,
but not obliged, to nominate two of our directors. After an initial public
offering of our securities, or after the special voting rights of voting
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preference common stock are eliminated, they may nominate only one director.
Our restated certificate of incorporation provides that, except where a class
of capital stock has the right to vote as a class, a quorum shall be present so
long as a majority of the outstanding voting preference common stock and shares
representing at least 5,010,000 votes are present. When a class vote is
required, a majority of that class must also be present. Further, any action not
requiring a class vote may be approved by the affirmative vote of a majority of
voting preference common stock present at any meeting where a quorum is present.
The holders of each class of preferred stock have the right to vote as a class
on any measure to:
. authorize or issue any shares senior to or on a parity with the
class;
. amend our restated certificate of incorporation to change any of
the characteristics of the class; or
. authorize or issue any security convertible into, exchangeable
for or granting the right to purchase or otherwise receive any shares
of stock senior to or on a parity with the class.
The majority of each class of preferred stock must affirmatively vote to act.
Subject to any class voting requirements, shares of common stock representing
at least two-thirds of the votes entitled to be cast for the election of our
directors must affirmatively vote for any amendment, alteration or repeal of our
certificate of incorporation or bylaws.
If:
. we receive an opinion of regulatory counsel that class A common
stock and voting preference common stock can vote and be treated as a
single class of stock for quorum purposes and have one vote per share;
. not less than two-thirds of the outstanding class A common stock
affirmatively vote for the single class status; and
. our board has not determined that it is likely to be detrimental to
us,
we will seek the approval of the FCC to have class A common stock and voting
preference common stock vote and be treated together as a single class with one
vote per share.
Some of our stockholders have entered into agreements regarding the voting of
their shares on particular matters, including the election of directors. These
agreements include the stockholders' agreement and the investors stockholders'
agreement dated as of July 17, 1998 among the cash equity investors and the
management stockholders. See "Certain Relationships and Related Transactions--
AT&T Agreements."
Conversion
After July 17, 2006, holders of series A preferred stock may convert their
shares into shares of class A common stock at a conversion rate equal to the
liquidation preference of series A preferred stock divided by the market price
of class A common stock.
On the date of an initial public offering of our capital stock, we may convert
shares of series C preferred stock and series E preferred stock into shares of
common stock at a conversion rate equal to the liquidation preference of series
C preferred stock or series E preferred stock, as applicable, divided by the
initial public offering price. If we convert series C preferred stock to shares
of common stock on the date of an initial public offering of our capital
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stock, shares of series D preferred stock will be automatically converted into
shares of senior common stock on that date at a rate equal to the liquidation
preference of series D preferred stock divided by the initial public offering
price.
At any time, holders of series F preferred stock may convert each share into
one share of class A common stock or class B common stock; provided, that, until
the happening of specified events, the first 631.27 of these shares to be
converted are convertible into shares of class D common stock. If we convert
series C preferred stock into common stock upon an initial public offering of
our capital stock, each share of series F preferred stock will be automatically
converted into one share of senior common stock.
At any time, holders of senior common stock may convert each share into one
share of class A common stock or class B common stock; provided, that, until the
happening of specified events, the first 631.27 of these shares to be converted
are convertible into shares of class D common stock.
At any time, holders of class A common stock and class B common stock may
convert their shares into shares of the other class.
If we receive an opinion of counsel that class A common stock and voting
preference common stock can vote and be treated as a single class of stock with
one vote per share, then, unless our board shall determine that it is likely to
be detrimental to us, holders of class C common stock and class D common stock
may convert their shares into shares of class A common stock or class B common
stock.
All conversions are subject to obtaining any required FCC approvals.
Redemption
We have the right to redeem our capital stock as follows:
. shares of series A preferred stock: following 30 days after the
10th anniversary of issuance at the liquidation preference of the
series A preferred stock;
. shares of series B preferred stock: at any time at the
liquidation preference of the series B preferred stock; and
. shares of series C preferred stock and series D preferred stock:
at any time at the liquidation preferences of series C preferred stock
and series D preferred stock; provided, that if we redeem any shares
of either series C preferred stock or series D preferred stock, we
must redeem a proportionate number of shares of the other.
In addition, the holders of some classes of capital stock have the right to
require us to redeem their shares as follows:
. holders of series A preferred stock or series B preferred stock:
following the 30th day after the 20th anniversary of issuance at the
liquidation preference of the series A preferred stock or series B
preferred stock; and
. holders of series C preferred stock, series D preferred stock or
series E preferred stock: following the 30th day after the 20th
anniversary of issuance at the liquidation preference of the series C
preferred stock, series D preferred stock and series E preferred
stock.
Neither we nor any holder of shares of any class of our capital stock may
cause us to redeem our capital stock if, at that time:
. we are insolvent or will be rendered insolvent by the redemption;
or
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. law or any of our agreements prohibits the redemption.
Further, our restated certificate of incorporation restricts our ability to
redeem any shares of capital stock to the extent shares of capital stock ranking
senior to or on a parity with the shares remain outstanding or dividends on the
senior or parity shares have not been paid in full.
Our restated certificate of incorporation also provides for our redemption of
any shares of our capital stock that is held by stockholders whose holding of
the shares, in the opinion of our board, may result in the loss of, or failure
to obtain the reinstatement of, any of our licenses or franchises.
The management agreement provides for the redemption by us of specific shares
of class A common stock and series E preferred stock held by Mr. Vento and Mr.
Sullivan in particular circumstances. See "Management--Management Agreement."
Ranking
With respect to the payment of dividends and distributions upon our
liquidation, dissolution or winding up, classes of our preferred stock ranks as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class of Stock Parity with Junior to Senior to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
series A preferred series B preferred None series C preferred
series D preferred
series E preferred
series F preferred
senior common stock
common stock
- ----------------------------------------------------------------------------------------------------------------------
series B preferred series A preferred none series C preferred
series D preferred
series E preferred
series F preferred
senior common stock
common stock
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class of Stock Parity with Junior to Senior to
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
series C preferred series D preferred - series A preferred and series E preferred
except when a statutory series B preferred series F preferred
liquidation series D preferred - only senior common stock
common stock - only with upon a statutory common stock - only with
respect to dividends liquidation respect to dissolution,
liquidation and winding up
- ----------------------------------------------------------------------------------------------------------------------
series D preferred series C preferred - series A preferred series C preferred -
except when a statutory series B preferred only upon a statutory
liquidation liquidation
common stock - only with series E preferred
respect to dividends series F preferred
senior common stock
common stock - only with
respect to dissolution,
liquidation and winding up
- ----------------------------------------------------------------------------------------------------------------------
series E preferred common stock - only with series A preferred series F preferred
respect to dividends series B preferred senior common stock
series C preferred common stock
series D preferred
- ----------------------------------------------------------------------------------------------------------------------
series F preferred senior common stock series A preferred common stock -
common stock - except when a series B preferred only upon a statutory
statutory liquidation series C preferred liquidation
series D preferred
series E preferred
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
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Class of Stock Parity with Junior to Senior to
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<S> <C> <C> <C>
senior common stock series F preferred series A preferred common stock
series B preferred
series C preferred
series D preferred
series E preferred
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</TABLE>
Dividends
The holders of series A preferred stock and series B preferred stock are
entitled to receive annual dividends equal to 10% of the liquidation preference
related to their shares; provided that so long as any shares of series A
preferred stock or series B preferred stock are outstanding, no dividends may be
paid on any shares of any class of capital stock ranking junior to series A
preferred stock or series B preferred stock. Dividends accrue from the date of
issuance of the shares and are payable quarterly, provided that we have the
option to defer payments for up to ten and one-half years from the date of
issuance.
The holders of series C preferred stock, series D preferred stock, series E
preferred stock, series F preferred stock and senior common stock are entitled
to dividends as declared by our board.
Subject to the rights of the holders of the preferred stock, our board may
declare dividends on the common stock; provided, that dividends on class C
common stock and class D common stock may only be paid up to the amount by which
funds legally available for the dividends exceed the excess of:
(1) fair market value of the assets of TeleCorp Holding less TeleCorp
Holding's liabilities over
(2) the aggregate par value of class C common stock and class D common
stock, at our board's discretion.
Dividends may only be paid on the other classes of common stock up to the
amount legally available after subtracting the maximum amount payable in respect
of class C common stock and class D common stock, at our board's
discretion.
We may not pay dividends on any shares of any class of our capital stock if,
at the time:
. we are insolvent or will be rendered insolvent by the payments;
or
. law or any of our agreements prohibits the dividend payments.
Further, our restated certificate of incorporation restricts our ability to pay
any dividends on any class of capital stock to the extent shares of capital
stock ranking senior to or on a parity with the class remain outstanding or
dividends on the senior or parity shares have not been paid in full.
Liquidation Preference
The holders of preferred stock are entitled to preferences with respect to
distributions upon our liquidation, dissolution or winding up as follows:
. holders of series A preferred stock and series B preferred stock
are entitled to a preference per share equal to $1,000 plus accrued
and unpaid dividends on the shares.
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. holders of series C preferred stock are entitled to a preference
per share equal to the paid-in capital per share of series C preferred
stock together with interest on $1,000 from the date of issuance at a
rate of 6% per annum, compounded quarterly, less the amount of any
dividends paid on the share, plus accrued and unpaid dividends.
. holders of series D preferred stock are entitled to a preference
per share equal to $1,000 together with interest from the date of
issuance at rate of 6% per annum, compounded quarterly, less the
amount of any dividends paid on the share, plus accrued and unpaid
dividends.
. holders of series E preferred stock are entitled to a preference
per share equal to the amount of accrued and unpaid dividends on the
share, together with interest on $1,000 from the date of issuance at a
rate of 6% per annum, compounded quarterly, less the amount of any
dividends declared and paid on the share.
. holders of series F preferred stock are entitled to a preference
equal to $.01 plus accrued and unpaid dividends on the shares.
. holders of senior common stock are entitled to a preference per
share equal to the liquidation preference associated with the shares
of series D preferred stock for all shares of series D preferred stock
converted into senior common stock plus the liquidation preference
associated with the shares of series F preferred stock for all shares
of series F preferred stock converted into senior common stock,
divided by the number of shares of senior common stock into which
shares of series D preferred stock and series F preferred stock were
converted.
Following payment of all amounts payable to the holders of preferred stock
upon our liquidation, dissolution or winding up, the holders of class C common
stock and class D common stock shall be entitled to receive the fair market
value of the assets of TeleCorp Holding less TeleCorp Holding's liabilities. The
holders of the other classes of common stock shall be entitled to receive the
remaining amounts available for distribution.
Transfer Restriction
Some of our stockholders have entered into agreements that restrict transfer
of their shares and provide for the happening of specified events, such as share
conversions. See "Certain Relationships and Related Transactions--AT&T
Agreements" and "--Management Agreement."
Our restated certificate of incorporation provides that, upon the happening of
specified events described in the stockholders' agreement, we have the right to
exchange all or some of the shares of series A preferred stock, series D
preferred stock, series F preferred stock, senior common stock and common stock
held by AT&T for an equal number of shares of series B preferred stock. See
"Certain Relationships and Related Transactions--AT&T Agreements."
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DESCRIPTION OF THE NOTES
General
In this section, we refer to our subsidiaries separately from us.
Capitalized terms used in this section and not otherwise defined have the
meanings given such terms under "--Definitions."
The outstanding notes have been, and the exchange notes will be, issued under
the indenture, dated as of April 23, 1999, among us, TeleCorp Communications, as
our subsidiary guarantor, and Bankers Trust Company, as trustee. The following
is a summary of particular provisions of the indenture. It does not restate the
indenture in its entirety. We urge you to read the indenture because it, and not
this description, defines your rights as holders of exchange notes. Copies of
the proposed form of indenture are available as described below under the
subheading "Additional Information." The terms of the notes include the terms in
the indenture and those terms made a part of the indenture by the Trust
Indenture Act.
Method of Receiving Payments on the Notes
We will pay principal of, premium, if any, and interest on the notes at our
office or agency in the Borough of Manhattan, The City of New York, which
initially shall be the corporate trust office of the trustee, at 4 Albany
Street, New York, New York 10006. At our option, we may make interest payments
by check mailed to the registered holders of the notes at their registered
addresses.
Transfer and Exchange
A noteholder may transfer or exchange notes in accordance with the indenture.
Upon any transfer or exchange, the registrar and the trustee may require a
noteholder to, among other things, furnish appropriate endorsements and transfer
documents, and we may require a noteholder to pay any taxes required by law or
permitted by the indenture. We will not be required to transfer or exchange any
note selected for redemption or to transfer or exchange any note for a period of
15 days prior to a selection of notes to be redeemed. The notes will be issued
in registered form, and the registered holder of a note will be treated as the
owner of that note for all purposes.
No service charge will be made for any registration of transfer or exchange of
notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with such transfer or
exchange.
Terms of the Notes
Principal and Maturity
The notes are our unsecured senior subordinated obligations, limited to $575.0
million aggregate principal amount at maturity. We will issue the notes only in
fully registered form, without interest coupons, in denominations of $1,000 of
principal amount at maturity and integral multiples of $1,000. The notes will
mature on April 15, 2009.
Discount
We issued the notes at a discount. The notes will accrete in value until April
15, 2004, compounded semi-annually. At that time, cash interest on the notes
will accrue and become payable on April 15 and October 15 of each year,
beginning on October 15, 2004. The yield to maturity of the notes is 11 5/8%
computed on a semi-annual bond-equivalent basis calculated from April 23,
1999.
Interest
Cash interest will not accrue or be payable on the notes prior to April 15,
2004. Cash interest will accrue at the rate of 11 5/8% per annum from April 15,
2004, or from the most recent date to which interest has been paid or for
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which interest has been provided. Interest will be payable semiannually on April
15 and October 15 of each year, beginning October 15, 2004. Interest will be
payable to holders of record at the close of business on the April 1 or October
1 immediately preceding the interest payment date. We will pay cash interest on
overdue principal at 1% per annum in excess of 11 5/8%, and we will pay interest
on overdue installments of cash interest at this higher rate to the extent
lawful.
Optional Redemption
Except as described in the next paragraph, the notes will not be redeemable at
our option until April 15, 2004. After April 15, 2004, we may redeem the notes,
in whole or in part, on not less than 30, nor more than 60, days prior notice,
at the following redemption prices, plus accrued and unpaid interest, if any, to
the redemption date, if redeemed during the 12-month period beginning on April
15 of the years described below:
<TABLE>
<CAPTION>
Year Redemption Price
- ---- ----------------
<S> <C>
2004................................................................ 105.813%
2005................................................................ 103.875%
2006................................................................ 101.938%
2007 and thereafter................................................. 100.000%
</TABLE>
We express the above redemption prices as percentages of principal amount at
maturity. The prices are subject to the right of holders of record on the
relevant record date to receive interest, if any, due on the relevant interest
payment date.
In addition, at any time and from time to time prior to April 15, 2002, we may
redeem up to a maximum of 35% of the aggregate principal amount at maturity of
the notes with the proceeds of one or more sales of our equity, which equity may
not be converted, exchanged or redeemed until April 16, 2010, at a redemption
price equal to 111 5/8% of the accreted value of the notes on the redemption
date, which value would be the initial offering price plus any amortization;
provided that, after giving effect to any redemption, at least 65% of the
aggregate principal amount at maturity of the notes remains outstanding. In
addition, any redemption shall be made within 60 days of our equity sale upon
not less than 30 nor more than 60 days notice mailed to each holder of notes
being redeemed and otherwise in accordance with the procedures in the indenture.
Selection and Notice
In the case of any partial redemption, selection of the notes for redemption
will be made by the trustee on a pro rata basis, by lot or by another method as
the trustee in its sole discretion shall deem to be fair and appropriate,
although notes in denominations of $1,000 or less will not be redeemed in part.
If any note is to be redeemed in part only, the notice of redemption relating to
the note shall state the portion of the note to be redeemed. A new note equal to
the unredeemed portion of the note will be issued in the name of the holder upon
cancellation of the original note.
Ranking
The Debt evidenced by the notes:
. is our unsecured senior subordinated debt;
. is subordinated in right of payment, as described in the
indenture, to all of our existing and future senior Debt;
. is pari passu in right of payment with all of our existing and
future senior subordinated debt;
. is senior in right of payment to all of our existing and future
subordinated debt; and
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. is effectively subordinated to any of our Secured Debt and any
Senior Debt of our subsidiaries to the extent of the value of the
assets securing the Debt.
The notes are guaranteed by TeleCorp Communications, one of our subsidiaries,
and may in the future be guaranteed by some of our subsidiaries that incur Debt.
The Debt evidenced by the subsidiary guarantees:
. is unsecured senior subordinated debt of each of our subsidiary
guarantors;
. is subordinated in right of payment, as described in the
indenture, to all existing and future Senior Debt of each subsidiary
guarantor;
. is pari passu in right of payment with all existing and future
senior subordinated debt of each of our subsidiary guarantors;
. is senior in right of payment to all existing and future
subordinated debt of each of our subsidiary guarantors; and
. is effectively subordinated to any Secured Debt of each of our
subsidiary guarantors and their subsidiaries to the extent of the
value of the assets securing the Debt.
Payment from the money or the proceeds of U.S. government obligations held in
any defeasance trust described under "--Defeasance," however, is not
subordinated to any Senior Debt or subject to the restrictions described within
this offer.
We conduct substantially all of our operations through our subsidiaries.
Claims of creditors of these subsidiaries, including trade creditors, and claims
of preferred stockholders, if any, of the subsidiaries generally will have
priority with respect to the assets and earnings of the subsidiaries over the
claims of our creditors, including holders of the notes. The notes are
effectively subordinated to creditors, including trade creditors, and preferred
stockholders, if any, of our subsidiaries. As of June 30, 1999, the total
liabilities of our subsidiaries were approximately $512.1 million, including
trade payables. Although the indenture contains limitations on the incurrence of
Debt by, and the issuance of preferred stock of, some of our subsidiaries, these
limitations are subject to a number of significant qualifications.
As of June 30, 1999:
. with respect to us:
. our outstanding Senior Debt was $225.0 million, exclusive
of unused commitments under the senior credit agreement and
additional senior debt of our subsidiaries, all of which would
have been Secured Debt;
. we had no outstanding senior subordinated debt other than
the notes; and
. our outstanding Debt that was subordinate or junior in
right of payment to the notes would have been $40.5 million,
including $0.5 million of interest paid in kind;
. with respect to our subsidiary guarantor:
. the outstanding debt of our subsidiary guarantor was
$225.0 million, consisting entirely of a guarantee of Debt under
our senior credit agreement;
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. our subsidiary guarantor had no senior subordinated debt
outstanding other than the subsidiary guarantee;
. our subsidiary guarantor had no outstanding Debt that would
be subordinate or junior in right of payment to the subsidiary
guarantee; and
. with respect to our subsidiaries that will not guarantee the
notes:
. the outstanding debt of our subsidiaries that will not
guarantee the notes was $242.5 million, consisting of $20.7
million of debt to the FCC, which is shown on our balance sheet
net of discounts of $3.2 million reflecting the below market
interest rates on the debt, and $225.0 million of guarantees of
Debt under the senior credit agreement;
. our subsidiaries that will not guarantee the notes had total
liabilities of $320.8 million, consisting of $20.7 million of
debt to the FCC, $24.8 million of trade payables, $4.1 million of
accrued and other expenses and $274.4 million of intercompany
amounts payable. The debt to the FCC is shown on our balance
sheet net of discounts of $3.2 million reflecting the below
market interest rates on the debt.
Although the indenture limits the amount of additional Debt which we may
incur, under some circumstances the amount of this Debt could be substantial
and, in any case, the Debt may be Senior Debt. See "--Important Covenants--
Limitation on Incurrence of Debt."
Only Senior Debt will rank senior to the notes in accordance with the
provisions of the indenture. The notes will in all respects rank pari passu with
all of our other senior subordinated debt. We have agreed in the indenture that
we will not incur, directly or indirectly, any Debt which is subordinate or
junior in ranking in any respect to Senior Debt unless the Debt is senior
subordinated debt or is expressly subordinated in right of payment to senior
subordinated debt. Unsecured Debt is not deemed to be subordinate or junior to
Secured Debt merely because it is unsecured.
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If:
(1) any Designated Senior Debt is not paid when due; or
(2) any other default on the Designated Senior Debt occurs and the maturity
of the Designated Senior Debt is accelerated in accordance with its
terms,
we may not pay principal of, or premium or interest on, the notes or make any
deposit under the provisions described under "--Defeasance" and may not
otherwise repurchase, redeem or otherwise retire any notes, other than payments
made with money or U.S. government obligations previously deposited in the
defeasance trust described under "--Defeasance"
unless, in either case:
(x) the default has been cured or waived and any acceleration has been
rescinded; or
(y) the Designated Senior Debt has been paid in full.
We may pay the notes without regard to the above restrictions if the
representative of the holders of the Designated Senior Debt approves the payment
and so notifies us and the trustee in writing. We may not pay the notes during a
default on any Designated Senior Debt that allows the representative of the
holders of the Designated Senior Debt to accelerate maturity:
. immediately without further notice; or
. when applicable grace periods expire.
When the representative of the holders of the Designated Senior Debt sends to
the trustee, and copies to us, a notice electing to block our paying the notes
because of a default, we may not pay the notes for a period that begins when the
trustee receives the blockage notice and ends the earlier of:
. 179 days later; and
. when the representative terminates the payment blockage
period.
If:
(1) any Designated Senior Debt is not paid when due; or
(2) any other default on the Designated Senior Debt occurs and the
maturity of the Designated Senior Debt is accelerated in accordance with
its teams,
. a payment blockage period terminates upon:
. written notice to the trustee and us from the person who
gave the blockage notice;
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. repayment in full of the Designated Senior Debt; or
. discontinuance of the default giving rise to the blockage
notice.
Unless the holders of the Designated Senior Debt or the representative of the
holders have accelerated the maturity of the Designated Senior Debt, we may
resume payments on the notes after the end of the payment blockage period.
Not more than one blockage notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Debt during the period. However, if any blockage notice within
the 360-day period is given by the representative of the holders of Designated
Senior Debt other than indebtedness under our senior credit facilities, the
representative of indebtedness under our senior credit facilities may give
another blockage notice within the period. In no event may the total number of
days during which any payment blockage periods are in effect exceed 179 days in
the aggregate during any period of 360 consecutive days. In addition, no default
that existed or was continuing on the date that any payment blockage period
began shall trigger a subsequent payment blockage period, whether or not within
a period of 360 consecutive days, unless the default had been cured or waived
for more than 90 consecutive days.
Upon any payment or distribution of our assets to creditors upon our
liquidation or our dissolution or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to us or our property:
. the holders of our Senior Debt will be entitled to receive
payment in full in cash of the Senior Debt before noteholders are
entitled to receive any payment of principal of, or interest on, the
notes; and
. until the Senior Debt is paid in full, any payment or
distribution will be made first to holders of the Senior Debt as their
interests may appear and second to noteholders, except that
noteholders may receive shares of stock and any debt securities that
are subordinated to the Senior Debt and any securities exchanged for
the Senior Debt to at least the same extent as the notes.
If a distribution is made to noteholders that, due to the subordination
provisions of the indenture, should not have been made to them, the noteholders
will be required to hold the distribution in trust for the holders of our Senior
Debt and pay it over to them as their interests may appear.
If payment of the notes is accelerated because of an event of default, we or
the trustee shall promptly notify the holders of the Designated Senior Debt or
their representative of the acceleration. If any Designated Senior Debt is
outstanding, we may not pay the notes until five business days after the holders
or the representative of the Designated Senior Debt receive notice of the
acceleration and, then, may pay the notes only if the subordination provisions
of the indenture otherwise permit payment at that time.
By reason of the subordination provisions in the indenture, in the event of
insolvency, our creditors who are holders of our Senior Debt may recover more,
ratably, than the noteholders. Our creditors who are not holders of our Senior
Debt or of our senior subordinated debt, including the notes, may recover less,
ratably, than holders of our Senior Debt and may recover more, ratably, than the
holders of our subordinated debt.
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The subordination provisions in the indenture will not apply to payments made
with money or U.S. government obligations previously deposited in the defeasance
trust described under "--Defeasance."
Subsidiary Guarantees
Our subsidiary guarantor and some of our future subsidiaries guarantee the
performance and full and punctual payment when due of all of our obligations
under the indenture and the notes.
The guarantees are:
. as primary obligors and not merely as sureties;
. joint and several;
. irrevocable and unconditional; and
. on an unsecured senior subordinated basis.
Guaranteed payments are deemed to be due whether:
. at maturity, on April 15, 2009;
. by acceleration; or
. otherwise
Payments include:
. principal of the notes;
. interest on the notes;
. liquidated damages in respect of the notes;
. expenses;
. indemnification; and
. otherwise.
Our subsidiary guarantors agree to pay, in addition to the amount stated
above, any and all costs and expenses, including reasonable counsel fees and
expenses, that the trustee or the holder of notes incurs in enforcing any rights
under the subsidiary guarantees. Each subsidiary guarantee is limited in amount
to an amount not to exceed the maximum amount that can be guaranteed by the
applicable subsidiary guarantor without rendering the subsidiary guarantee, as
it relates to such subsidiary guarantor, voidable under applicable law relating
to fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. We will cause each Restricted Subsidiary that
incurs Debt to become a subsidiary guarantor; provided that we will not cause
any special purpose subsidiary, as designated in our senior credit agreement, to
become a subsidiary guarantor unless the special purpose subsidiary incurs Debt
other than Debt under our senior credit facilities, or any Refinancing Debt
incurred to refinance the Debt, or debt to the FCC. See "--Covenants--Future
Subsidiary Guarantors."
The obligations of each of our subsidiary guarantors under its subsidiary
guarantee are senior subordinated obligations. As such, the rights of
noteholders to receive payment from our subsidiary guarantor under its
subsidiary
<PAGE>
guarantee are subordinated in right of payment to the rights of holders of
Senior Debt of the subsidiary guarantor. The terms of the subordination
provisions described under "--Ranking" with respect to our obligations under the
notes apply equally to each of our subsidiary guarantors and the obligations of
the subsidiary guarantor under its subsidiary guarantee.
Each subsidiary guarantee is a continuing guarantee and shall:
. remain in full force and effect until payment in full of all of
our guaranteed obligations;
. be binding upon each of our subsidiary guarantors and its
successors; and
. inure to the benefit of and be enforceable by the trustee, the
holders of the notes and their successors, transferees and assigns.
The indenture provides that upon the merger or consolidation of our subsidiary
guarantors with or into any entity, other than us, any of our subsidiaries or
any of our affiliates, in a transaction in which the subsidiary guarantor is not
the surviving entity of the merger or consolidation, the subsidiary guarantor
shall be released and discharged from its obligations under its subsidiary
guarantee. The indenture also provides that if we or any of our subsidiaries
sell all of the capital stock or other ownership interests of any of our
subsidiary guarantors, including by issuance or otherwise, other than to us, to
any of our subsidiaries or to any of our affiliates, in a transaction
constituting an Asset Sale or which, but for the provisions of clause (3) of the
term, would constitute an Asset Sale, and:
(1) the Net Available Proceeds from the Asset Sale are used in accordance
with the covenant described under "--Important Covenants--Limitation on
Asset Sales;" or
(2) we deliver to the trustee an officers' certificate to the effect that the
Net Available Proceeds from the Asset Sale will be used in accordance
with the covenant described under "--Important Covenants--Limitation on
Asset Sales" within the time limits specified by the covenant,
then the subsidiary guarantor shall be released and discharged from its
obligations under its subsidiary guarantee upon the use, in the case of clause
(1) above or upon the delivery, in the case of clause (2) above. In addition,
any of our subsidiary guarantors that becomes our subsidiary guarantor as a
consequence of its guarantee of some Debt permitted under the indenture and that
is released and discharged from the guarantee will be released and discharged
from its subsidiary guarantee upon delivery of an officers' certificate
certifying the release and discharge from the guarantee to the trustee.
Change of Control
If a change of control occurs, each holder of notes will have the right to
require us to repurchase all or any part of the holder's notes at a purchase
price in cash equal to:
(1) 101% of the accreted value on the purchase date, if the date is on or
before April 15, 2004; or
(2) 101% of the principal amount at maturity, plus accrued and unpaid
interest, if any, to the purchase date, if the date is after April 15,
2004.
Within 30 days following any change of control, we will be required to mail a
notice to each holder of the notes, with a copy to the trustee, stating that we
are beginning an offer to purchase all outstanding notes at a purchase price in
cash equal to;
(1) 101% of the accreted value of the notes on the purchase date, if the date
is on or before April 15, 2004; or
(2) 101% of the principal amount at maturity, plus accrued and unpaid
interest, if any, to the purchase date, if the date is after April 15,
2004.
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We will not be required to make a change of control offer upon a change of
control if a third party makes the change of control offer in the manner, at the
times and otherwise in compliance with the requirements described in the
indenture applicable to a change of control offer made by us and purchases all
notes validly tendered and not withdrawn under such change of control offer.
We will be required to comply, to the extent applicable, with the requirements
of the tender offer provisions of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of the notes under this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, we will be required to
comply with the applicable securities laws and regulations and will not be
deemed to have breached our obligations under this covenant by virtue of our
compliance with such securities laws and regulations.
If, at the time of a change of control, the terms of our senior credit
facilities restrict or prohibit the repurchase of notes under this covenant,
then, prior to the mailing of the notice to holders of the notes as provided in
the immediately following paragraph, but in any event within 30 days following
any change of control, we will be required to:
. repay in full all indebtedness under our senior credit
facilities; or
. obtain the requisite consent under the senior credit agreement to
permit the repurchase of the notes as required by this covenant.
The change of control purchase feature is a result of negotiations between us
and the initial purchasers of the notes. We have no present intention to engage
in a transaction involving a change of control, although it is possible that we
may decide to do so in the future. Subject to the limitations described under
"--Important Covenants," we could, in the future, enter into transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a change of control under the indenture, but that could increase the
amount of Debt outstanding at the time or otherwise affect our capital structure
or credit ratings. Restrictions on our ability to incur additional Debt are
contained in the covenant described under "Important Covenants--Limitation on
Incurrence of Debt." The restrictions may only be waived with the consent of the
holders of a majority in principal amount at maturity of the notes then
outstanding. Except for the limitations contained in the covenants, however, the
indenture does not contain any covenants or provisions that may afford holders
of the notes protection in the event of a highly leveraged transaction.
The occurrence of some of the events that would constitute a change of control
would constitute a default under our senior credit agreement. Our future Senior
Debt may also contain prohibitions of particular events which would constitute a
change of control or require the Senior Debt to be repurchased upon a change of
control. Moreover, the exercise by holders of the notes of their right to
require us to repurchase the notes could cause a default under the Senior Debt,
even if the change of control itself does not, due to the financial effect of
the repurchase on us. Finally, our ability to pay cash to holders of the notes
upon a repurchase may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. The provisions of the indenture related to our
obligation to make a change of control offer as a result of a change of control
may be waived or modified with the written consent of the holders of a majority
in principal amount at maturity of the notes.
Important Covenants
The indenture limits our ability, and the ability of our Restricted
Subsidiaries, to:
. incur debt, other than specified allowed debt or if we exceed
specified financial ratios;
. create levels of debt that are senior to the notes but junior to
our senior debt;
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. pay debt that is junior to the notes;
. make payments on our equity securities;
. invest in Unrestricted Subsidiaries;
. restrict dividends and other payments from our Restricted
Subsidiaries to us;
. sell assets unless we comply with restrictions on the use of
proceeds from asset sales;
. enter into non-arms length transactions;
. engage in business outside of the telecommunications
industry;
. amend our securities purchaser agreement; and
. designate Unrestricted Subsidiaries.
The indenture requires us, and our Restricted Subsidiaries, to:
. provide our financial information to you; and
. cause any Restricted Subsidiaries that incur debt to guarantee
the notes.
There are conditions and exceptions to many of the above limits, on which we
give detail below.
Our Restricted Subsidiaries are currently:
. TeleCorp Communications, Inc.;
. TeleCorp LLC;
. TeleCorp Holding Corp., Inc.;
. TeleCorp PR, Inc.;
. Puerto Rico Acquisition Corporation;
. TeleCorp Equipment Leasing, L.P.; and
. TeleCorp Realty, LLC.
Limitation on Incurrence of Debt
The indenture provides that we will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, incur any Debt, including
Acquired Debt, except:
(1) our Debt or the Debt of any of our subsidiary guarantors if, immediately
after giving effect to the incurrence of the Debt and the receipt and
application of the net proceeds therefrom, including the application or
use of the net proceeds therefrom to repay Debt, complete an Asset
Acquisition or make any Restricted Payment, as defined in "Limitation on
Restricted Payments" below:
(a) the ratio of (x) Total Consolidated Debt to (y) Annualized Pro Forma
Consolidated Operating Cash Flow would be less than:
. 7.0 to 1.0, if the Debt is to be incurred prior to April 1,
2005; or
. 6.0 to 1.0 if the Debt is to be incurred on or after April
1, 2005;
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or
(b) in the case of any incurrence of Debt prior to April 1, 2005 only,
Total Consolidated Debt would be equal to or less than 75% of Total
Invested Capital;
(2) indebtedness under our senior credit facilities in an aggregate principal
amount not to exceed $600 million;
(3) our Debt and the Debt of our Restricted Subsidiaries outstanding from
time to time under any vendor credit arrangement;
(4) Debt owed by us to any Restricted Subsidiary or Debt owed by a Restricted
Subsidiary to us or another Restricted Subsidiary; provided, however,
that, upon either:
(a) the transfer or other disposition by the Restricted Subsidiary or us
of any Debt so permitted under this clause (4) to an entity other
than us or another Restricted Subsidiary; or
(b) the issuance, other than of directors' qualifying shares, sale,
transfer or other disposition of shares of capital stock or other
ownership interests, including by consolidation or merger, of such
Restricted Subsidiary to an entity other than us or another the
Restricted Subsidiary,
the exception provided by this clause (4) shall no longer be applicable
to the Debt and the Debt shall be deemed to have been incurred at the
time of any the issuance, sale, transfer or other disposition, as the
case may be;
(5) our Debt or the Debt of any Restricted Subsidiary under any hedging
agreement to the extent entered into to protect us or the Restricted
Subsidiary from fluctuations in interest rates on any other Debt
permitted under the indenture, currency exchange rates or commodity
prices and not for speculative purposes;
(6) Refinancing Debt incurred to refinance any Debt incurred under the prior
clause (1) or (3) above, the notes or the subsidiary guarantees;
(7) our Debt under the notes and Debt of our subsidiary guarantors under the
subsidiary guarantees, in each case incurred in accordance with the
indenture;
(8) our or any Restricted Subsidiary's capital lease obligations in an
aggregate principal amount not in excess of $25.0 million at any time
outstanding;
(9) debt to the FCC assumed in connection with the acquisitions from Digital
PCS or Wireless 2000;
(10) our Debt or the Debt of any Restricted Subsidiary consisting of a
guarantee of our Debt or the Debt of a Restricted Subsidiary that was
permitted to be incurred by another provision of this covenant;
(11) our Debt or the Debt of any Restricted Subsidiary in respect of statutory
obligations, performance, surety or appeal bonds or other obligations of
a like nature incurred in the ordinary course of business;
(12) Debt of a Restricted Subsidiary existing at the time we acquired the
Restricted Subsidiary, other than Debt incurred in connection with, or in
contemplation of, the transaction or series of related transactions in
which we acquired the Restricted Subsidiary; provided, however, that on
the date we acquired the Restricted Subsidiary, we would have been able
to incur $1.00 of additional Debt under clause (1) above after giving
effect to the incurrence of the Debt under this clause (12) and the
acquisition of the Restricted Subsidiary and Refinancing Debt incurred by
us or the Restricted Subsidiary in respect of Debt incurred by the
Restricted Subsidiary under this clause (12); and
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(13) our Debt not otherwise permitted to be incurred under clauses (1) through
(12) above which, together with any other outstanding Debt incurred under
this clause (13), has an aggregate principal amount not in excess of $75
million at any time outstanding.
Debt of an entity existing at the time the entity becomes a Restricted
Subsidiary or which a Lien on an asset we or a Restricted Subsidiary acquired
secures, whether or not the Debt is assumed by the acquiring person, shall be
deemed incurred at the time the entity becomes a Restricted Subsidiary or at the
time of the asset acquisition, as the case may be.
For purposes of determining compliance with this covenant:
(1) if an item of Debt meets the criteria of more than one of the categories
of Debt permitted under clauses (1) through (13) above, in our sole
discretion, we may classify the item of Debt in any manner that complies
with this covenant and may from time to time reclassify the items of Debt
in any manner that would comply with this covenant at the time of the
reclassification;
(2) Debt permitted by this covenant need not be permitted solely by reference
to one provision permitting the Debt but may be permitted in part by one
provision and in part by one or more other provisions of this covenant
permitting the Debt;
(3) if Debt meets the criteria of more than one of the types of Debt described
in this covenant, in our sole discretion, we may classify the Debt and
only be required to include the amount of the Debt in one of the thirteen
clauses above; and
(4) accrual of interest, including interest paid-in-kind, and the accretion of
accreted value will not be deemed to be an incurrence of Debt for purposes
of this covenant.
Despite any other provision of this covenant:
(1) the maximum amount of Debt that we or any Restricted Subsidiary may incur
under this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies; and
(2) Debt incurred under our senior credit facilities prior to or on the date
of the indenture shall be treated as incurred under clause (2) of the
first paragraph of this covenant, which limits our indebtedness under our
senior credit facilities to an aggregate principal amount not to exceed
$600 million.
Limitation on Layered Debt
The indenture provides that we will not:
(1) directly or indirectly incur any Debt that by its terms would expressly
rank senior in right of payment to the notes and rank subordinate in right
of payment to any of our other Debt; or
(2) cause or permit any of our subsidiary guarantors to, and none of our
subsidiary guarantors will, directly or indirectly, incur any Debt that by
its terms would expressly rank senior in right of payment to the
subsidiary guarantee of the subsidiary guarantor and rank subordinate in
right of payment to any other Debt of the subsidiary guarantor;
provided that no Debt shall be deemed to be subordinated solely by virtue of
being unsecured.
Limitation on Restricted Payments
The indenture provides that we will not, and will not cause or permit any
Restricted Subsidiary to, directly or
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indirectly, on or prior to December 31, 2002:
(1) declare or pay any dividend, or make any distribution of any kind or
character, whether in cash, property or securities, in respect of any
class of our capital stock, excluding any dividends or distributions
payable solely in shares of our capital stock, which may not be converted,
exchanged or redeemed until April 16, 2010, or in options, warrants or
other rights to acquire our capital stock, which may not be converted,
exchanged or redeemed until April 16, 2010;
(2) purchase, redeem or otherwise acquire or retire for value any shares of
our capital stock, any options, warrants or rights to purchase or acquire
our shares or any securities convertible or exchangeable into our shares,
other than any shares of capital stock or other ownership interests,
options, warrants, rights or securities that we or a Restricted Subsidiary
own;
(3) make any Investment, other than a Permitted Investment, in an entity other
than us or a Restricted Subsidiary; or
(4) redeem, repurchase, retire or otherwise acquire or retire for value, prior
to its scheduled maturity, repayment or any sinking fund payment,
subordinated debt or make any payment of interest or premium on, or
distribution of any kind or character, whether in cash, property or
securities, in respect of, the Lucent series A notes, excluding payments
of interest or distributions payable solely in additional Lucent series A
notes.
Each of the transactions described in clauses (1) through (4) above, other than
any exception to any clause, is a "Restricted Payment."
At any time after December 31, 2002, we will not, and will not cause or permit
any Restricted Subsidiary to, directly or indirectly, make a Restricted Payment
if:
(A) a default shall have occurred and be continuing at the time of or after
giving effect to the Restricted Payment;
(B) immediately after giving effect to the Restricted Payment, we could not
incur at least $1.00 of additional Debt under clause (1) of the covenant
described under "--Limitation on Incurrence of Debt;" and
(C) immediately upon giving effect to the Restricted Payment, the aggregate
amount of all Restricted Payments declared or made on or after April 23,
1999, including any designation amount, exceeds the sum, without
duplication, of:
(1) the amount of:
(x) our Consolidated Cash Flow after December 31, 2002, through the
end of the latest full fiscal quarter for which our consolidated
financial statements are available preceding the date of the
Restricted Payment, treated as a single accounting period, less
(y) 150% of our cumulative Consolidated Interest Expense after
December 31, 2002, through the end of the latest full fiscal
quarter for which our consolidated financial statements are
available preceding the date of the Restricted Payment, treated as
a single accounting period; plus
(2) the aggregate net cash proceeds, other than Excluded Cash Proceeds,
that we received as a capital contribution in respect of our capital
stock, which capital stock may not be converted, exchanged or redeemed
until April 16, 2010, or from the proceeds of a sale of our capital
stock, which capital stock may not be converted, exchanged or redeemed
until April 16, 2010, made after April 23, 1999, excluding in each
case:
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(x) the proceeds from a sale of our capital stock to a Restricted
Subsidiary; and
(y) the proceeds from a sale of our capital stock to an employee stock
ownership plan or other trust that we or any of our subsidiaries
established;
plus
(3) the aggregate net cash proceeds that we or any Restricted Subsidiary
received from the sale, disposition or repayment, other than to us or
a Restricted Subsidiary, of any Investment made after the date of the
indenture and constituting a Restricted Payment in an amount equal to
the lesser of:
(x) the return of capital with respect to the Investment; and
(y) the initial amount of the Investment, in either case, less the
cost of disposition of the Investment;
plus
(4) an amount equal to the consolidated Net Investment on the date of
revocation made by us and/or any Restricted Subsidiary in any of our
subsidiaries that has been designated as an Unrestricted Subsidiary
after April 23, 1999 upon its redesignation as a Restricted Subsidiary
in accordance with the covenant described under "--Limitation on
Designations of Unrestricted Subsidiaries."
For purposes of:
(1) clause (C)(2) above, the value of the aggregate net cash proceeds that we
received from, or as a capital contribution in connection with, the
issuance of our capital stock, which capital stock may not be converted,
exchanged or redeemed until April 16, 2010, either upon:
. the conversion of our convertible Debt or the convertible Debt of
any of our Restricted Subsidiaries or in exchange for our outstanding
Debt or the outstanding Debt of any of our Restricted Subsidiaries; or
. upon the exercise of options, warrants or rights
will be the net cash proceeds that we or any Restricted Subsidiary
received upon the issuance of the Debt, options, warrants or rights, plus
the incremental amount that we or any Restricted Subsidiary received upon
the conversion, exchange or exercise;
(2) clause (C)(4) above, the value of the consolidated Net Investment on the
date of revocation shall be equal to the fair market value, as determined
by our board in good faith, of the aggregate amount of our or any
Restricted Subsidiary's Investments in our subsidiaries on the applicable
date of designation; and
(3) determining the amount expended for Restricted Payments, cash distributed
shall be valued at the face amount and property other than cash shall be
valued at its fair market value on the date we make or a Restricted
Subsidiary makes the Restricted Payment, as the case may be.
The provisions of this covenant shall not prohibit:
(1) the payment of any dividend or distribution within 60 days after the date
of its declaration, if at the date of declaration the payment would comply
with the provisions of the indenture;
(2) so long as no default shall have occurred and be continuing, the purchase,
redemption, retirement or other acquisition of any of our capital stock
out of the net cash proceeds of the substantially concurrent capital
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contribution to us in connection with our capital stock that may not be
converted, exchanged or redeemed until April 16, 2010 or out of the net
cash proceeds that we received from the substantially concurrent issue or
sale, other than to a Restricted Subsidiary or to an employee stock
ownership plan or other trust that we or any of our subsidiaries
established, of our capital stock that may not be converted, exchanged or
redeemed until April 16, 2010; provided that:
(a) any net cash proceeds shall be excluded from clause (C)(2) above,
and
(b) the proceeds do not constitute Excluded Cash Proceeds;
(3) so long as no default shall have occurred and be continuing, the purchase,
redemption, retirement, defeasance or other acquisition of our
subordinated debt made by exchange for or conversion into, or out of the
net cash proceeds that we received, or out of a capital contribution to us
in connection with a concurrent issue and sale, other than to a Restricted
Subsidiary, of:
. our capital stock that may not be converted, exchanged or redeemed
until April 16, 2010, provided that
. any net cash proceeds are excluded from clause (C)(2) above,
. the proceeds do not constitute Excluded Cash Proceeds, and
. the proceeds, if from a sale other than an underwritten public
offering, are not applied to optionally redeem the notes on or prior
to April 15, 2002; or
. other of our subordinated debt that has an Average Life equal to or
greater than the Average Life of the subordinated debt being purchased,
redeemed, retired or otherwise acquired and that is subordinated in
right of payment to the notes at least to the same extent as the
subordinated debt being purchased, redeemed, retired, or otherwise
acquired;
(4) so long as no default shall have occurred and be continuing, the making of
a direct or indirect Investment constituting a Restricted Payment in an
amount not to exceed the amount of the proceeds of a concurrent capital
contribution in respect of our capital stock that may not be converted,
exchanged or redeemed until April 16, 2010 or from the issue or sale,
other than to a Restricted Subsidiary, of our capital stock that may not
be converted, exchanged or redeemed until April 16, 2010; provided that:
(a) any net cash proceeds are excluded from clause (C)(2) above;
(b) the proceeds do not constitute Excluded Cash Proceeds; and
(c) the proceeds, if from a sale other than an underwritten public
offering, are not applied to optionally redeem the notes on or
prior to April 15, 2002;
(5) so long as no default shall have occurred and be continuing and so long
as, immediately after giving effect to the Investment, we could incur at
least $1.00 of additional Debt under clause (1) of the covenant described
under "--Limitation on Incurrence of Debt," our making of a direct or
indirect Investment constituting a Restricted Payment in any entity
incorporated, formed or created to acquire one or more licenses covering
or adjacent to where we or a Restricted Subsidiary own a license through
participation in any auction or reauction of PCS licenses conducted by the
FCC, in an amount not to exceed $50.0 million at any time outstanding;
provided that
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. the entity shall qualify as an entrepreneur under the Communications
Act in the case of any proposed acquisition of licenses covering or
adjacent to where we or a Restricted Subsidiary own a license through
participation in any auction or reauction of PCS licenses conducted by
the FCC; and
. we shall have received, prior to making the Investment, from one or
more Strategic Equity Investors, irrevocable, unconditional commitments
to purchase our capital stock that may not be converted, exchanged or
redeemed until April 16, 2010, at the earliest to occur of:
. the date that is 30 days after the date on which the entity acquires
any licenses covering or adjacent to where we or a Restricted
Subsidiary own a license;
. the date that is 30 days after the date on which the entity
withdraws from the auction or reauction;
. the date that is 30 days after the date the FCC terminates the
auction or reauction; and
. the date that is 180 days after the date on which any amounts were
deposited by or on behalf of the entity in escrow with the FCC in
connection with the proposed acquisition of licenses covering or
adjacent to where we or a Restricted Subsidiary own a license; and
. in an amount not less than the amount of the Investment, plus the
amount of all fees, expenses and other costs incurred in connection
with the participation;
provided further that if at any time the aggregate net cash proceeds that
the Strategic Equity Investors pay to us shall exceed the amount of the
Investment plus all fees, expenses and other costs incurred in connection
with the participation:
(a) the commitments may terminate in accordance with their terms to the
extent, but only to the extent, of the excess; and
(b) we may rescind all or a portion of the payments made by the Strategic
Equity Investors for our capital stock and redeem all or a portion of
our capital stock in an amount not greater than the excess;
provided further that:
. the aggregate net proceeds that we receive upon the purchase by the
Strategic Equity Investors of our capital stock are excluded from
clause (C)(2) above unless the entity becomes a Restricted Subsidiary
or merges, consolidates or amalgamates with or into, or transfers or
conveys substantially all its assets to us or a Restricted Subsidiary,
or liquidates into us or a Restricted Subsidiary;
. the proceeds shall not constitute Excluded Cash Proceeds; and
. the proceeds are not applied to optionally redeem the notes prior to
April 15, 2002;
(6) so long as no default shall have occurred and be continuing and so long
as, immediately after giving effect to the Investment, we could incur at
least $1.00 of additional Debt under clause (1) of the covenant described
under "--Limitation on Incurrence of Debt," our making of a direct or
indirect Investment constituting a Restricted Payment in any entity
engaged in a Permitted Business in an amount not to exceed $60 million at
any time outstanding; provided that we shall have received, prior to
making the Investment, from one or more Strategic Equity Investors,
aggregate net cash proceeds from capital contributions or the issuance or
sale of our capital stock that may not be converted, exchanged or redeemed
until April 16, 2010, including our capital stock issued upon the
conversion of convertible Debt or upon the exercise of options, warrants
or
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rights to purchase our capital stock, in an amount equal to the amount of
the Investment plus the amount of all fees, expenses and other costs
incurred in connection with the Investment, regardless of whether or not
the Investment is completed; provided further that:
. the proceeds that we received as capital contributions from, or
the purchase of our capital stock by, the Strategic Equity Investors
are excluded from clause (C)(2) above unless the entity becomes a
Restricted Subsidiary or merges, consolidates or amalgamates with or
into us or a Restricted Subsidiary, or transfers or conveys
substantially all its assets to us or a Restricted Subsidiary, or
liquidates into us or a Restricted Subsidiary;
. the proceeds shall not constitute Excluded Cash Proceeds; and
. the proceeds are not applied to optionally redeem the notes prior
to April 15, 2002; or
(7) so long as no default has occurred and is continuing, the repurchase,
redemption, acquisition or retirement for value of any of our capital
stock held by any member of our management or any of our subsidiaries
under any management equity subscription agreement, stock option
agreement, restricted stock agreement or other similar agreement; provided
that:
. the aggregate amount of the dividends or distributions shall not
exceed $4.0 million in any twelve-month period;
. any unused amount in any twelve-month period may be carried
forward to one or more future twelve-month periods; and
. the aggregate of all unused amounts that may be carried forward
to any future twelve-month period shall not exceed $16 million.
Restricted Payments made under clauses (1) and (7) above shall be included
when determining available amounts under clause (C) above, Restricted Payments
made under clauses (5) and (6) above shall be included when determining
available amounts under clause (C) above unless, after giving effect to the
Investment, the entity becomes a Restricted Subsidiary or merges, consolidates
or amalgamates with or into us or a Restricted Subsidiary, or transfers or
conveys substantially all its assets to us or a Restricted Subsidiary, or
liquidates into us or a Restricted Subsidiary and Restricted Payments made under
to clauses (2), (3) and (4) above shall not be included when determining
available amounts under clause (C) above.
Limitation on Restrictions Affecting Restricted Subsidiaries
The indenture provides that we will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual encumbrances or restrictions of any kind on the
ability of any Restricted Subsidiary to:
(1) pay, directly or indirectly, dividends, in cash or otherwise, or make any
other distributions in respect of its capital stock or other ownership
interests or pay any Debt or other obligation owed to us or any other
Restricted Subsidiary;
(2) make any Investment in us or any other Restricted Subsidiary; or
(3) transfer any of its property or assets to us or any other Restricted
Subsidiary,
except for the encumbrances or restrictions existing under or by reason of:
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(A) any agreement in effect on April 23, 1999 as in effect on that date;
(B) any agreement relating to any Debt incurred by the Restricted Subsidiary
prior to the date on which we acquired the Restricted Subsidiary and
outstanding on the date and not incurred in anticipation or contemplation
of becoming a Restricted Subsidiary; provided, however, that the
encumbrance or restriction shall not apply to any of our property or
assets or any property or assets of any Restricted Subsidiary other than
the Restricted Subsidiary;
(C) customary provisions contained in an agreement which has been entered into
for the sale or disposition of all or substantially all of the capital
stock or other ownership interests or assets of a Restricted Subsidiary;
provided, however, that the encumbrance or restriction is applicable only
to the Restricted Subsidiary or its property and assets;
(D) any agreement effecting a Refinancing or amendment of Debt incurred under
any agreement referred to in clause (A) or (B) above; provided, however,
that the provisions contained in the Refinancing or amendment agreement
relating to the encumbrance or restriction are no more restrictive in any
material respect than the provisions contained in the agreement referred
to in clause (A) or (B) above in the reasonable judgment of our board;
(E) the indenture;
(F) applicable law or any applicable rule, regulation or order;
(G) customary provisions restricting subletting or assignment of any lease
governing any leasehold interest of any Restricted Subsidiary;
(H) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the type referred to in clause (3) of
this covenant; and
(I) restrictions of the type referred to in clause (3) of this covenant
contained in security agreements securing Debt of a Restricted Subsidiary
to the extent that the Liens restrict the transfer of property subject to
the agreements.
Limitation on Asset Sales
The indenture provides that we will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, make any Asset Sale unless:
(1) we or the Restricted Subsidiary, as the case may be, receives
consideration for the Asset Sale at least equal to the fair market value
of the assets sold or disposed of as determined by our board in good faith
and evidenced by a resolution of our board filed with the trustee;
(2) other than in the case of a Permitted Asset Swap, not less than 75% of the
consideration received by us or the Restricted Subsidiary from the
disposition consists of:
(A) cash or Cash Equivalents;
(B) the assumption of our Debt or Debt of the Restricted Subsidiary, other
than non-recourse Debt or any subordinated debt, or other obligations
relating to the assets, accompanied by an irrevocable and
unconditional release of us or the Restricted Subsidiary from all
liability on the Debt or other obligations assumed; or
(C) notes or other obligations that we or the Restricted Subsidiary
received from the transferee or the
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Restricted Subsidiary convert into cash or Cash Equivalents
concurrently with the receipt of the notes or other obligations to the
extent of the cash that we actually received; and
(3) all Net Available Proceeds, less any amounts invested within 365 days of
the Asset Sale to acquire all or substantially all of the assets of, or a
majority of the voting stock of, an entity primarily engaged in a
Permitted Business, to make a capital expenditure or to acquire other
long-term assets that are used or useful in a Permitted Business, are
applied, on or prior to the 365th day after the Asset Sale, unless and to
the extent that we shall determine to make an offer to purchase, to the
permanent reduction and prepayment of any of our Senior Debt then
outstanding, including a permanent reduction of the commitments in respect
of the Senior Debt.
Any Net Available Proceeds from any Asset Sale which is subject to this
covenant that are not applied as provided in the covenant shall be used promptly
after the expiration of the 365th day after the Asset Sale, or earlier if we so
elect, to make an offer to purchase the notes at a purchase price in cash equal
to:
(a) 100% of the accreted value on the purchase date, if the purchase date
is on or before April 15, 2004; and
(b) 100% of the principal amount at maturity plus accrued and unpaid
interest to the purchase date, if such purchase date is after April
15, 2004;
provided, that if we elect or the terms of any other senior subordinated debt
require, an offer may be made ratably to purchase the notes and other senior
subordinated debt
Despite the above, we may defer making any offer to purchase the notes, and
any offer to purchase other senior subordinated debt ratably, until there are
aggregate unused Net Available Proceeds from Asset Sales otherwise subject to
this covenant equal to or in excess of $15.0 million, at which time the entire
unused Net Available Proceeds from Asset Sales otherwise subject to the two
immediately preceding sentences, and not just the amount in excess of $15.0
million, shall be applied as required under this paragraph. We may use any
remaining Net Available Proceeds following the completion of the required offer
to purchase and any offer to purchase other senior subordinated debt ratably for
any other purpose, subject to the other provisions of the indenture, and the
amount of Net Available Proceeds then required to be otherwise applied in
accordance with this covenant shall be reset to zero. These provisions will not
apply to a transaction completed in compliance with the provisions of the
indenture described under "--Merger, Consolidation and Sales of Assets."
Pending application as described above, the Net Available Proceeds of any
Asset Sale may be invested in cash or Cash Equivalents or used to reduce
temporarily Debt outstanding under any revolving credit agreement to which we
are a party and under which we have incurred Debt.
We must comply, to the extent applicable, with the requirements of the tender
offer provisions of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of the notes under this covenant.
To the extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, we must comply with the applicable securities
laws and regulations and will not be deemed to have breached our obligations
under this covenant.
Limitation on Transactions with Affiliates
The indenture provides that we will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, conduct any business or enter
into, renew or extend any transaction with any of our or their respective
affiliates, including the purchase, sale, lease or exchange of property, the
rendering of any service or the making of any guarantee, loan, advance or
Investment, either directly or indirectly, unless the terms of the transaction
are at least as favorable as the terms that could be obtained at the time by us
or the Restricted Subsidiary, as the case may be, in a
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comparable transaction made on an arms-length basis with an entity that is not
an Affiliate; provided, that:
(1) in any transaction involving aggregate consideration in excess of $10.0
million, we shall deliver an officers' certificate to the trustee stating
that a majority of the disinterested directors of our board or the board
of directors of the Restricted Subsidiary, as the case may be, have
determined, in their good faith judgment, that the terms of the
transaction are at least as favorable as the terms that could be obtained
by us or the Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arms-length basis between unaffiliated parties; and
(2) if the aggregate consideration is in excess of $25.0 million, we shall
also deliver to the trustee, prior to the completion of the transaction,
the favorable written opinion of a nationally recognized accounting,
appraisal or investment banking firm as to the fairness of the transaction
to the holders of the notes, from a financial point of view.
Despite the foregoing, the restrictions described in this covenant shall not
apply to:
(1) transactions between or among us and/or any Restricted Subsidiaries;
(2) any Restricted Payment or Permitted Investment permitted by the covenant
described under "--Limitation on Restricted Payments;"
(3) directors' fees, indemnification and similar arrangements, officers'
indemnification, employee stock option or employee benefit plans and
employee salaries and bonuses paid or created in the ordinary course of
business;
(4) any other agreement in effect on the date of the indenture, as the same
shall be amended from time to time; provided that any material amendment
shall be required to comply with the provisions of the immediately
preceding paragraph;
(5) the acquisitions from Digital PCS, Wireless 2000 or AT&T;
(6) transactions with AT&T or any of its affiliates relating to marketing or
providing of telecommunication services or related hardware, software or
equipment on terms that are no less favorable, when taken as a whole, to
us or the Restricted Subsidiary, as applicable, than those available from
unaffiliated third parties;
(7) transactions involving the leasing or sharing or other use by us or any
Restricted Subsidiary of communications network facilities, including
cable or fiber lines, equipment or transmission capacity, of any of our
affiliates, as a related party, on terms that are no less favorable when
taken as a whole to us or the Restricted Subsidiary, as applicable, than
those available from the related party to unaffiliated third parties;
(8) transactions involving providing of telecommunication services by a
related party in the ordinary course of its business to us or any
Restricted Subsidiary, or by us or any Restricted Subsidiary to a related
party, on terms that are no less favorable when taken as a whole to us or
the Restricted Subsidiary, as applicable, than those available from the
related party to unaffiliated third parties;
(9) any sales agency agreements under which an affiliate has the right to
market any or all of our products or services or the products or services
of any of the Restricted Subsidiaries;
(10) transactions involving the sale, transfer or other disposition of any
shares of capital stock or other ownership interests of any affiliate
that is not engaged in any activity other than the registration, holding,
maintenance or protection of trademarks and related licensing; and
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(11) customary commercial banking, investment banking, underwriting, placement
agent or financial advisory fees paid in connection with services
rendered to us and our subsidiaries in the ordinary course.
Limitation on our Activities and Activities of the Restricted Subsidiaries
The indenture provides that we will not, and will not permit any Restricted
Subsidiary to, engage in any business other than a Permitted Business, except to
the extent as is not material to us and our Restricted Subsidiaries, taken as a
whole.
Amendments to Securities Purchase Agreement
The indenture provides that we will not amend, modify or waive, or refrain
from enforcing, any provision of the securities purchase agreement in any manner
that would cause the net cash proceeds from capital contributions or sales of
our capital stock, which may not be converted, exchanged or redeemed until April
16, 2010, under the securities purchase agreement to be less than $128.0
million.
Providing Financial Information
The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, we will furnish to
the holders of the notes:
(1) 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 these forms, including a section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes our financial condition and results of operations and that
of our consolidated subsidiaries and a report on the annual information
only by our certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file the reports, in each case within the
time period specified in the SEC's rules and regulations.
In addition, following the completion of the exchange offer whether or not
required by the rules and regulations of the SEC, we will file a copy of all
information and reports with the SEC for public availability within the time
periods specified in the SEC's rules and regulations and make the information
available to prospective investors upon request. In addition, we will, for so
long as any notes remain outstanding, furnish to the holders of notes, upon
request, the information required to be delivered under the conditions for
resale provisions of the Securities Act. We will also comply with reporting
requirements of the Trust Indenture Act.
Limitation on Designations of Unrestricted Subsidiaries
The indenture allows us to designate any of our subsidiaries, other than an
Ineligible Subsidiary, as an "Unrestricted Subsidiary" under the indenture only
if:
(1) no default shall have occurred and be continuing at the time of or after
giving effect to the designation;
(2) we would be permitted under the indenture to make an Investment at the
time of designation, assuming the effectiveness of the designation, in a
designation amount equal to the fair market value of the aggregate amount
of its Investments in the Subsidiary on that date; and
(3) except in the case of any of our subsidiaries in which an Investment is
being made under, and as permitted by, the third paragraph of the
covenant described under "--Limitation on Restricted Payments," we would
be permitted to incur $1.00 of additional Debt under clause (1) of the
covenant described under "--
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Limitation on Incurrence of Debt" at the time of designation, assuming the
effectiveness of the designation.
In the event of any designation, we shall be deemed to have made an Investment
constituting a Restricted Payment under the covenant described under "--
Limitation on Restricted Payments" for all purposes of the indenture in the
designation amount.
The indenture further provides that we shall not, and shall not permit any
Restricted Subsidiary to, at any time:
(1) provide direct or indirect credit support for, or a guarantee of, any Debt
of any Unrestricted Subsidiary including of any undertaking, agreement or
instrument evidencing the Debt;
(2) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary; or
(3) be directly or indirectly liable for any Debt which provides that the
holder of the Debt may upon notice, lapse of time or both declare a
default on the Debt or cause the payment be accelerated or payable prior
to its final scheduled maturity upon the occurrence of a default with
respect to any Debt of any Unrestricted Subsidiary, including any right to
take enforcement action against the Unrestricted Subsidiary, except, in
the case of clause (1) or (2) above, to the extent permitted under the
covenant described under "--Limitation on Restricted Payments."
The indenture further provides that we may revoke any designation of a
Subsidiary as an Unrestricted Subsidiary, where the Subsidiary shall then
constitute a Restricted Subsidiary, if no default shall have occurred and be
continuing at the time of and after giving effect to the revocation. In the
event of any revocation, we shall be deemed to continue to have a permanent
Investment in an Unrestricted Subsidiary constituting a Restricted Payment under
the covenant described under "--Limitation on Restricted Payments" for all
purposes under the indenture in a positive amount equal to:
(1) the fair market value of the aggregate amount of our Investments in the
subsidiary at the time of the revocation; less
(2) the portion proportionate to our equity interest in the Subsidiary of the
fair market value of the net assets of the Subsidiary at the time of the
revocation.
All designations and revocations must be evidenced by a resolution of our
board delivered to the trustee certifying compliance with the foregoing
provisions.
Future Subsidiary Guarantors
We will cause each Restricted Subsidiary that incurs Debt to become our
subsidiary guarantor, and, if applicable, execute and deliver to the trustee a
supplemental indenture in the form described in the indenture under which the
Restricted Subsidiary will guarantee payment of the notes; provided that we
shall not cause any special purpose subsidiary to become our subsidiary
guarantor unless the special purpose subsidiary incurs Debt other than Debt in
respect of the senior credit agreement, or any Refinancing Debt incurred to
refinance the Debt, or debt to the FCC. Each subsidiary guarantee will be
limited to an amount not to exceed the maximum amount that can be guaranteed by
that Restricted Subsidiary without rendering the subsidiary guarantee, as it
relates to the Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Merger, Consolidation and Sales of Assets
We may not:
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. consolidate or merge with or into any entity; or
. sell, assign, lease, convey or otherwise dispose of all or substantially
all of our assets; or
. cause or permit any Restricted Subsidiary to do any of the above
including by way of liquidation or dissolution,
to any entity unless:
(1) the entity formed by or surviving any consolidation or merger, if other
than us or the Restricted Subsidiary, as the case may be, or to which the
sale, assignment, lease, conveyance or other disposition shall have been
made, is a corporation organized and existing under the laws of the United
States, any state of the United States or the District of Columbia;
(2) the surviving entity assumes by supplemental indenture all of our
obligations on the notes and under the indenture;
(3) immediately after giving effect to the transaction and the use of any net
proceeds from the transaction on a pro forma basis, we or the surviving
entity, as the case may be, could incur at least $1.00 of Debt under
clause (1) of the covenant described under "--Important Covenants--
Limitation on Incurrence of Debt;"
(4) immediately after giving effect to the transaction and treating any Debt
which becomes our obligation or an obligation of any of our Restricted
Subsidiaries as a result of the transactions as having been incurred by us
or the Restricted Subsidiary, as the case may be, at the time of the
transaction, no default shall have occurred and be continuing;
(5) we deliver to the trustee an officers' certificate and an opinion of
counsel, each stating that the merger, consolidation or sale of assets and
the supplemental indenture, if any, comply with the indenture; and
(6) we deliver to the trustee an opinion of counsel to the effect that holders
of the notes will not recognize income, gain or loss for federal income
tax purposes as a result of the merger, consolidation or sale of assets
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 the merger,
sale or consolidation had not occurred.
We will determine what we deem to be all or substantially all of our assets on
a consolidated basis for us and the Restricted Subsidiaries, whether as an
entirety or substantially an entirety in one transaction or a series of
transactions.
The provisions of this paragraph shall not apply to any merger of a Restricted
Subsidiary with or into us or a wholly owned subsidiary or the release of any of
our subsidiary guarantors in accordance with the terms of its subsidiary
guarantee and the indenture in connection with any transaction complying with
the provisions of covenant described under "--Important Covenants--Limitation on
Asset Sales."
The indenture provides that we may not permit any of our subsidiary guarantors
to:
. consolidate or merge with or into any entity; or
. sell, assign, lease, convey or otherwise dispose of all or substantially
all of the subsidiary guarantor's assets, including by way of liquidation
or dissolution,
to any entity unless:
(1) the entity formed by or surviving any consolidation or merger, if other
than the subsidiary guarantor, or to which the sale, assignment, lease,
conveyance or other disposition shall have been made, is a corporation
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organized and existing under the laws of the United States, any state of
the United States or the District of Columbia;
(2) the corporation assumes by supplemental indenture all of the obligations
of our subsidiary guarantors, if any, under its subsidiary guarantee;
(3) immediately after giving effect to the transaction and treating any Debt
which becomes an obligation of the subsidiary guarantor as a result of the
transactions as having been incurred by the subsidiary guarantor at the
time of the transaction, no default shall have occurred and be continuing;
and
(4) we deliver to the trustee an officers' certificate and an opinion of
counsel, each stating that the merger, consolidation or sale of assets and
the supplemental indenture, if any, comply with the indenture.
Defaults
Each of the following events constitutes an event of default under the
indenture:
(1) a default in any payment of interest on any note when due and payable,
whether or not prohibited by the provisions described under "--Ranking,"
continued for 30 days;
(2) a default in the payment of the accreted value or principal of any note
when due and payable at maturity on April 15, 2009, upon required
redemption or repurchase, upon declaration or otherwise, whether or not
the payment is prohibited by the provisions described under "--Ranking;"
(3) our failure to comply with its obligations under the covenant described
under "--Merger, Consolidation and Sales of Assets;"
(4) our failure to comply for 30 days after notice with any of our obligations
under the covenants described under "--Change of Control" or "--Important
Covenants," other than a failure to purchase the notes;
(5) our failure to comply for 60 days after notice with its other agreements
contained in the indenture or the notes;
(6) a failure by us or any Significant Subsidiary to pay any Debt within any
applicable grace period after final maturity or the acceleration of any
the Debt by the holders of the Debt because of a default if the total
amount of the Debt unpaid or accelerated exceeds $15.0 million or its
foreign currency equivalent and the failure continues for 10 days after
receipt of the notice specified in the indenture;
(7) particular events of bankruptcy, insolvency or reorganization of us or a
Significant Subsidiary;
(8) the rendering of any final judgment or decree, not subject to appeal, for
the payment of money in excess of $15.0 million or its foreign currency
equivalent at the time it is entered against us or a Significant
Subsidiary and is not discharged, waived or stayed if:
(A) an enforcement proceeding is commenced by any creditor; or
(B) the judgment or decree remains outstanding for a period of 60 days
following the judgment and is not discharged, waived or stayed;
or
(9) any subsidiary guarantee ceases to be in full force and effect, except as
contemplated by the terms of the indenture, or any of our subsidiary
guarantors or entity acting by or on behalf of the subsidiary guarantor
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denies or disaffirms the subsidiary guarantor's obligations under the
indenture or any subsidiary guarantee and the default continues for 10
days after receipt of the notice specified in the indenture.
The above will constitute events of default whatever the reason for the event
of default and whether it is voluntary or involuntary or is effected by
operation of law or under any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5) or (8) will not constitute an event
of default until the trustee or the holders of at least 25% in aggregate
principal amount at maturity of the outstanding notes notify us of the default
and we do not cure the default within the time specified in clauses (4), (5) or
(8) after receipt of notice.
If an event of default occurs and is continuing, other than bankruptcy,
insolvency and reorganization, the trustee or the holders of at least 25% in
aggregate principal amount at maturity of the notes by notice to us may
accelerate the maturity of all the notes. Upon an acceleration, the notes will
become immediately due and payable. If an event of default relating to
particular events of our bankruptcy, insolvency or reorganization occurs, the
principal of and interest on all the notes will become immediately due and
payable without any declaration or other act on the part of the trustee or the
holders of the notes. The holders of a majority in aggregate principal amount at
maturity of the outstanding notes may rescind any acceleration with respect to
the notes and its consequences if rescinding the acceleration:
. would not conflict with any judgment or decree; and
. all defaults have been cured or waived except as related to payments due
solely because of acceleration.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of the notes unless
the holders have offered to the trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium or interest when due, no holder of notes may pursue any
remedy with respect to the indenture or the notes unless:
(1) the holder has previously given the trustee notice that an event of
default is continuing;
(2) holders of at least 25% in aggregate principal amount at maturity of the
outstanding notes have requested the trustee in writing to pursue the
remedy;
(3) the holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the trustee has not complied with the request within 60 days after the
receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in aggregate principal amount at maturity of the
notes have not given the trustee a direction inconsistent with the request
within the 60-day period.
Subject to restrictions, the holders of a majority in aggregate principal
amount at maturity of the notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder of notes or that would involve the trustee in personal
liability. Prior to taking any action under the indenture, the trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking the action.
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The indenture provides that, if a default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder of notes notice of
the default within the earlier of 90 days after it occurs or 30 days after it is
known to a trust officer or written notice of it is received by the trustee.
Except in the case of a default in the payment of principal of, premium or
interest on any note, including payments under the redemption provisions of the
note, the trustee may withhold notice if and so long as a committee of its trust
officers in good faith determines that withholding notice is in the interests of
the noteholders. In addition, we will be required to deliver to the trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers know of any default that occurred during the previous year.
We will also be required to deliver to the trustee, within 30 days after the
occurrence of the event, written notice of any event which would constitute
events of default, the status of any event and the action we are taking or
propose to take in respect of the event.
Amendments and Waivers
Subject to some exceptions, the indenture or the notes may be amended with the
written consent of the holders of a majority in aggregate principal amount at
maturity of the notes then outstanding, and any past default or compliance with
any provisions may be waived with the consent of the holders of a majority in
aggregate principal amount at maturity of the notes then outstanding. However,
without the consent of each holder of an outstanding note affected, no amendment
may, among other things:
(1) reduce the amount of the notes whose holders must consent to an amendment;
(2) reduce the rate of, or extend the time for payment of, interest or any
liquidated damages on any note;
(3) reduce the principal of any note, or extend the maturity of any note
beyond April 15, 2009;
(4) reduce the premium payable upon the redemption of any note or change the
time at which any note may be redeemed as described under "--Optional
Redemption;"
(5) make any note payable in money other than that stated in the note;
(6) make any change to the subordination provisions of the indenture that
adversely affects the rights of any holder of notes;
(7) impair the right of any holder of notes to receive payment of principal of
and interest on any liquidated damages on the holder's notes on or after
the due dates for the payment or to institute suit for the enforcement of
any payment on or with respect to the holder's notes;
(8) make any change in the amendment provisions which require the consent of
each holder of the notes or in the waiver provisions; or
(9) modify the subsidiary guarantees in any manner adverse to the holders of
the notes.
Without the consent of any holder of the notes, we and the trustee may amend
the indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of our obligations
under the indenture;
(3) provide for uncertificated notes in addition to, or in place of,
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of the Internal Revenue Code, or in a manner
such that the uncertificated notes are described in the Internal Revenue
Code;
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(4) make any change in the subordination provisions of the indenture that
would limit or terminate the benefits available to any holder of our
Senior Debt or any representative of the holder under the subordination
provisions;
(5) add additional guarantees with respect to the notes;
(6) secure the notes;
(7) add to our covenants for the benefit of the noteholders;
(8) surrender any right or power conferred upon us;
(9) make any change that does not adversely affect the rights of any holder
of the notes;
(10) provide for the issuance of the exchange notes or debt securities that
are identical in all material respects to the exchange notes, except for
transfer restrictions, that we issued simultaneously with and under the
same indenture as the exchange notes, to holders of an unsold allotment
in an initial distribution, or to noteholders that are not entitled to
participate in the exchange offer in exchange for a like aggregate
principal amount of notes held by the holder, subject to the provisions
of the indenture; or
(11) comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
No amendment may be made to the subordination provisions of the indenture,
however, that adversely affects the rights of any holder of our Senior Debt then
outstanding unless the holders of the Senior Debt, or any group or
representative of the holders authorized to give a consent, consent to the
change.
The consent of the noteholders will not be necessary under the indenture to
approve the particular form of any proposed amendment. It will be sufficient if
the consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, we will be required
to mail to noteholders a notice briefly describing the amendment. However, the
failure to give the notice to all noteholders, or any defect in the notice, will
not impair or affect the validity of the amendment.
Defeasance
We at any time may terminate all our obligations under the indenture and the
notes, the terminations being a legal defeasance, except for specific
obligations, including obligations:
. relating to the defeasance trust;
. to register the transfer or exchange of the notes;
. to replace mutilated, destroyed, lost or stolen notes; and
. to maintain a registrar and paying agent in respect of the notes.
We at any time may terminate our obligations under:
. the covenants described under "--Important Covenants;"
. the operation of the cross acceleration provision, the bankruptcy
provisions with respect to significant subsidiaries and the judgment
default provision described under "--Defaults;"
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. clauses (3), (4) and (5) described in the first paragraph under "--
Merger, Consolidation and Sales of Assets," the terminations being a
covenant defeasance.
In the event that we exercise our legal defeasance option or our covenant
defeasance option, each of our subsidiary guarantors will be released from all
of its obligations with respect to its subsidiary guarantee.
We may exercise our legal defeasance option in spite of our prior exercise of
our covenant defeasance option. If we exercise our legal defeasance option,
payment of the notes may not be accelerated because of an event of default with
respect to our exercise of our legal defeasance option. If we exercise our
covenant defeasance option, payment of the notes may not be accelerated because
of an event of default specified in clause (4), (6), (7) with respect only to
our Restricted Subsidiaries that would be significant subsidiaries meeting the
10 percent of assets or income threshold within the meaning under Regulation S-
X, (8) with respect only to significant subsidiaries or (9) under "--Defaults"
or because of our failure to comply with clause (3), (4) and (5) described in
the first paragraph under "--Merger, Consolidation and Sales of Assets."
In order to exercise either defeasance option, we must irrevocably deposit in
a defeasance trust with the trustee, money or U.S. government obligations for
the payment of principal, premium, if any, and interest on the notes to
redemption or maturity, as the case may be, and must comply with other
conditions, including delivery to the trustee of an opinion of counsel to the
effect that holders of the notes will not recognize income, gain or loss for
federal income tax purposes as a result of the deposit and defeasance and will
be subject to federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if the deposit and defeasance had
not occurred and, in the case of legal defeasance only, the opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law.
Concerning the Trustee
Bankers Trust Company serves as the trustee under the indenture, and we have
appointed Bankers Trust Company as registrar and paying agent with regard to the
notes. The indenture provides that the trustee has a first priority lien against
monies or property collected or held by the trustee, other than monies or
property held in trust to pay the principal of and interest and damages on the
notes, for the payment of fees. Bankers Trust Company is also one of the lenders
under our senior credit facilities and BT Alex. Brown Incorporated, an affiliate
of Bankers Trust Company, was one of the initial purchasers of our outstanding
notes. Bankers Trust Company could also become our creditor under the indenture.
However, in the event of default, the indenture and the Trust Indenture Act
provide that a trustee who becomes a creditor under the notes, within three
months prior to a default, shall, unless and until the default is cured, set
apart and hold in a special account for the benefit of the trustee, an amount
equal to any and all reductions in the amount due and owing upon the claim. If
the event of default was not cured, Bankers Trust Company would be required to
resign as trustee.
Governing Law
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required.
Definitions
Described below is a summary of defined terms used in the indenture, which is
attached as an exhibit to the registration statement, of which this prospectus
is a part.
"Acquired Debt" means, with respect to any entity, Debt of the entity:
(1) existing at the time the entity becomes a Restricted Subsidiary; or
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(2) assumed in connection with the acquisition of assets from another entity,
including Debt incurred in connection with, or in contemplation of, the
entity becoming a Restricted Subsidiary or the acquisition, as the case
may be.
"affiliate" of any specified entity means any other entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, any specified entity. For purposes of this definition, "control"
when used with respect to any entity means the power to direct the management
and policies of the entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Cash Flow for the latest two full fiscal quarters for which our consolidated
financial statements are available multiplied by two. For purposes of
calculating "Consolidated Cash Flow" for any period for purposes of this
definition only:
(1) any of our subsidiaries that is a Restricted Subsidiary on the date of the
transaction giving rise to the need to calculate "Annualized Pro Forma
Consolidated Operating Cash Flow" shall be deemed to have been a
Restricted Subsidiary at all times during the period; and
(2) any of our subsidiaries that is not a Restricted Subsidiary on the
transaction date shall be deemed not to have been a Restricted Subsidiary
at any time during the period.
In addition to of the foregoing, for purposes of this definition only,
"Consolidated Cash Flow" shall be calculated after giving effect on a pro forma
basis for the applicable period to, without duplication, any Asset Sales or
Asset Acquisitions, including any Asset Acquisition giving rise to the need to
make the calculation as a result of our or one of the Restricted Subsidiaries,
including any entity who becomes a Restricted Subsidiary as a result of the
Asset Acquisition incurring, assuming or otherwise being liable for Acquired
Debt, occurring during the period beginning on the first day of the two-fiscal-
quarter period to and including the transaction date, as if the Asset Sale or
Asset Acquisition occurred on the first day of the reference period.
"Asset Acquisition" means:
(1) any purchase or other acquisition, by means of transfer of cash, Debt or
other property to others or payment for property or services for the
account or use of others or otherwise, of capital stock or other ownership
interests of any entity by us or any Restricted Subsidiary, in either
case, under which the entity shall become a Restricted Subsidiary or shall
be merged with or into us or any Restricted Subsidiary; or
(2) any acquisition by us or any Restricted Subsidiary of the property or
assets of any entity which constitute all or substantially all of an
operating unit or line of business of the entity.
"Asset Sale" means any sale, transfer or other disposition, including by
merger, consolidation or Sale/Leaseback Transaction, of:
(1) shares of capital stock or other ownership interests of any of our
subsidiaries, other than directors' qualifying shares;
(2) any PCS license for wireless telecommunications services held by us or any
Restricted Subsidiary, whether by sale of capital stock or other ownership
interests or otherwise; or
(3) any other property or assets of ours or any of our subsidiaries other than
in the ordinary course of business;
provided, however, that an Asset Sale shall not include:
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(A) any sale, transfer or other disposition of shares of capital stock or
other ownership interests, property or assets by a Restricted Subsidiary
to us or to any other Restricted Subsidiary or by us to any Restricted
Subsidiary;
(B) any sale, transfer or other disposition of defaulted receivables for
collection;
(C) the sale, lease, conveyance or disposition or other transfer of all or
substantially all of our assets as permitted under "--Important Covenants-
-Merger, Consolidation and Sales of Assets;"
(D) any disposition that constitutes a change of control; or
(E) any sale, transfer or other disposition of shares of capital stock or
other ownership interests of any affiliate that is not engaged in any
activity other than the registration, holding, maintenance or protection
of trademarks and related licensing; or
(F) any sale, transfer or other disposition that does not, together with all
related sales, transfers or dispositions, involve aggregate consideration
in excess of $5.0 million.
"Average Life" means, as of the date of determination, with respect to any
Debt for borrowed money or preferred stock, the quotient obtained by dividing:
(1) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of the Debt or preferred stock, respectively,
and the amount of the principal or liquidation value payments by
(2) the sum of all principal or liquidation value payments.
"Cash Equivalents" means:
(1) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America or
by any agency to the extent the obligations are backed by the full faith
and credit of the United States of America, in each case maturing within
one year from the date of the acquisition;
(2) investments in commercial paper maturing within 365 days from the date of
the acquisition and having, at the date of acquisition, the highest credit
rating obtainable from Standard & Poor's Corporation or from Moody's
Investors Service;
(3) investments in certificates of deposit, banker's acceptance and time
deposits maturing within 365 days from the date of the acquisition issued
or guaranteed by or placed with, and money market deposit accounts issued
or offered by, any domestic office of any commercial bank organized under
the laws of the United States of America or any of its States which has a
combined capital and surplus and undivided profits of not less than
$500,000,000;
(4) fully collateralized repurchase agreements with a term of not more than 30
days for securities described in clause (1) above and entered into with a
financial institution satisfying the criteria described in clause (3)
above; and
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(5) money market funds substantially all of whose assets comprise securities
of the type described in clauses (1) through (3) above.
"change of control" means the occurrence of any of the following:
. any person or group, as the terms are used in the applicable
provisions of the Exchange Act, other than a Permitted Holder or
Permitted Holders or a person or group controlled by a Permitted
Holder or Permitted Holders, becomes the beneficial owner, as defined
in the beneficial ownership provisions under the Exchange Act, except
that a person shall be deemed to have beneficial ownership of all the
securities that the person has the right to acquire within one year,
upon the happening of an event or otherwise, directly or indirectly,
of our securities representing 50% or more of the combined voting
power of our then outstanding voting stock;
. the following individuals cease for any reason to constitute more than
a majority of the number of directors then serving on our board:
individuals who, on April 23, 1999, constituted our board and any new
director, other than a director whose initial assumption of office is
in connection with an actual or threatened election contest,
including, but not limited to, a consent solicitation relating to the
election of our directors, whose appointment or election by our board
or nomination for election by our stockholders was approved by the
vote of at least two-thirds of the directors then still in office or
whose appointment, election or nomination was previously so approved
or recommended or made in accordance with the terms of the
stockholders' agreement; or
. our stockholders shall approve any plan of liquidation, whether or not
otherwise in compliance with the provisions of the indenture.
"Consolidated Cash Flow" of any entity means, for any period, the Consolidated
Net Income of the entity for the period:
(1) increased, to the extent Consolidated Net Income for the period has been
reduced, by the sum of, without duplication"
(A) Consolidated Interest Expense of the entity for the period; plus
(B) consolidated income tax expense of the entity and its Restricted
Subsidiaries for the period; plus
(C) the consolidated depreciation and amortization expense of the entity
and its Restricted Subsidiaries for the period; plus
(D) any other non-cash charges of the entity and its Restricted
Subsidiaries for the period except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be made
in any future accounting period; and
(2) decreased, to the extent Consolidated Net Income for the period has been
increased, by any non-cash gains from Asset Sales.
"Consolidated Interest Expense" for any entity means, for any period, without
duplication:
(1) the consolidated interest expense included in a consolidated income
statement, without deduction of interest or finance charge income, of the
entity and its Restricted Subsidiaries for the period calculated on a
consolidated basis in accordance with generally accepted accounting
principles, including (a) any amortization of debt discount, (b) the net
costs under hedging agreements, (c) all capitalized interest, (d) the
interest portion of any deferred payment obligation and (e) all
amortization of any premiums, fees and expenses payable in connection with
the incurrence of any Debt; plus
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(2) the interest component of capital lease obligations paid, accrued and/or
scheduled to be paid or accrued, by the entity and its Restricted
Subsidiaries during the period as determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Net Income" of any entity means for any period the consolidated
net income or loss of the entity and its Restricted Subsidiaries for the period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided, however, that there shall be excluded from:
(1) the net income or loss of any entity acquired by the entity or a
Restricted Subsidiary of the entity in a pooling-of-interests transaction
for any period prior to the date of the transaction;
(2) the net income but not loss of any Restricted Subsidiary of the entity
which is subject to restrictions which prevent or limit the payment of
dividends or the making of distributions to the entity to the extent of
the restrictions, regardless of any waiver;
(3) the net income of any entity that is not a Restricted Subsidiary of the
entity, except to the extent of the amount of dividends or other
distributions representing the entity's proportionate share of the other
entity's net income for the period actually paid in cash to the entity by
the other entity during the period;
(4) gains or losses, other than for purposes of calculating Consolidated Net
Income under clause (c) of the first paragraph under "--Important
Covenants--Limitation on Restricted Payments," on Asset Sales by the
entity or its Restricted Subsidiaries;
(5) all extraordinary gains, but not, other than for purposes of calculating
Consolidated Net Income under clause (c) of the first paragraph under "--
Important Covenants--Limitation on Restricted Payments," losses,
determined in accordance with generally accepted accounting principles;
and
(6) in the case of a successor to the entity by consolidation or merger or as
a transferee of the entity's assets, any earnings or losses of the
successor corporation prior to the consolidation, merger or transfer of
assets.
"Debt" means without duplication, with respect to any entity, whether recourse
is to all or a portion of the assets of the entity and whether or not
contingent:
(1) every obligation of the entity for money borrowed;
(2) every obligation of the entity evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of the entity with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the entity;
(4) every obligation of the entity issued or assumed as the deferred purchase
price of property or services, but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business which are
not overdue or which are being contested in good faith;
(5) every capital lease obligation of the entity;
(6) every net obligation under hedging agreements or similar agreements of the
entity; and
(7) every obligation of the type referred to in clauses (1) through (6) of
another entity and all dividends of another entity the payment of which,
in either case, the entity has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise.
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Debt shall:
(1) include the liquidation preference and any mandatory redemption payment
obligations in respect of any of our capital stock that may be converted,
exchanged or redeemed on or before April 15, 2010 and any Restricted
Subsidiary and any preferred stock of any of our subsidiaries;
(2) never be calculated taking into account any cash and Cash Equivalents held
by the entities;
(3) not include obligations arising from our agreements or agreement of a
Restricted Subsidiary to provide for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business or
assets of a Restricted Subsidiary.
The amount of any Debt outstanding as of any date shall be:
(1) the accreted value of the indebtedness, in the case of any Debt issued
with original issue discount;
(2) the principal amount of the indebtedness, in the case of any Debt other
than Debt issued with original issue discount; and
(3) the greater of the maximum repurchase or redemption price or liquidation
preference of the indebtedness, in the case of any capital stock that may
be converted, exchanged or redeemed on or before April 15, 2010 or
preferred stock.
"Excluded Cash Proceeds" means the first $128 million of net cash proceeds
received by us subsequent to the date of the indenture from capital
contributions in respect of our capital stock or from the issue or sale, other
than to a Restricted Subsidiary, of our capital stock, which capital stock may
not be converted, exchanged or redeemed until April 16, 2010.
"hedging agreement" means any interest rate, currency or commodity swap
agreement, interest rate, currency or commodity future agreement, interest rate
cap or collar agreement, interest rate, currency or commodity hedge agreement
and any put, call or other agreement designed to protect against fluctuations in
interest rates, currency exchange rates or commodity prices.
"incur" means, with respect to any Debt or other obligation of any entity, to
create, issue, incur, including by conversion, exchange or otherwise, assume,
guarantee or otherwise become liable in respect of the Debt or other obligation
or the recording, as required under generally accepted accounting principles or
otherwise, of any Debt or other obligation on the balance sheet of the entity,
and "incurrence," "incurred" and "incurring" shall have meanings correlative to
the foregoing. Debt of any entity or any of its Restricted Subsidiaries existing
at the time the entity becomes a Restricted Subsidiary, or is merged into, or
consolidates with, us or any Restricted Subsidiary, whether or not the Debt was
incurred in connection with, or in contemplation of, the entity becoming a
Restricted Subsidiary, or being merged into, or consolidated with, us or any
Restricted Subsidiary, shall be deemed incurred at the time any the entity
becomes a Restricted Subsidiary or merges into, or consolidates with, us or any
Restricted Subsidiary.
"Ineligible Subsidiary" means:
(1) any special purpose subsidiary;
(2) any of our subsidiary guarantors;
(3) any of our subsidiaries that, directly or indirectly, own any capital
stock or other ownership interests or Debt of or own or hold any Lien on
any property of, us or any of our other subsidiaries that is not a
subsidiary of the subsidiary to be so designated; and
(4) any of our subsidiaries that, directly or indirectly, own any capital
stock or other ownership interests or Debt
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of, or own or hold any Lien on any property of, any other subsidiaries
that is not eligible to be designated as an Unrestricted Subsidiary.
"Investment" in any entity means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to, by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise, or purchase or
acquisition of capital stock or other ownership interests, bonds, notes,
debentures or other securities or evidence of Debt issued by, any other entity.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement other than any easement not materially impairing usefulness or
marketability, encumbrance, preference, priority or other security agreement
with respect to the property or assets, including any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing.
"Net Available Proceeds" from any Asset Sale by any entity means cash or
readily marketable Cash Equivalents received, including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Debt or other obligations relating to the properties or assets or received in
any other non-cash form, from the Asset Sale by the entity, including any cash
received by way of deferred payment or upon the monetization or other
disposition of any non-cash consideration, including notes or other securities
received in connection with the Asset Sale, net of:
(1) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred and all federal, state, foreign and local taxes
required to be accrued as a liability as a consequence of the Asset Sale;
(2) all payments made by the entity or any of its Restricted Subsidiaries on
any Debt which is secured by the assets in accordance with the terms of
any Lien upon or with respect to the assets or which must, by the terms of
the Lien, or in order to obtain a necessary consent to the Asset Sale or
by applicable law, be repaid out of the proceeds from the Asset Sale;
(3) all payments made with respect to liabilities associated with the assets
which are the subject of the Asset Sale, including trade payables and
other accrued liabilities;
(4) appropriate amounts to be provided by the entity or any Restricted
Subsidiary, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with the
assets and retained by the entity or any Restricted Subsidiary, as the
case may be, after the Asset Sale, including liabilities under any
indemnification obligations and severance and other employee termination
costs associated with the Asset Sale, until the time as the amounts are no
longer reserved or the reserve is no longer necessary at which time any
remaining amounts will become Net Available Proceeds to be allocated in
accordance with the provisions of clause (3) of the covenant described
under "--Important Covenants--Limitation on Asset Sales"; and
(5) all distributions and other payments made to minority interest holders in
Restricted Subsidiaries of the entity or joint ventures as a result of the
Asset Sale.
"Net Investment" means the excess of:
(1) the aggregate amount of all Investments made in any Unrestricted
Subsidiary or joint venture by us or any Restricted Subsidiary on or after
the date of the indenture, in the case of an Investment made other than in
cash, the amount shall be the fair market value of the Investment as
determined in good faith by our board or the board of the Restricted
Subsidiary; over
(2) the aggregate amount returned in cash on or with respect to the
Investments whether through interest payments, principal payments,
dividends or other distributions or payments; provided, however, that the
payments or distributions shall not be, and have not been, included in
clause (c) of the first paragraph
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described under "--Important Covenants--Limitation on Restricted
Payments;" provided further that, with respect to all Investments made in
any Unrestricted Subsidiary or joint venture, the amounts referred to in
clause (1) above with respect to the Investments shall not exceed the
aggregate amount of all Investments made in the Unrestricted Subsidiary or
joint venture.
"our Designated Senior Debt" means:
(1) so long as outstanding, indebtedness under our senior credit facilities;
and
(2) so long as outstanding, any other Senior Debt which has at the time of
initial issuance an aggregate outstanding principal amount in excess of
$25.0 million and which has been so designated as Designated Senior Debt
by our board at the time of its initial issuance in a resolution
delivered to the trustee. "Designated Senior Debt" of our subsidiary
guarantors has a correlative meaning.
"Permitted Asset Swap" means any exchange of assets by us or a Restricted
Subsidiary where we and/or our Restricted Subsidiaries receive consideration at
least 75% of which consists of:
(1) cash;
(2) assets that are used or useful in a Permitted Business; or
(3) any combination of cash and assets.
"Permitted Business" means:
(1) the delivery or distribution of telecommunications, voice, data or video
services;
(2) any business or activity reasonably related or ancillary to, including any
business conducted by us or any Restricted Subsidiary on the date of the
indenture and the acquisition, holding or exploitation of any license
relating to the delivery of the services described in clause (1) above; or
(3) any other business or activity in which we and the Restricted Subsidiaries
are expressly contemplated to be engaged under the provisions of our
certificate of incorporation and bylaws in effect on the date of the
indenture.
"Permitted Holder" means:
(1) each of AT&T Wireless, TWR Cellular, our cash equity investors, Mr.
Vento, Mr. Sullivan, Digital PCS, Wireless 2000 and any of their
respective affiliates and the respective successors by merger,
consolidation, transfer or otherwise to all or substantially all of the
respective businesses and assets of any of the foregoing; and
(2) any "person" or "group" as the terms are used in the applicable provisions
of the Exchange Act pertaining to beneficial ownership reporting
controlled by one or more persons identified in clause (1) above.
"Permitted Investments" means:
(1) Investments in Cash Equivalents;
(2) Investments representing capital stock or other ownership interests or
obligations issued to us or any Restricted Subsidiary in the course of the
good faith settlement of claims against any other entity or by reason of a
composition or readjustment of debt or a reorganization of any debtor of
us or any Restricted Subsidiary;
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(3) deposits including interest-bearing deposits, maintained in the ordinary
course of business in banks;
(4) any Investment in any entity; provided, however, that, after giving
effect to the Investment, the entity is or becomes a Restricted
Subsidiary or the entity 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 Restricted Subsidiary;
(5) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided, however, that the receivables and
prepaid expenses would be recorded as assets of the entity in accordance
with generally accepted accounting principles;
(6) endorsements for collection or deposit in the ordinary course of business
by the entity of bank drafts and similar negotiable instruments of the
other entity received as payment for ordinary course of business trade
receivables;
(7) any interest rate agreements with an unaffiliated entity otherwise
permitted by clause (5) or (6) under "--Important Covenants--Limitation
on Incurrence of Debt;"
(8) Investments received as consideration for an Asset Sale in compliance
with the provisions of the indenture described under "--Important
Covenants--Limitation on Asset Sales;"
(9) loans or advances to employees of us or any Restricted Subsidiary in the
ordinary course of business in an aggregate amount not to exceed $5.0
million in the aggregate at any one time outstanding;
(10) any Investment acquired by us or any of our Restricted Subsidiaries as a
result of a foreclosure by us or any of our Restricted Subsidiaries or in
connection with the settlement of any outstanding Debt or trade payable;
(11) loans and advances to officers, directors and employees for business-
related travel expense, moving expense and other similar expenses, each
incurred in the ordinary course of business; and
(12) other Investments with each Investment being valued as of the date made
and without giving effect to subsequent changes in value in an aggregate
amount not to exceed $7.5 million at any one time outstanding.
"Refinancing Debt" means Debt that is incurred to refund, refinance, replace,
renew, repay or extend, including under any defeasance or discharge mechanism,
any of our Debt or any Restricted Subsidiary existing on the date of the
indenture or incurred in compliance with the indenture, including our Debt that
refinances Refinancing Debt; provided, however, that:
(1) the Refinancing Debt has a stated maturity no earlier than the stated
maturity of the Debt being refinanced;
(2) the Refinancing Debt has an Average Life at the time the Refinancing Debt
is incurred that is equal to or greater than the Average Life of the Debt
being refinanced;
(3) the Refinancing Debt is incurred in an aggregate principal amount, or if
issued with original issue discount, an aggregate issue price, that is
equal to or less than the aggregate principal amount, or if issued with
original issue discount, the aggregate accreted value, then outstanding
of the Debt being refinanced plus the amount of any premium required to
be paid in connection with the Refinancing under the terms of the Debt
being refinanced or the amount of any premium reasonably determined by
the issuer of the Debt as necessary to accomplish the Refinancing by
means of a tender offer, exchange offer or privately negotiated
repurchase, plus the expenses of the issuer reasonably incurred in
connection with the Refinancing; and
(4) if the Debt being refinanced is pari passu with the notes, the
Refinancing Debt is made pari passu with, or subordinate in right of
payment to, the notes, and, if the Debt being refinanced is subordinate
in right of payment to the notes, the Refinancing Debt is subordinate in
right of payment to the notes on terms no less
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favorable to the holders of notes than those contained in the Debt being
refinanced;
provided further, however, that Refinancing Debt shall not include:
(A) Debt of a Restricted Subsidiary that refinances our Debt; or
(B) Our Debt or Debt of a Restricted Subsidiary that refinances Debt of an
Unrestricted Subsidiary.
"Restricted Subsidiary" means any of our subsidiaries other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property owned
on the date of the indenture or acquired by us or a Restricted Subsidiary after
the date of the indenture that involves our or a Restricted Subsidiary's
transferring of the property to a person or entity and our or the Restricted
Subsidiary's leasing it from the a person or entity, other than leases between
us and a wholly owned subsidiary or between wholly owned subsidiaries.
"Senior Debt" means the principal of, premium and accrued and unpaid interest
on, and fees and other amounts owing under our senior credit facilities and all
of our other Debt, including debt to the FCC, whether outstanding on the date of
the indenture or thereafter incurred, unless in the instrument creating or
evidencing the same or under which the same is outstanding it is provided that
such obligations are not superior in right of payment to the notes; Senior Debt
includes interest accruing on or after our filing of any petition in bankruptcy
or for our reorganization, regardless of whether or not a claim for post-filing
interest is allowed in such proceedings, but does not include:
. any of our obligations to any of our subsidiaries;
. any liability for federal, state, local or other taxes that we
owe;
. any accounts payable or other liability to trade creditors
arising the ordinary course of business, including guarantees of or
instruments evidencing the liabilities;
. any of our Debt or obligations, and any accrued and unpaid
interest in respect of the Debt or obligations, that by its terms is
subordinate or junior in any respect to any of our other Debt or
obligations, including any of our senior subordinated debt and any of
our subordinated debt;
. any obligations with respect to any capital stock or other
ownership interests; or
. any Debt incurred in violation of the indenture.
"Senior Debt" of our subsidiary guarantor has a correlative meaning.
"Strategic Equity Investor" means any of the cash equity investors, any
affiliate of any cash equity investor, any other entity engaged in a Permitted
Business whose Total Equity Market Capitalization exceeds $500 million or any
other entity who has at least $100 million total funds under management and who
has issued an irrevocable, unconditional commitment to purchase our capital
stock that may not be converted, exchanged or redeemed until April 16, 2010 for
an aggregate purchase price that does not exceed 20% of the value of the funds
under management by the entity.
"Total Consolidated Debt" means, at any date of determination, an amount equal
to:
(1) the accreted value of all Debt, in the case of any Debt issued with
original issue discount; plus
(2) the principal amount of all Debt, in the case of any other Debt,
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of us and our Restricted Subsidiaries outstanding as of the date of
determination; provided, however, that no amount owing by us or any of our
Restricted Subsidiaries in respect of any Lucent series A notes outstanding as
of the date of determination shall be included in the determination of Total
Consolidated Debt.
"Total Equity Market Capitalization" of any entity means, as of any day of
determination, the sum of:
(a) the product of:
(1) the aggregate number of outstanding primary shares of common stock of
the entity on the day, which shall not include any options or warrants
on, or securities convertible or exchangeable into, shares of common
stock of the entity, multiplied by
(2) the average closing price of the common stock listed on a national
securities exchange or the Nasdaq National Market System over the 20
consecutive business days immediately preceding the day, plus
(b) the liquidation value of any outstanding shares of preferred stock of the
entity on the day.
"Total Invested Capital" means, as of any date of determination, the sum of,
without duplication:
(1) the total amount of equity contributed to us as of the date of the
indenture, as described on our December 31, 1998 consolidated balance
sheet; plus
(2) irrevocable, unconditional commitments from any Strategic Equity Investor
to purchase our capital stock that may not be converted, exchanged or
redeemed until April 16, 2010, within 36 months of the date of issuance of
the commitment, but in any event not later than April 15, 2009; provided,
however, that the commitments shall exclude commitments related to any
Investment in any entity incorporated, formed or created for the purpose
of acquiring one or more licenses covering or adjacent to where we or a
Restricted Subsidiary owns a license unless the entity shall become a
Restricted Subsidiary; plus
(3) the aggregate net cash proceeds received by us from capital contributions
or the issuance or sale of our capital stock that may not be converted,
exchanged or redeemed until April 16, 2010, but including capital stock
issued upon the conversion of convertible Debt or upon the exercise of
options, warrants or rights to purchase capital stock, subsequent to the
date of the indenture, other than issuances or sales of capital stock to a
Restricted Subsidiary and other than capital contributions from, or
issuances or sales of capital stock to, any Strategic Equity Investor in
connection with:
(a) any Investment in any entity incorporated, formed or created for the
purpose of acquiring one or more licenses covering or adjacent to
where we or a Restricted Subsidiary owns a license; and
(b) any Investment in any entity engaged in a Permitted Business,
unless, in either case, the entity shall become a Restricted Subsidiary;
provided, however, such aggregate net cash proceeds shall exclude any amounts
included as commitments to purchase our capital stock in the preceding clause
(2); plus
(4) the fair market value of assets that are used or useful in a Permitted
Business or of the capital stock or other ownership interests of an entity
engaged in a Permitted Business received by us as a capital contribution
or in exchange for our capital stock that may not be converted, exchanged
or redeemed until April 16, 2010 , subsequent to the date of the
indenture, other than:
(x) capital contributions from a Restricted Subsidiary or issuance or
sales of our capital stock to a Restricted Subsidiary; or
(y) the proceeds from the sale of our capital stock that may not be
converted, exchanged or redeemed
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until April 16, 2010 to an employee stock ownership plan or other
trust established by us or any of our subsidiaries;
plus
(5) the aggregate net cash proceeds received by us or any Restricted
Subsidiary from the sale, disposition or repayment of any Investment made
after the date of the indenture 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
(6) an amount equal to the consolidated Net Investment of us and/or any of our
Restricted Subsidiaries in any Subsidiary that has been designated as an
Unrestricted Subsidiary after the date of the indenture upon its
redesignation as a Restricted Subsidiary in accordance with the covenant
described under "--Important Covenants--Limitation on Designations of
Unrestricted Subsidiaries;" plus
(7) cash proceeds from the sale to Lucent of the Lucent series A notes, less
payments made by us or any of our subsidiaries with respect to Lucent
series A notes, other than payments of additional Lucent series A notes;
plus
(8) Total Consolidated Debt; minus
(9) the aggregate amount of all Restricted Payments including any designation
amount, but other than a Restricted Payment of the type referred to in
clause (3)(b) of the third paragraph of the covenant described under "--
Important Covenants--Limitations on Restricted Payments," declared or made
on or after the date of the indenture.
"Unrestricted Subsidiary" means:
(1) any of our subsidiaries, other than an Ineligible Subsidiary, so
designated after the date of the indenture as such under, and in
compliance with, the covenant described under "--Important Covenants--
Limitation on Designations of Unrestricted subsidiaries"; and
(2) any affiliate that is not engaged in any activity other than the
registration, holding, maintenance or protection of trademarks and related
licensing.
Any designation of any of our subsidiaries may be revoked by a resolution of
our board delivered to the trustee certifying compliance with the covenant,
subject to the provisions of the covenant.
"vendor credit arrangement" means any Debt, including Debt under any credit
facility entered into with any vendor or supplier or any financial institution
acting on behalf of the vendor or supplier; provided that the net proceeds of
the Debt are used solely for the purpose of financing the cost, including the
cost of design, development, site acquisition, construction, integration,
handset manufacture or acquisition or microwave relocation, of assets used or
usable in a Permitted Business, including through the acquisition of capital
stock or other ownership interests of an entity engaged in a Permitted Business.
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U.S. FEDERAL TAX CONSIDERATIONS
The following is a discussion of material U.S. federal income and estate tax
consequences of the acquisition, ownership, disposition and exchange of the
notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those holders who are initial purchasers of the notes and who
hold the notes as capital assets within the meaning of the applicable provision
of the Internal Revenue Code. The discussion does not address specific tax
consequences that may be relevant to particular persons, including, for
example:
. financial institutions;
. broker-dealers;
. insurance companies;
. tax-exempt organizations; and
. persons in special situations, such as those who hold the notes
as part of a straddle, hedge, conversion transaction, or other
integrated investment.
. In addition, this discussion does not address U.S. federal
alternative minimum tax consequences or any aspect of state, local or
foreign taxation. This discussion is based upon the Internal Revenue
Code, the Treasury regulations promulgated under, and administrative
and judicial interpretations of the Internal Revenue Code and
regulations, all of which are subject to change, possibly on a
retroactive basis.
We have not sought and will not seek any rulings from the IRS with respect to
the notes. There can be no assurance that the IRS will not take a different
position concerning the tax consequences of the purchase, ownership or
disposition of the notes or that a court would not sustain the IRS's position.
Prospective purchasers of the notes are urged to consult their tax advisors
concerning the U.S. federal income tax consequences to them of acquiring,
owning, disposing and exchanging of the notes, as well as the application of
state, local and foreign income and other tax laws and of any change in federal
tax law or administrative or judicial interpretation of the law since the date
of this prospectus.
Exchange Offer
The exchange of outstanding notes for exchange notes in the exchange offer
should not be treated as an exchange for federal income tax purposes because
exchange notes will not be considered to differ materially in kind or extent
from the outstanding notes. As a result, there should be no federal income tax
consequences to holders of outstanding notes exchanging outstanding notes for
exchanges notes in the exchange offer.
For purposes of this discussion, a U.S. holder means a holder that, for U.S.
federal income tax purposes, is:
. a U.S. citizen or resident;
. a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political
subdivision;
. an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
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. a trust if:
. a U.S. court exercises primary jurisdiction over its
administration; and
. one or more United States persons, as defined in the Internal
Revenue Code, has the authority to control all substantial decisions.
A non-U.S. holder is any holder other than a U.S. holder.
No gain or loss should be realized by a holder upon receipt of exchange
notes. The basis of the exchange notes would be the same as the adjusted basis
of the outstanding notes immediately before the exchange and the holding period
of the exchange notes would include the holding period of the outstanding notes.
The exchange notes would be subject to the tax rules applicable to the notes as
described above, including with respect to the accrual and inclusion in income
of original issue discount. It is possible that the IRS could take a different
position concerning the exchange of outstanding notes for exchange notes in the
event of a registration default that results in the payment of liquidated
damages with respect to the notes. Holders are urged to consult their own tax
advisors regarding the tax consequences of the exchange offer.
Characterization of the Notes
We will treat the notes as indebtedness for U.S. federal income tax purposes,
and the following discussion assumes that the treatment will be respected.
Accordingly, under the Internal Revenue Code, a holder also will generally be
required to treat the notes as indebtedness. A holder taking an inconsistent
position must expressly disclose the fact in the holder's return.
Tax Consequences to U.S. Holders
Original Issue Discount. The notes will be treated as issued with original
issue discount. All U.S. holders, regardless of their method of accounting for
tax purposes, will be required to include original issue discount in income as
it accrues. The inclusion of the original issue discount in gross income will
occur in advance of the receipt of some or all of the related cash payments,
whether labeled as interest or otherwise. Original issue discount will
generally be treated as interest income to a U.S. holder and will accrue on a
constant yield-to-maturity basis over the life of the notes, as discussed below.
The amount of original issue discount with respect to a note will be equal to
the excess of the stated redemption price at maturity of the note over its
issue price. The stated redemption price at maturity of a debt instrument
generally includes all cash payments, including principal and interest, required
to be made with respect to the debt instrument through its maturity, other than
qualified stated interest. Qualified stated interest is generally defined as
stated interest that is unconditionally payable in cash or other property, other
than debt instruments of the issuer, at least annually and at a
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single fixed rate that appropriately takes into account the lengths of intervals
between payments. The stated interest on the note will not qualify as qualified
stated interest, and thus the stated redemption price at maturity of a note will
include all cash payments of principal and interest through maturity. The issue
price of the note will be the first price at which a substantial portion are
sold to investors, excluding bond houses, brokers, or similar persons acting as
underwriters, placement agents, or wholesalers, for cash.
Taxation of Original Issue Discount. The amount of original issue discount
accruing to and includible in income by a U.S. holder of a note will be the sum
of the daily portions of original issue discount with respect to the note for
each day during the taxable year or portion of the taxable year on which the
holder owns the note. The daily portion is determined by allocating to each day
in any accrual period a pro rata portion of the original issue discount
allocable to that accrual period. The accrual periods are periods of any length
and may vary in length over the term of a note, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs either on the final day or on the first day of an accrual
period. The amount of original issue discount accruing during any accrual period
with respect to a note will be equal to the product of:
(x) the adjusted issue price of the note at the beginning of that accrual
period; and
(y) the yield to maturity of the note,
taking into account the length of the accrual period. The adjusted issue price
of a note at the beginning of its first accrual period will be equal to its
issue price. The adjusted issue price at the beginning of any subsequent accrual
period will be equal to:
(1) the adjusted issue price at the beginning of the prior accrual period;
plus
(2) the amount of original issue discount accrued during the prior accrual
period; minus
(3) any payments made on the note during the prior accrual period.
The yield to maturity of a note is the discount rate that, when used in
computing the present value of all principal and interest payments to be made on
the note, produces an amount equal to the issue price of the note.
Original issue discount allocable to a final accrual period is the difference
between the amount payable at maturity and the adjusted issue price at the
beginning of the final accrual period. If all accrual periods are of equal
length, except for an initial short accrual period, the amount of original issue
discount allocable to the initial short accrual period may be computed under any
reasonable method.
We are required to report the amount of original issue discount accrued on
the notes held of record by persons other than corporations and other particular
holders. See "--Information Reporting and Backup Withholding." Because stated
interest on the note is taken into account in the accrual of original issue
discount, a U.S. holder will not be required to recognize any income upon
receipt of interest payments on the notes The tax basis of a note in the hands
of a U.S. holder will be increased by the amount of original issue discount, if
any, on the note that is included in the U.S. holder's income under these rules
and will be decreased by the amount of any payments, whether stated as interest
or principal, made with respect to the note.
Acquisition Premium. A subsequent U.S. holder of a note is generally subject
to the rules for accruing original issue discount described above. However, if
the U.S. holder's purchase price for the note exceeds the adjusted issue price
but is less than or equal to the sum of all amounts payable on the note after
the purchase date, the excess is acquisition premium and is subject to special
rules.
Acquisition premium ratably offsets the amount of accrued original issue
discount otherwise includible in the U.S. holder's taxable income, i.e., the
U.S. holder may reduce the daily portions of original issue discount
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by a fraction, the numerator of which is the excess of the U.S. holder's
purchase price for the note over the adjusted issue price, and the denominator
of which is the excess of the sum of all amounts payable on the note after the
purchase date over the note's adjusted issue price. As an alternative to
reducing the amount of original issue discount otherwise includible in income by
this fraction, the U.S. holder may elect to compute original issue discount
accruals by treating the purchase as a purchase at original issuance and
applying the constant yield method described above under "Taxation of Original
Issue Discount."
Market Discount. Under the market discount rules of the Internal Revenue Code,
a U.S. holder who purchases a note at a market discount will generally be
required to treat any gain recognized on the disposition of the note as ordinary
income to the extent of the lesser of the gain or the portion of the market
discount that accrued during the period that the U.S. holder held the note.
Market discount is generally defined as the amount by which a U.S. holder's
purchase price for a note is less than the revised issue price of the note on
the date of purchase, subject to a statutory de minimis exception. A note's
revised issue price equals the sum of the issue price of the note and the
aggregate amount of the original issue discount includible in the gross income
of all holders of the note for periods before the acquisition of the note by the
holder, likely reduced, although the Internal Revenue Code does not expressly so
provide, by any cash payment in respect of the note. A U.S. holder who acquires
a note at a market discount may be required to defer a portion of any interest
expense that otherwise may be deductible on any indebtedness incurred or
continued to purchase or carry the note until the U.S. holder disposes of the
note in a taxable transaction.
A U.S. holder who has elected under applicable Internal Revenue Code
provisions to include market discount in income annually as the discount accrues
will not, however, be required to treat any gain recognized as ordinary income
or to defer any deductions for interest expense under these rules. A U.S.
holder's tax basis in a note is increased by each accrual of amounts treated as
market discount. This election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after the
first day of the taxable year to which the election applies and may not be
revoked without the consent of the IRS. Holders should consult their tax
advisors as to the portion of any gain that would be taxable as ordinary income
under these provisions and any other consequences of the market discount rules
that may apply to them in particular.
Election to Treat All Interest as Original Issue Discount. U.S. holders may
elect to include in gross income all amounts in the nature of interest that
accrue on a note, including any stated interest, acquisition discount, original
issue discount, market discount, de minimis original issue discount, de minimis
market discount and unstated interest, as adjusted by amortizable bond premium
and acquisition premium, by using the constant yield method described above
under "Taxation of Original Issue Discount." An election for a note with
amortizable bond premium results in a deemed election to amortize bond premium
for all debt instruments owned and later acquired by the U.S. holder with
amortizable bond premium and may be revoked only with the permission of the IRS.
Similarly, an election for a note with market discount results in a deemed
election to accrue market discount in income currently for the note and for all
other bonds acquired by the U.S. holder with market discount on or after the
first day of the taxable year to which the election first applies, and may be
revoked only with permission of the IRS. A U.S. holder's tax basis in a note is
increased by each accrual of the amounts treated as original issue discount
under the constant yield election described in this paragraph.
Change of Control. In the event of a change of control, the holders will
have the right to require us to purchase their notes. The Treasury regulations
provide that the right of holders of the notes to require redemption of the
notes upon the occurrence of a change of control will not affect the yield or
maturity date of the notes unless, based on all the facts and circumstances as
of the issue date, it is more likely than not that a change of control giving
rise to the redemption right will occur. We do not intend to treat this
redemption provision of the notes as affecting the computation of the yield to
maturity of the notes.
Redemption of Notes. We may redeem the notes at any time on or after a
specified date, and, in some circumstances, may redeem or repurchase all or a
portion of the notes any time prior to the maturity date. Under Treasury
regulations, we are deemed to exercise any option to redeem if the exercise of
the option would lower the yield of the debt instrument. We believe, and intend
to take the position, that we will not be treated as having
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exercised an option to redeem under these rules.
Sale, Redemption, Exchange or Retirement of the Notes. Upon the sale,
redemption, exchange or retirement of the notes, a U.S. holder will recognize
gain or loss equal to the difference between:
(1) the amount of cash and the fair market value of property received upon the
sale, redemption, exchange or retirement; and
(2) the U.S. holder's adjusted tax basis in the notes.
A U.S. holder's adjusted tax basis in the notes will generally be the U.S.
holder's cost therefor increased by the amount of original issue discount
previously accrued on the notes through the sale, redemption, exchange or
retirement date and decreased by the amount of all prior cash payments received
with respect to the notes.
Gain or loss recognized by a U.S. holder on the sale, redemption, exchange, or
retirement of the notes will be capital gain or loss, except to the extent it
constitutes accrued but unrecognized market discount, and will be long-term
capital gain or loss if the notes have been held by the U.S. holder for more
than one year.
U.S. Tax Consequences to Non-U.S. Holders
For purposes of the following discussion, interest income, original issue
discount and gain on the sale, redemption, exchange or retirement of a note will
be U.S. trade or business income if the income or gain is effectively connected
with a trade or business carried on by the non-U.S. holder within the United
States.
Interest and Original Issue Discount. In general, any interest or original
issue discount paid to a non-U.S. holder of a note will not be subject to U.S.
federal income tax if:
(1) the interest or original issue discount is not U.S. trade or business
income; and
(2) the interest or original issue discount qualifies as portfolio interest.
Interest or original issue discount on the notes generally will qualify as
portfolio interest if:
(1) the non-U.S. holder does not actually or constructively own 10% or more of
the total combined voting power of all classes of our stock entitled to
vote;
(2) the non-U.S. holder is not a controlled foreign corporation as defined in
the Internal Revenue Code with respect to which we are a related person
within the meaning of the Internal Revenue Code; and
(3) either:
(A) the non-U.S. holder certifies to us or our agent under penalties of
perjury that it is not a U.S. person and the certificate provides the
non-U.S. holder's name and address, or
(B) in the case of a note held by a securities clearing organization or
bank that holds customers' securities in the ordinary course of its
trade or business, the financial institution certifies to us or our
agent under penalties of perjury that the certificate has been received
from the non-U.S. holder by it or by another financial institution and
the financial institution furnishes the payor with a copy of the non-
U.S. holder's certificate.
Under recently finalized Treasury Regulations, the certification requirements
described above may also be
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satisfied with other documentary evidence for interest paid after December 31,
1999, with respect to an offshore account or through foreign intermediaries.
If the interest or original issue discount neither qualifies as portfolio
interest nor is treated as U.S. trade or business income, the gross amount of
the payment generally will be subject to U.S. withholding tax at the rate of 30%
unless the rate is reduced or eliminated by an applicable income tax treaty.
U.S. trade or business income generally will be subject to U.S. federal income
tax at regular rates in the same manner as if the non-U.S. holder were a U.S.
holder, and, in the case of a non-U.S. holder that is a corporation, the income,
under some circumstances, may be subject to an additional branch profits tax at
a 30% rate or the lower rate as may be applicable under an income tax treaty,
but the income generally will not be subject to the 30% withholding tax. To
claim the benefit of a lower or zero withholding rate under an income tax treaty
or to claim exemption from withholding because the income is U.S. trade or
business income, the non-U.S. holder must provide the payor with a properly
executed IRS Form 1001 or 4224, respectively or, in the case of payments after
December 31, 1999, IRS Form W-8, prior to the payment of interest or original
issue discount.
Sale, Exchange, Redemption, or Other Disposition of a Note. Any gain
realized by a non-U.S. holder on the sale, redemption, exchange or other
disposition of a note generally will not be subject to U.S. federal income or
withholding taxes unless:
(1) the gain is effectively connected with the conduct of a trade or business
in the United States by the non-U.S. holder; or
(2) in the case of an individual, the non-U.S. holder is present in the United
States for 183 days or more and other conditions are met.
U.S. Federal Estate Tax. In general, notes held by an individual who is
neither a citizen nor a resident of the United States for U.S. federal estate
tax purposes at the time of the individual's death will not be subject to U.S.
federal estate tax unless the income from the notes was effectively connected
with a U.S. trade or business of the individual or would not qualify as
portfolio interest, without regard to the certification requirements, if
received by the individual at the time of his or her death.
Information Reporting and Backup Withholding
We will be required to report annually to the IRS, and to each holder of
record, the amount of original issue discount paid on the notes, and the amount
withheld for federal income taxes, if any, for each calendar year, except as to
exempt holders, generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status. Each holder,
other than holders who are not subject to the reporting requirements, will be
required to provide to us, under penalties of perjury, a certificate containing
the holder's name, address, correct federal taxpayer identification number and a
statement that the holder is not subject to backup withholding. Should a
nonexempt holder fail to provide the required certificate, we will be required
to withhold 31% of the original issue discount otherwise payable to the holder
and to remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
In the case of payments of original issue discount to non-U.S. holders,
temporary Treasury regulations provide that the 31% backup withholding tax and
information reporting will not apply to the payments with respect to which the
requisite certification, as described above, for the exemption from the 30%
withholding tax, has been received or an exemption has otherwise been
established; provided that neither we nor our payment agent have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not in fact satisfied. Under temporary Treasury regulations, these
information reporting and backup withholding requirements will apply, however,
to the gross proceeds paid to a non-U.S. holder on the disposition of notes by
or through a U.S. office of a U.S. or foreign broker, unless the holder
certifies to the broker under penalties of perjury as to its name, address and
status as a foreign person or the holder otherwise establishes an exemption.
Information reporting requirements will
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also apply to a payment of the proceeds of a disposition of notes by or through
a foreign office of a U.S. broker or foreign brokers with particular types of
relationships to the United States unless the broker has documentary evidence in
its file that the holder is not a U.S. person, and the broker has no actual
knowledge to the contrary, or the holder establishes an exception; backup
withholding will not apply to the payment, absent actual knowledge that the
holder is a U.S. holder. Neither information reporting nor backup withholding
generally will apply to a payment of the proceeds of a disposition of notes by
or through a foreign office of a foreign broker not subject to the previous
sentence.
The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules relating to non-U.S. holders
discussed above. In general, the final regulations do not significantly alter
the substantive withholding and information reporting requirements but rather
unify current certification procedures and forms and clarify reliance standards.
The final regulations are generally effective for payments made after December
31, 1999, subject to transition rules. Non-U.S. holders should consult their
own tax advisors with respect to the impact, if any, of the new final
regulations.
Applicable High Yield Discount Obligations
The Internal Revenue Code provides that the yield with respect to applicable
high yield discount obligations will be bifurcated into two elements:
(1) an interest element that is deductible by the issuer only when paid,
generally in cash; and
(2) a disqualified portion, if any, for which the issuer receives no
deduction.
A U.S. holder of an applicable high yield discount obligation must continue to
include interest or original issue discount on the obligation in income as it
accrues. A corporate U.S. holder of the obligation, however, is allowed to claim
a dividends-received deduction for the part of the disqualified portion, if any,
that would have been treated as a dividend had it been distributed to the holder
by the issuing corporation with respect to its stock.
The deduction by us of original issue discount on the notes will be limited if
the notes constitute applicable high yield discount obligations. A note will be
an applicable high yield discount obligation if:
(1) its yield to maturity equals or exceeds the sum of:
(x) the long-term applicable federal rate for the month in which it was
issued; and
(y) 5%; and
(2) the note has significant original issue discount.
A note will have significant original issue discount if:
(1) the aggregate amount that would be included in gross income with respect
to the note for periods before the close of any accrual period that ends
more than five years after the date of issue exceeds
(2) the sum of:
(x) the aggregate amount of interest to be paid, generally in cash, under
the note before the close of the accrual period; and
(y) the product of the note's issue price and its yield to maturity.
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If the notes are applicable high yield discount obligations, the disqualified
portion of original issue discount will equal the lesser of:
(x) the amount of the original issue discount on the note; and
(y) the product of the total original issue discount on the notes and a
fraction, the numerator of which is:
(a) the yield to maturity; minus
(b) the sum of 6% and the long-term applicable federal rate in effect
for the month in which the notes are issued,
and the denominator of which is the yield to maturity.
Corporate U.S. holders generally will be eligible for the dividends-received
deduction with respect to any disqualified portion of original issue discount on
a note to the extent of our accumulated or current earnings and profits, if any.
The availability of the dividends-received deduction is subject to a number of
complex limitations. Although the issue is not totally clear, any amount
qualifying as a dividend should not be subject to extraordinary dividend
treatment under the Internal Revenue Code. Corporate U.S. holders should consult
their tax advisors concerning the availability of the dividends-received
deduction.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes are represented by a permanent global certificate in
definitive, fully registered form. The global note is registered in the name of
a nominee of the Depository Trust Company.
Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of the Depository Trust
Company, Euroclear and Cedel described below are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems, and are subject to change by them from time
to time. Neither we nor any of the initial purchasers of the outstanding notes
takes any responsibility for these operations or procedures, and investors are
urged to contact the relevant system or its participants directly to discuss
these matters.
The Depository Trust Company has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
. a "clearing agency" registered under the Exchange Act.
The Depository Trust Company was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, eliminating the need for physical transfer and
delivery of certificates. The Depository Trust Company's participants include
securities brokers and dealers, including the initial purchasers, banks and
trust companies, clearing corporations and other organizations. Indirect access
to the Depository Trust Company's system is also available to indirect
participants such as banks, brokers, dealers and trust companies that clear
through, or maintain a custodial relationship with a participant, either
directly or indirectly. Investors who are not participants may beneficially own
securities held by, or on behalf of the Depository Trust Company only through
participants or indirect participants.
We expect that under procedures established by the Depository Trust
Company:
(1) upon deposit of each global note, the Depository Trust Company will
credit the accounts of participants designated by the initial purchasers
of the outstanding notes with an interest in the global note; and
(2) ownership of the notes will be shown on, and the transfer of ownership of
the notes will be effected only through, records maintained by the
Depository Trust Company, with respect to the interests of participants
and the records of participants and the indirect participants, with
respect to the interests of persons other than participants.
The laws of some jurisdictions may require that purchasers of securities take
physical delivery of the securities in definitive form. Accordingly, the ability
to transfer interests in the notes represented by a global note to these persons
may be limited. In addition, because the Depository Trust Company can act only
on behalf of its participants, who in turn act on behalf of persons who hold
interests through participants, the ability of a person having an interest in
the notes represented by a global note to pledge or transfer the interest to
persons or entities that do not participate in the Depository Trust Company's
system, or to otherwise take actions in respect of the interest, may be affected
by the lack of a physical definitive security in respect of the interest.
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So long as the Depository Trust Company or its nominee is the registered owner
of a global note, the Depository Trust Company or the nominee, will be
considered the sole owner or holder of the notes represented by the global note
for all purposes under the indenture. Except as provided below, owners of
beneficial interests in a global note will not be entitled to have the notes
represented by the global note registered in their names, will not receive or be
entitled to receive physical delivery of certificated notes and will not be
considered the owners or holders under the indenture for any purpose, including
with respect to the giving of any direction, instruction or approval to the
trustee. Accordingly, each holder owning a beneficial interest in a global note
must rely on the procedures of the Depository Trust Company and, if the holder
is not a participant or an indirect participant, on the procedures of the
participant through which the holder owns its interest, to exercise any rights
of a holder of the notes under the indenture or the global note. We understand
that, under existing industry practice, if we request any action of holders of
the notes, or a holder that is an owner of a beneficial interest in a global
note desires to take any action that the Depository Trust Company, as the holder
of the global note, is entitled to take, the Depository Trust Company would
authorize the participants to take the action and the participants would
authorize holders owning through the participants to take the action or would
otherwise act upon the instruction of the holders. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, the notes by the Depository Trust Company,
or for maintaining, supervising or reviewing any records of the Depository Trust
Company relating to these notes.
Payments with respect to the principal and interest, and premium, if any, and
liquidated damages, if any, on any notes represented by a global note registered
in the name of the Depository Trust Company or its nominee on the applicable
record date will be payable by the trustee to, or at the direction of, the
Depository Trust Company or its nominee in its capacity as the registered holder
of the global note representing the notes under the indenture. Under the terms
of the indenture, we and the trustee will be permitted to treat the persons in
whose names the notes, including the global notes, are registered as the owners
of the notes for the purpose of receiving payment and for any and all other
purposes whatsoever. Accordingly, neither we nor the trustee have or will have
any responsibility or liability for the payment of the amounts to owners of
beneficial interests in a global note, including principal, premium, if any,
liquidated damages, if any, and interest. Payments by the participants and the
indirect participants to the owners of beneficial interests in a global note
will be governed by standing instructions and customary industry practice, and
will be the responsibility of the participants or the indirect participants and
the Depository Trust Company.
Transfers between participants in the Depository Trust Company will be
effected in accordance with the Depository Trust Company's procedures and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes,
cross-market transfers between the participants in the Depository Trust Company,
on the one hand, and Euroclear or Cedel participants on the other hand, will be
effected through the Depository Trust Company in accordance with the Depository
Trust Company's rules on behalf of Euroclear or Cedel, as the case may be. These
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in the system in accordance with
the rules and procedures, and within the established Brussels time deadlines, of
the system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its depositary to
take action to effect final settlement on its behalf, by delivering or receiving
interests in the relevant global notes in the Depository Trust Company and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to the Depository Trust Company. Euroclear
participants and Cedel participants may not deliver instructions directly to the
depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
the Depository Trust Company will be credited, and any crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day, which must be a business day for Euroclear or Cedel,
as the case may be, immediately following the settlement date of the
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Depository Trust Company. Cash received by Euroclear or Cedel as a result of
sales of interests in a global note by or through a Euroclear or Cedel
participant to a participant in the Depository Trust Company will be received
with value on the settlement date of the Depository Trust Company, but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel, as the case may be, following the
Depository Trust Company's settlement date.
Although the Depository Trust Company, Euroclear and Cedel have agreed to the
foregoing procedures to facilitate transfers of interests in the global notes
among participants in the Depository Trust Company, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform these procedures,
and these procedures may be discontinued at any time. Neither we nor the trustee
will have any responsibility for the performance by the Depository Trust
Company, Euroclear or Cedel, or their respective participants or indirect
participants, of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
If:
. we notify the trustee in writing that the Depository Trust Company
is no longer willing or able to act as a depositary, or the
Depository Trust Company ceases to be registered as a clearing
agency under the Exchange Act and a successor depositary is not
appointed within 90 days of the notice or cessation ;
. we, at our option, notify the trustee in writing that we elect to
cause the issuance of the notes in definitive form under the
indenture; or
. upon the occurrence of other events as provided in the indenture,
then, upon surrender by the Depository Trust Company of the global notes,
certificated notes will be issued to each person that the Depository Trust
Company identifies as the beneficial owner of the notes represented by the
global notes. Upon any the issuance, the trustee is required to register the
certificated notes in the name of the person or persons, or the nominee of any
the person, and cause the same to be delivered to the person.
Neither we nor the trustee shall be liable for any delay by the Depository
Trust Company or any participant or indirect participant in identifying the
beneficial owners of the related notes, and each person may conclusively rely
on, and shall be protected in relying on, instructions from the Depository Trust
Company for all purposes, including with respect to the registration and
delivery, and the respective principal amounts, of the notes to be issued.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of exchange notes. A broker-dealer may use this prospectus, as
it may be amended or supplemented from time to time, in connection with resales
of exchange notes received in exchange for outstanding notes where the broker-
dealer acquired the outstanding notes as a result of market-making activities or
other trading activities. For a period of 90 days after the expiration date, we
will make this prospectus, as amended or supplemented, available to any broker-
dealer that requests these documents in the letter of transmittal, for use in
connection with any resale. In addition, until , 1999, all dealers effecting
transactions in the exchange notes may be required to deliver a prospectus.
Each holder of outstanding notes participating in the exchange offer will, by
execution of a letter of transmittal, represent to us that it is not engaged in
nor does it intend to engage in a distribution of exchange notes.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account in 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 exchange notes or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to the prevailing
market prices or at negotiated prices. Any 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 broker-dealer or the purchasers
of any exchange notes. Any broker-dealer that resells exchange notes that were
received by it for its own account in the exchange offer and any broker or
dealer that participates in a distribution of exchange notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
resale of exchange notes and any commission or concessions received by any
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 90 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these 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 notes, other than
commissions or concessions of any brokers or dealers. We will indemnify the
holders of the notes, including any broker-dealers, against liabilities,
including liabilities under the Securities Act.
The exchange notes are securities with no established trading market. We do not
intend to list the exchange notes on any securities exchange, but the
outstanding notes have been designated for trading in one computerized trading
market. Chase Securities Inc. has advised us that it intends to make a market in
the exchange notes, but it has no obligation to do so. Chase Securities Inc. may
discontinue market-making at any time. A liquid market may not develop for the
exchange notes, you may not be able to sell your exchange notes at a particular
time and the prices that you receive when you sell may not be favorable. Future
trading prices of the exchange notes will depend on many factors, including our
operating performance and financial condition, prevailing interest rates and the
market for similar securities.
LEGAL MATTERS
Certain legal matters with regard to the validity of the notes will be passed
upon for us by McDermott, Will & Emery, New York, New York. Mr. Sullivan, our
Executive Vice President, Chief Financial Officer and a member of our board is
counsel to McDermott, Will & Emery. Mr. Sullivan owns shares of our capital
stock.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998, and the
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the period July 29, 1996, date of our inception,
to December 31, 1996, and for the years ended December 31, 1997 and 1998,
included in this prospectus,
-177-
<PAGE>
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of the firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange notes. As permitted by the rules
and regulations of the SEC, this prospectus omits some information, exhibits and
undertakings contained in the registration statement. For further information
with respect to us and the exchange notes, you should review the registration
statement, including the exhibits and the financial statements to the
registration statement, notes and schedules filed as a part of the registration
statement. As a result of the exchange offer, we will become subject to the
informational requirements of the Exchange Act. The registration statement and
the exhibits and schedules to the registration statement, as well as the
periodic reports and other information filed with the SEC, may be inspected and
copied at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza,
450 Fifth Street, NW, Washington, DC 20549 and at the regional offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of these materials may be obtained from the Public Reference Section of
the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington DC 20549,
and its public reference facilities in New York, New York at the prescribed
rates. You may obtain information as to the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at
http://www.sec.gov that contains periodic reports, proxy and information
statements and other information regarding registrants that file documents
electronically with the SEC. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of the contract or document filed as
an exhibit to the registration statement, each statement being qualified in all
respects by reference. Under the indenture, we have agreed to file with the SEC
and provide to the holders of the notes annual reports and the information,
documents and other reports which are specified in the disclosure and reporting
provisions of the Exchange Act.
-178-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Historical Financial Statements
- -------------------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
Unaudited Pro Forma Balance Sheet
- ---------------------------------
Pro Forma Condensed Consolidated Balance Sheet F-41
Notes to Unaudited Pro Forma Condensed Consolidated F-42
Balance Sheet
</TABLE>
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Stockholders
TeleCorp PCS Inc. and Subsidiaries and Predecessor Company:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of TeleCorp PCS Inc. and Subsidiaries and Predecessor Company (the Company) at
December 31, 1997 and 1998, and the consolidated results of their operations and
their cash flows for the period July 29, 1996 (date of inception) to December
31, 1996, and for the years ended December 31, 1997 and 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
March 8, 1999, except for the information in Note 16, for which the date is
September 13,1999.
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30,
December 31 1999
----------------------------------- ----------------
Current assets: 1997 1998 (unaudited)
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,566,685 $ 111,732,841 $ 151,437,828
Accounts receivable, net - - 13,013,034
Inventory - 778,235 7,733,620
Prepaid expenses - 2,185,444 2,166,260
Other current assets 73,468 1,218,263 243,074
--------------- ---------------- ----------------
Total current assets 2,640,153 115,914,783 174,593,816
Property and equipment, net 3,609,274 197,468,622 320,604,414
PCS licenses and microwave relocation costs 10,018,375 118,107,256 205,075,025
Intangible assets - AT&T agreements - 26,285,612 40,321,095
Deferred financing costs, net - 8,584,753 18,684,989
FCC deposit - - 17,516,394
Other assets 26,673 283,006 1,438,708
=============== ================ ================
Total assets $ 16,294,475 $ 466,644,032 $ 778,234,441
=============== ================ ================
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 3,202,295 $ 14,591,922 $ 28,935,648
Accrued expenses 824,164 94,872,262 26,607,076
Microwave relocation obligation - 6,636,369 5,733,393
Long-term debt 4,881,073 - -
Accrued interest 389,079 4,490,553 4,170,612
Deferred revenue - - 705,362
-------------- ---------------- ----------------
Total current liabilities 9,296,611 120,591,106 66,152,091
Long-term debt 7,727,322 243,385,066 618,687,300
Microwave relocation obligation - 2,481,059 2,470,072
Accrued expenses - - 3,939,688
Deferred rent - 196,063 463,734
-------------- ---------------- ----------------
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
<TABLE>
<S> <C> <C> <C>
Total liabilities 17,023,933 366,653,294 691,712,885
-------------- ---------------- -----------------
Mandatorily redeemable preferred stock, issued 367; 255,999 and
356,575 (unaudited) shares, respectively, and outstanding, 367;
255,215 and 356,575 (unaudited) shares, respectively, (liquidation
preference $349,858,266 (unaudited) as of June 30, 1999) 4,144,340 240,408,879 342,435,903
Deferred compensation - (4,111) (283,827)
Treasury stock, none; 784 shares; and none (unaudited), - (8) -
respectively, at cost
Preferred stock subscriptions receivable - (75,914,054) (103,000,531)
Total mandatorily redeemable preferred stock, net 4,144,340 164,490,706 239,151,545
-------------- ---------------- ---------------
Commitments and contingencies
Stockholders' equity (deficit):
Series F preferred stock, par value $.01 per share, none, 33,361
and 44,341 (unaudited) shares issued and outstanding,
respectively (liquidation preference; $443 (unaudited) as of
June 30, 1999) - 333 443
Common stock, par value $.01 per share, issued 19,335; 159,733 and
220,574 (unaudited) shares, respectively, and outstanding 19,335;
157,946 and 220,574 (unaudited) shares, respectively 856 1,597 2,206
Additional paid-in capital - 188,374 347,432
Deferred compensation - (7,177) (13,133)
Common stock subscriptions receivable - (86,221) (190,990)
Treasury stock, none, 1,787 shares; and none (unaudited),
respectively, at cost - (18) -
Accumulated deficit (4,874,654) (64,596,856) (152,775,947)
---------------- ---------------- ---------------
Total stockholders' equity (deficit) (4,873,798) (64,499,968) (152,629,989)
-------------- ---------------- ---------------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit) $ 16,294,475 $ 466,644,032 $ 778,234,441
============== ================ ================
</TABLE>
The accompanying notes are in integral part
of these consolidated financial statements.
F-3
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
________
<TABLE>
<CAPTION>
For the
period
July 29, 1996
(date of For the year For the year
inception) to ended ended For the six months ended
December 31, December 31, December 31, June 30, (unaudited)
-------------------------------
1996 1997 1998 1998 1999
-------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue $ - $ - $ - $ - $ 6,232,355
Equipment revenue - - - - 5,648,966
-------------- ------------- -------------- ------------- -------------
Roaming revenue - - 29,231 - 9,486,916
-------------- ------------- -------------- ------------- -------------
Total revenue - - 29,231 - 21,368,237
-------------- ------------- -------------- ------------- -------------
Operating expenses:
Cost of revenue - - - - 10,106,968
Operations and development - - 9,772,485 1,214,372 15,498,104
Selling and marketing 9,747 304,062 6,324,666 1,095,361 20,924,712
General and administrative 515,146 2,637,035 26,239,119 6,873,306 22,440,887
Depreciation and amortization 75 10,625 1,583,864 96,145 16,491,374
-------------- ------------- -------------- ------------- -------------
Total operating expenses 524,968 2,951,722 43,920,134 9,279,184 85,462,045
-------------- ------------- -------------- ------------- -------------
Operating loss (524,968) (2,951,722) (43,890,903) (9,279,184) (64,093,808)
Other (income) expense:
Interest expense - 396,362 11,934,263 445,204 17,107,514
Interest income - (12,914) (4,697,233) (140,338) (3,064,606)
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
<TABLE>
<S> <C> <C> <C> <C> <C>
Other expense - - 27,347 3,818 146,675
-------------- ------------- -------------- ------------- --------------
Net loss (524,968) (3,335,170) (51,155,280) (9,587,868) (78,283,391)
Accretion of mandatorily redeemable
preferred stock (288,959) (725,557) (8,566,922) (207,217) (9,895,700)
-------------- ------------- -------------- ------------- --------------
Net loss attributable to common equity $ (813,927) $ (4,060,727) $ (59,722,202) $ (9,795,085) $ (88,179,091)
============== ============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series F Additional
preferred stock Common stock paid-in Deferred
--------------------- ---------------------
Shares Amount Shares Amount capital compensation
-------- --------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization for cash - $ - 8,750 $ 2,000 $ - $ -
Issuance of common stock for cash - - 34,374 - - -
Accretion of mandatorily redeemable preferred
stock - - - - -
Net loss - - - - - -
-------- --------- --------- --------- ------------- ---------------
Balance, December 31, 1996 - - 43,124 2,000 - -
Issuance of common stock for cash - - 6,875 - - -
Accretion of mandatorily redeemable preferred
stock - - - - -
Noncash redemption of equity interests - - (30,664) (1,144) - -
Net loss - - - - - -
-------- --------- --------- --------- ------------- ---------------
Balance, December 31, 1997 - - 19,335 856 - -
Noncash redemption of equity interests - - (19,335) (856) - -
Issuance of preferred and common stock for
cash, licenses and AT&T agreements 33,361 333 149,715 1,497 180,243 -
<CAPTION>
Common stock
subscriptions Treasury stock Accumulated
----------------------
receivable Shares Amount Deficit Total
---------------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Initial capitalization for cash $ - - $ - $ - $ 2,000
Issuance of common stock for cash - - - - -
Accretion of mandatorily redeemable preferred
stock - - - (288,959) (288,959)
Net loss - - - (524,968) (524,968)
---------------- --------- --------- ------------- ------------
Balance, December 31, 1996 - - - (813,927) (811,927)
Issuance of common stock for cash - - - - -
Accretion of mandatorily redeemable preferred
stock - - - (725,557) (725,557)
Noncash redemption of equity interests - - - - (1,144)
Net loss - - (3,335,170) (3,335,170)
---------------- --------- --------- ------------- ------------
Balance, December 31, 1997 - - - (4,874,654) (4,873,798)
Noncash redemption of equity interests - - - - (856)
Issuance of preferred and common stock for
cash, licenses and AT&T agreements (86,221) - - - 95,852
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accretion of mandatorily redeemable preferred
stock - - - - - -
Noncash issuance of restricted stock to employees - - 10,018 100 9,918 (10,018)
Repurchase of common stock for cash - - - - (1,787) 1,787
Amortization of deferred compensation - - - - - 1,054
Net loss - - - - - -
------- ------ --------- -------- --------- ---------
Balance, December 31, 1998 33,361 333 159,733 1,597 188,374 (7,177)
Issuance of preferred stock and
common stock for cash and licenses (unaudited) 10,980 110 53,287 533 134,936 -
Accretion of mandatorily redeemable preferred
stock (unaudited) - - - - - -
Noncash issuance of restricted stock to employees
(unaudited) - - 7,554 76 25,426 (12,842)
Amortization of deferred compensation (unaudited) - - - - - 5,582
Repurchase of common stock for cash (unaudited) - - - - (1,304) 1,304
Net loss (unaudited) - - - - - -
------- ------ --------- -------- --------- ---------
Balance, June 30, 1999 (unaudited) 44,341 $ 443 220,574 $ 2,206 $ 347,432 $ (13,133)
======= ====== ========= ======== ========= =========
<CAPTION>
<S> <C> <C> <C> <C> <C>
Accretion of mandatorily redeemable preferred
stock - - - (8,566,922) (8,566,922)
Noncash issuance of restricted stock to employees - - - - -
Repurchase of common stock for cash - (1,787) (18) - (18)
Amortization of deferred compensation - - - - 1,054
Net loss - - - (51,155,280) (51,155,280)
---------- -------- -------- ------------- -------------
Balance, December 31, 1998 (86,221) (1,787) (18) (64,596,856) (64,499,968)
Issuance of preferred stock and (104,769) - - - 30,810
common stock for cash and licenses (unaudited)
Accretion of mandatorily redeemable preferred
stock (unaudited) - - - (9,895,700) (9,895,700)
Noncash issuance of restricted stock to employees
(unaudited) - 3,104 31 - 12,691
Amortization of deferred compensation (unaudited) - - - - 5,582
Repurchase of common stock for cash (unaudited) - (1,317) (13) - (13)
Net loss (unaudited) - - - (78,283,391) (78,283,391)
---------- -------- -------- ------------- -------------
Balance, June 30, 1999 (unaudited) $ (190,990) - $ - $(152,775,947) $(152,629,989)
========== ======== ======== ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-5
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
July 29, 1996
(date of For the year For the year
inception) to ended ended
December 31, December 31, December 31,
1996 1997 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (524,968) $ (3,335,170) $ (51,155,280)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 75 10,625 1,583,864
Noncash compensation expense associated with the issuance
of restricted common stock and preferred stock - - 1,664
Noncash interest expense associated with issuance of Lucent Notes - - 460,400
and senior subordinated discount notes
Allowance for bad debt expense - - -
Noncash general and administrative expense charge by affiliates - - 196,622
Amortization of deferred financing costs - - 524,924
Amortization of discount on notes payable - 134,040 197,344
Changes in cash flow from operations resulting from changes in assets
and liabilities:
Accounts receivable - - -
Inventory - - (778,235)
Prepaid expenses - - (2,185,444)
Other current assets (21,877) (51,591) (1,144,795)
Other assets - (26,673) (256,333)
Accounts payable 98,570 618,889 11,389,627
Accrued expenses - - 9,145,111
Deferred rent - - 196,063
Accrued interest - 257,682 2,046,432
Deferred revenue - - -
-------------- -------------- -------------
Net cash used in operating activities (448,200) (2,392,198) (29,778,036)
-------------- -------------- -------------
Cash flows from investing activities:
<CAPTION>
For the six months ended
June 30, (unaudited)
---------------------------------
1998 1999
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,587,868) $ (78,283,391)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 96,145 16,491,374
Noncash compensation expense associated with the issuance
of restricted common stock and preferred stock - 365,028
Noncash interest expense associated with issuance of Lucent Notes - 8,512,801
and senior subordinated discount notes
Allowance for bad debt expense - 159,248
Noncash general and administrative expense charge by affiliates - -
Amortization of deferred financing costs - 500,083
Amortization of discount on notes payable 90,449 112,957
Changes in cash flow from operations resulting from changes in assets
and liabilities:
Accounts receivable - (12,337,283)
Inventory - (6,955,385)
Prepaid expenses (185,428) 19,184
Other current assets (135,573) 975,189
Other assets (87,138) (17,490)
Accounts payable 1,519,681 18,559,466
Accrued expenses 1,162,821 1,863,368
Deferred rent 69,288 267,657
Accrued interest 354,278 (411,081)
Deferred revenue - 705,362
------------- ---------------
Net cash used in operating activities (6,703,345) (49,472,913)
------------- ---------------
Cash flows from investing activities:
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
<TABLE>
<S> <C> <C> <C>
Expenditures for network under development, wireless network and (904) (1,134,234) (107,542,189)
property and equipment
Capitalized interest on network under development and wireless network - - (227,000)
Expenditures for microwave relocation - - (3,339,410)
Purchase of PCS licenses - - (21,000,000)
Deposit on PCS licenses (7,500,000) - -
Partial refund of deposit on PCS licenses - 1,561,702 -
Purchase of intangibles - AT&T agreements and other intangibles - - -
-------------- -------------- -------------
Net cash (used in) provided by investing activities (7,500,904) 427,468 (132,108,599)
-------------- -------------- -------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock 7,500,000 1,500,000 26,661,420
Receipt of preferred stock subscription receivable - - -
Direct issuance costs from sale of mandatorily redeemable
preferred stock - - (1,027,694)
Proceeds from sale of common stock 2,000 - 38,305
Proceeds from long-term debt 498,750 2,808,500 257,491,500
Purchases of treasury shares - - (26)
Payments on notes payable - - (2,072,573)
Payments of deferred financing costs - - (9,109,677)
Net increase (decrease) in amounts due to affiliates - 171,269 (928,464)
-------------- -------------- -------------
Net cash provided by financing activities 8,000,750 4,479,769 271,052,791
-------------- -------------- -------------
Net increase in cash and cash equivalents 51,646 2,515,039 109,166,156
Cash and cash equivalents at the beginning of period - 51,646 2,566,685
-------------- -------------- -------------
Cash and cash equivalents at the end of period $ 51,646 $ 2,566,685 $ 111,732,841
============== ============== =============
<CAPTION>
<S> <C> <C>
Expenditures for network under development, wireless network and (7,797,433) (203,235,573)
property and equipment
Capitalized interest on network under development and wireless network - (4,152,701)
Expenditures for microwave relocation (550,002) (5,137,397)
Purchase of PCS licenses - (72,188,037)
Deposit on PCS licenses (28,877,743)
Partial refund of deposit on PCS licenses - 11,361,351
Purchase of intangibles - AT&T agreements - (16,144,725)
------------- -----------------
Net cash (used in) provided by investing activities (8,347,435) (318,374,825)
------------- -----------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock - 60,410,929
Receipt of preferred stock subscription receivable - 3,740,068
Direct issuance costs from sale of mandatorily redeemable
preferred stock - (2,500,000)
Proceeds from sale of common stock - 5,477
Proceeds from long-term debt 20,390,954 397,635,000
Purchases of treasury shares - (19)
Payments on notes payable - (40,000,000)
Payments of deferred financing costs - (10,600,517)
Net increase (decrease) in amounts due to affiliates (824,164) (1,138,213)
------------- -----------------
Net cash provided by financing activities 19,566,790 407,552,725
------------- -----------------
Net increase in cash and cash equivalents 4,516,010 39,704,987
Cash and cash equivalents at the beginning of period 2,566,685 111,732,841
------------- -----------------
Cash and cash equivalents at the end of period $ 7,082,695 $ 151,437,828
============= =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-6
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the period
July 29,1996
(date of For the year For the year
inception) to ended ended For the six months ended
December 31, December 31, December 31, June 30, (unaudited)
-------------------------
1996 1997 1998 1998 1999
------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ - $ - $ - $ -
Cash paid for interest $ - $ - $ 9,785,829 $ - $10,540,603
Supplemental disclosure of non-cash investing and financing
activities:
Network under development and microwave relocation costs
financed through accounts payable and accrued expenses $ - $ 2,484,836 $ 98,091,667 $ 2,147,998 $ 9,141,452
Issuance of mandatorily redeemable preferred stock and
preferred stock in exchange for PCS licenses and AT&T
agreements $ - $ - $100,900,000 $ - $ 2,705,629
Issuance of mandatorily redeemable preferred stock and
common stock in exchange for stock subscriptions receivable $ - $ - $ 76,000,275 $ - $30,931,314
U.S. Government financing of PCS licenses $ - $ 9,192,938 $ - $ - $11,550,646
Discount on U.S. Government financing $ - $ 1,599,656 $ - $ - $ 2,396,215
Conversion of notes payable to stockholders into preferred
stock $ - $ 498,750 $ 25,300,000 $ - $ -
Accretion of preferred stock dividends $ 288,995 $ 725,557 $ 8,566,922 $ 207,217 $ 9,895,700
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
<TABLE>
<S> <C> <C> <C> <C> <C>
Elimination of equity interests in Holding for equity
interests in TeleCorp $ - $ - $ 4,369,680 $ - $ -
Redemption of equity interests $ - $ 6,370,070 $ - $ - $ -
Distribution of net assets to affiliates $ - $ 3,644,602 $ - $ - $ -
Notes payable to affiliates $ - $ 2,725,468 $ - $ - $ -
Capitalized interest $ - $ 131,397 $ 2,055,043 $ 378,940 $ 4,601,298
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of
Delaware on July 29, 1996 (date of inception). Holding was formed to
participate in the Federal Communications Commission's (FCC) Auction of F-
Block Personal Communications Services (PCS) licenses (the Auction) in April
1997. Holding successfully obtained licenses in the New Orleans, Memphis,
Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando Basic Trading
Areas (BTAs). Holding qualifies as a Designated Entity and Very Small
Business under Part 24 of the rules of the FCC applicable to broadband
PCS.
In April 1997, Holding entered into an agreement to transfer the PCS licenses
for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed
entities created by Holding's existing stockholder group: THC of Houston,
Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc.
These licenses were transferred along with the related operating assets and
liabilities in exchange for investment units consisting of Class A, B and C
common stock and Series A preferred stock in August 1997. Concurrently,
Holding distributed the investment units, on a pro rata basis, in a partial
stock redemption to Holding's existing stockholder group and issued an
aggregate of approximately $2.7 million in affiliate notes payable (see Note
5) to the newly-formed entities. As a result of this distribution, Holding no
longer retains any ownership equity interest in the newly-formed entities.
Because the above transaction was non-monetary in nature and occurred between
entities with the same stockholder group, the transaction was accounted for
at historical cost (see Note 13).
TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on
November 14, 1997 by the controlling stockholders of Holding. TeleCorp will
be the exclusive provider of wireless mobility services in its licensed
regions in connection with a strategic alliance with AT&T Corporation and its
affiliates (collectively AT&T). Upon finalization of the AT&T Transaction,
Holding became a wholly-owned subsidiary of TeleCorp (see Note 6).
TeleCorp has various wholly-owned subsidiaries which includes TeleCorp
Communications, Inc., TeleCorp LLC and Holding. TeleCorp receives services
from TeleCorp Management Corp., an affiliate company owned by two officers
and stockholders of TeleCorp (see Note 13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Holding was formed to explore various business opportunities in the wireless
telecommunications industry. TeleCorp was formed to continue the activity of
Holding through its strategic alliance with AT&T. Since inception, Holding's
and TeleCorp's activities have consisted principally of hiring a management
team, raising capital, negotiating strategic business relationships,
participating in the Auction and operating wireless networks. Consequently,
for purposes of the accompanying financial statements, Holding has been
treated as a "predecessor" entity. Therefore, the financial statements as of
December 31, 1997 and for the period July 29, 1996 to December 31, 1996 and
for the year ended December 31, 1997 include the historical financial
information of Holding, the predecessor entity. The financial statements as
of and for the year ended December 31, 1998 and for all periods thereafter,
include the historical financial information of Holding and TeleCorp. The
Chief Executive Officer and President of Holding maintain the positions of
Chief Executive Officer and Executive Vice President and Chief Financial
Officer, respectively, of TeleCorp. In addition, these officers own a
majority of the voting stock of TeleCorp and, prior to the finalization of
the AT&T Transaction, owned a majority of the voting stock of Holding. As a
result of this relationship, certain financing relationships and the similar
nature of business activities, Holding and TeleCorp are considered companies
under common control. Therefore, the accompanying financial statements
incorporate the combined business activities of Holding and
F-8
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TeleCorp. Collectively, TeleCorp and Holding are referred to as the Company
in the accompanying consolidated financial statements.
Unaudited Interim Financial Information
The unaudited consolidated balance sheet as of June 30, 1999, and the
unaudited consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the six months ended June 30, 1998 and
1999, and related footnotes, have been prepared in accordance with generally
accepted accounting principles for interim financial information and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) considered necessary for the fair presentation have been included.
Operating results for the six months ended June 30, 1999 are not necessarily
indicative of results that may be expected for the year ending December 31,
1999.
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, which includes TeleCorp Communications, Inc.,
TeleCorp LLC and Holding. All intercompany accounts and transactions have
been eliminated in consolidation. For the six months ended June 30, 1999, the
Company has consolidated the results of Viper Wireless, Inc. since the
Company's absence of voting control is considered temporary (see Note
16).
Development Stage Company
Prior to January 1, 1999, the Company's activities principally have been
planning and participation in the Auction, initiating research and
development, conducting market research, securing capital and developing its
proposed service and network. Since the Auction, the Company has been relying
on the borrowing of funds and the issuance of common and preferred stock
rather than recurring revenues, for its primary sources of cash flow.
Accordingly, the Company's financial statements for all periods prior to
January 1, 1999 were presented as a development stage enterprise, as
prescribed by Statement of Financial Accounting Standards No. 7, "Accounting
and Reporting by Development Stage Enterprises." In the first quarter of
1999, the Company commenced operations in the New Orleans, Memphis and Little
Rock BTA's and began providing wireless mobility services for its customers.
As a result, the Company exited the development stage in the first quarter
ended March 31, 1999.
The Company incurred cumulative losses through December 31, 1998 of
approximately $55,000,000. The Company expects to continue to incur
significant operating losses and to generate negative cash flow from
operating activities for at least the next several years while it constructs
its network and develops its customer base. The Company's ability to
eliminate operating losses and to generate positive cash flow from operations
in the future will depend upon a variety of factors, many of which it is
unable to control. These factors include: (1) the cost of constructing its
network, (2) changes in technology, (3) changes in governmental regulations,
(4) the level of demand for wireless communications services, (5) the product
offerings, pricing strategies and other competitive factors of the Company's
competitors and (6) general economic conditions. If the Company's is unable
to implement its business plan successfully, it may not be able to eliminate
operating losses, generate positive cash flow or achieve or sustain
profitability which would materially
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adversely affect its business, operations and financial results as well as
its ability to make payments on its debt obligations.
F-9
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The Company believes that the carrying amount of its financial instruments
approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities on the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents. The Company has invested its excess cash in overnight sweep
accounts and U.S. Treasury obligations. The Company has not experienced any
losses on its cash and cash equivalents.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity from
purchase date of three months or less to be cash equivalents. Cash
equivalents consist of overnight sweep accounts and U.S. Treasury
obligations.
Revenue Recognition
The Company earns revenue by providing wireless mobility services to both its
subscribers and subscribers of other wireless carriers traveling in the
Company's service area, as well as sale of equipment and accessories.
Wireless mobility services revenue consists of monthly service fees,
activation fees, airtime and long distance revenue. Generally, access fees,
airtime and long distance charges are billed monthly and are recognized when
service is provided. Prepaid service revenue is collected in advance, is
recorded as deferred revenue and recognized as service is provided.
Roaming revenue consist of the airtime and long distance charged to the
subscribers of other wireless carriers for use of the Company's network while
traveling in the Company's service area and are recognized when the service
is rendered.
Equipment revenue is recognized upon delivery of the equipment to the
customer and when future obligations are no longer significant.
PCS Licenses and Microwave Relocation Costs
PCS licenses include costs incurred, including capitalized interest related
to the U.S. Government financing, to acquire FCC licenses in the 1850-1990
MHz radio frequency band. Interest capitalization on the U.S. Government
financing began when the activities necessary to get the Company's network
ready for its intended use were initiated and concluded when the wireless
networks were ready for intended use. The PCS licenses are issued
conditionally for ten years. Historically, the FCC has granted license
renewals providing the licensees have complied with applicable rules,
policies and the Communications Act of 1934, as amended. The Company believes
it has complied with and intends to continue to comply with these rules and
policies.
As a condition of each PCS license, the FCC requires each license-holder to
relocate existing microwave users (Incumbents) within the awarded spectrum to
microwave frequencies of equal capacity. Microwave relocation costs include
the actual and estimated costs incurred to relocate the Incumbent's microwave
links affecting the Company's licensed frequencies
F-10
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PCS licenses, microwave relocation costs, and capitalized interest consist of
the following:
<TABLE>
<CAPTION>
June 30,
December 31, 1999
1997 1998 (unaudited)
--------------- --------------- ---------------
<S> <C> <C> <C>
PCS licenses $ 9,886,978 $ 104,736,978 $ 186,287,037
Microwave relocation costs - 12,456,838 15,164,244
Capitalized interest 131,397 913,440 1,004,581
--------------- --------------- ---------------
10,018,375 118,107,256 202,455,862
Accumulated amortization - - (638,726)
--------------- --------------- ---------------
$ 10,018,375 $ 118,107,256 $ 201,817,136
=============== =============== ===============
</TABLE>
The Company began amortizing the cost of the PCS licenses, microwave
relocation costs, and capitalized interest in March 1999, when PCS services
commenced in certain Basic Trade Areas. Amortization is calculated using the
straight-line method over 40 years. Amortization expense for the six months
ended June 30, 1999 was $638,726 (unaudited).
Property and Equipment and Network Under Development
Property and equipment are recorded at cost and depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment 3 to 5 years
Network under development and
wireless network 5 to 10 years upon commencement of service
Internal use software 3 years
Furniture, fixtures and office equipment 5 years
Leasehold improvements Lesser of useful life or lease term
</TABLE>
Expenditures for repairs and maintenance are charged to operations when
incurred. Gains and losses from disposals, if any, are included in the
statements of operations. Network under development includes all costs
related to engineering, cell site acquisition, site development, interest
expense and other development costs being incurred to ready the Company's
wireless network for use.
Internal and external costs incurred to develop the Company's billing,
financial systems and other internal applications during the application
development stage are capitalized as internal use software.
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All costs incurred prior to the application development stage are expensed as
incurred. Training costs and all post implementation internal and external
costs are expensed as incurred.
Intangible assets - AT&T Agreements and Others
The AT&T Agreements consist of the fair value of various agreements with AT&T
(see Note 6) exchanged for mandatorily redeemable preferred stock and Series
F preferred stock (see notes 6 and 7). The AT&T Agreements are amortized on a
straight-line basis over the related contractual terms, which range from
three to ten years. Amortization on the AT&T Exclusivity Agreement, Long
Distance Agreement and the Intercarrier Roamer Services Agreement began once
wireless services were available to its customers. Amortization of the
Network Membership License Agreement began on July 17, 1998, the date of the
finalization of the AT&T Transaction. During 1999, the Company completed
acquisitions for additional licenses (see Note 7). As a result of these
acquisitions, the Company recorded other intangible assets related to direct
acquisition costs which included reimbursing the seller for interest, salary
and leasing costs incurred prior to close plus legal fees. These other
intangible assets are being amortized over a five-year period. For the year
ended December 31, 1998 and for the six months ended June 30, 1999, the
Company recorded amortization expense of $772,497 and $2,109,242 (unaudited),
respectively.
Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
June 30,
1999
1997 1998 (unaudited)
-------------- -------------- -----------------
<S> <C> <C> <C>
Handsets $ - $ 778,235 $ 7,350,304
Accessories - - 383,316
-------------- -------------- -----------------
Total inventory $ - $ 778,235 $ 7,733,620
============== ============== =================
</TABLE>
F-11
<PAGE>
Inventory is valued at the lower of cost or market and is recorded net of an
allowance for obsolescence. No allowance for obsolescence has been recorded
as of December 31, 1998 and June 30, 1999.
Deferred Financing Costs
In connection with entering into the credit facility and the senior-
subordinated discount rates (see Note 5), the Company incurred certain debt
issuance costs. The Company has capitalized financing costs of $9,109,677 and
$19,709,996 (unaudited), as of December 31, 1998 and June 30, 1999,
respectively. The financing costs are being amortized using the straight line
method over the term of the credit facility. For the year ended December 31,
1998 and for the six months ended June 30, 1999, the Company recorded
interest expense related to the amortization of the deferred financing costs
of $524,924 and $500,083 (unaudited), respectively.
Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value
of property and equipment, network under development, intangible assets, PCS
licenses and microwave relocation costs. The Company considers historical
performance and anticipated future results in its evaluation of potential
impairment. Accordingly, when indicators of impairment are present, the
Company evaluates the carrying value of these assets in relation to the
operating performance of the business and future and undiscounted cash flows
expected to result from the use of these assets. Impairment losses are
recognized when the sum of the present
F-12
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of expected future cash flows are less than the assets' carrying value.
No such impairment losses have been recognized to date.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for tax consequences in future
years for differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end, based on enacted laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce net deferred tax assets to the amount expected to be
realized. The provision for income taxes consists of the current tax
provision and the change during the period in deferred tax assets and
liabilities.
Start-Up and Advertising Costs
Start-up costs are expensed as incurred. The Company expenses production
costs of print, radio and television advertisements and other advertising
costs as such costs are incurred. Advertising expenses in selling and
marketing for 1996, 1997, and 1998 were insignificant. Advertising expenses
in selling and marketing were $6,579,029 (unaudited) for the six months ended
June 30, 1999.
Interest Rate Swaps
The Company uses interest swaps to hedge the effects of fluctuations in
interest rates from their Senior Credit Facility (see Note 5). These
transactions meet the requirements for hedge accounting, including
designation and correlation. The interest rate swaps are managed in
accordance with the Company's policies and procedures. The Company does not
enter into these transactions for trading purposes. The resulting gains or
losses, measured by quoted market prices, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered
upon the completion of hedged transactions are expensed. Gains or losses
associated with interest rate swaps are computed as the difference between
the interest expense per the amount hedged using the fixed rate compared to a
floating rate over the term of the swap agreement. As of December 31, 1998,
the Company has entered into six interest rate swap agreements with various
commercial lenders totaling a notional amount of $225,000,000 to convert the
Company's variable rate debt of LIBOR plus 3.25% to fixed rate debt. The
interest rate swaps had no material impact on the consolidated financial
statements as of and for the year ended December 31, 1998 and as of and for
the six months ended June 30, 1999.
Segment Reporting
The Company presently operates in a single business segment as a provider of
wireless mobility services in its licensed regions primarily in the south-
central and northeastern United States. The Company operates in various
Major Trade Areas including New Orleans, LA, Memphis, TN, Little Rock, AK,
Boston, MA and Puerto Rico.
Stock Compensation
The Company periodically issues restricted stock awards to its employees.
Upon reaching a measurement date, the Company records deferred compensation
equal to the estimated fair value of the stock award. Deferred compensation
is amortized to compensation expense over the related vesting period.
Recently Issued Accounting Standards
In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Deferral of the
Effective Date of FAS 133" which defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. The Company has not determined the effect of adopting this
standard.
F-13
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
December 31, 1999
1997 1998 (unaudited)
-------------- ---------------- ----------------
<S> <C> <C> <C>
Wireless network $ - $ - $ 282,874,088
Network under development 3,269,793 170,885,628 3,519,535
Computer equipment 328,875 10,115,063 13,502,865
Internal use software - 11,161,142 17,610,821
Leasehold improvements - 3,204,623 10,048,722
Furniture, fixtures and office equipment 21,306 2,924,233 7,061,781
Land - - 47,500
-------------- ---------------- ------------------
3,619,974 198,290,689 334,665,312
Accumulated depreciation (10,700) (822,067) (14,060,898)
-------------- ---------------- ------------------
$ 3,609,274 $ 197,468,622 $ 320,604,414
============== ================ ==================
</TABLE>
4. Accrued Expenses
Accrued expenses, consists of the following:
<TABLE>
<CAPTION>
June 30,
December 31, 1999
1997 1998 (unaudited)
-------------- ---------------- ------------------
<S> <C> <C> <C>
Property and equipment $ - $ 85,634,829 $ 6,794,344
Sales taxes - - 11,005,687
Consulting services - 4,237,411 2,642,478
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Bonuses and vacation - 2,386,317 2,858,834
Engineering - 676,893 1,147,406
Selling and marketing - 346,552 2,561,576
Other 824,164 1,187,367 3,271,690
Legal fees - 402,893 264,749
------------- -------------- -----------------
824,164 94,872,262 30,546,764
Less: non-current portion - - (3,939,688)
------------- -------------- -----------------
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
$ 824,164 $ 94,872,262 $ 26,607,076
=========== ============= =============
</TABLE>
F-14
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
December 31, 1999
1997 1998 (unaudited)
----------------- ---------------- ----------------
<S> <C> <C> <C>
Senior subordinated discount notes $ - $ - $ 334,829,320
Senior credit facility - 225,000,000 225,000,000
Lucent Series A notes - 10,460,400 41,665,926
U.S. Government financing 7,727,322 7,924,666 17,192,054
Notes payable to stockholders 2,808,500 - -
Notes payable to affiliates (see Note 13) 2,072,573 - -
----------------- ---------------- ----------------
12,608,395 243,385,066 618,687,300
Less: current portion (4,881,073) - -
----------------- ---------------- ----------------
$ 7,727,322 $ 243,385,066 $ 618,687,300
================= ================ ================
</TABLE>
Senior Subordinated Discount Notes
On April 23, 1999, the Company completed the issuance and sale of 11-5/8%
Senior Subordinated Discount Notes (the Notes) with an aggregate principal
amount at maturity of $575,000,000. The total gross proceeds from the sale of
the Notes were $327,635,000. Offering expenses consisting of underwriting,
printing, legal and accounting fees totaled $10,600,517. The Notes mature
April 15, 2009, unless previously redeemed by the Company. As interest
accrues, it will be added to the principal as an increase to interest expense
and the carrying value of the Notes until April 15, 2004. The Company will
begin paying interest semi-annually on April 15 and October 15 of each year
beginning October 15, 2004. The Notes are not collateralized. The Notes are
subordinate to all of the Company's existing and future senior debt and ranks
equally with all other senior subordinated debt, and ranks senior to all of
the Company's existing and future subordinated debt. The Notes are guaranteed
by the Company's wholly owned subsidiary, TeleCorp Communications, Inc. (see
Note 15). As of June 30, 1999 accrued interest added to the principal was
$7,194,320.
Senior Credit Facility
In July 1998, the Company entered into a credit facility (the Senior Credit
Facility) with a group of commercial lenders, under which the Company may
borrow up to $525,000,000, in the aggregate, consisting of (i) up to
$150,000,000 in revolving loans (the Senior Revolving Credit Facility) with a
maturity date of January 2007, (ii) a $150,000,000 term loan (the Tranche A
Term Loan) with a maturity date of January 2007, and (iii) a $225,000,000
term loan (the Tranche B Term Loan) with a maturity date of January 2008. A
total of $225,000,000 of indebtedness from the Tranche B Term Loan was
outstanding as of December 31, 1998 and June 30, 1999. The Senior Credit
Facility also provides for an uncommitted $75,000,000 senior term loan (the
Expansion Facility) with a maturity date of January 2008.
Beginning in September 2002, principal repayments will be made in 18
quarterly installments for the Tranche A Term Loan and 22 quarterly
installments for the Tranche B Term Loan. Quarterly principal repayments for
the Tranche A Term Loan are as follows: first six, $3,750,000; next four,
$9,375,000; last eight,
F-15
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$11,250,000. Quarterly principal repayments for the Tranche B Term Loan are
as follows: first 18, $562,500, last four, $53,718,750. Interest payments
on the senior credit facility are made quarterly. The Senior Credit
Facility contains a prepayment provision whereby certain amounts borrowed
must be repaid upon the occurrence of certain specified events.
The commitment to make loans under the Tranche A Term loan will terminate in
July 2001, or earlier if elected by the Company. Beginning in April 2005,
the commitment to make loans under the Senior Revolving Credit Facility will
be permanently reduced on a quarterly basis through April 2007 as follows:
first four reductions, $12,500,000; last four reductions $25,000,000. The
unpaid principal on the Senior Revolving Credit Facility is due January 2007.
In July 2000, if the undrawn portion of the Tranche A Term Loan exceeds
$50,000,000 the amount of the Tranche A Term Loan will be automatically
reduced by such excess.
The interest rate applicable to the Senior Credit Facility is based on, at
the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable
Margin, as defined, or (ii) the higher of the administrative agent's prime
rate or the Federal Funds Effective Rate (ABR Loans), plus the Applicable
Margin, as defined. The Applicable Margin for Eurodollar Loans will range
from 125 to 325 basis points based upon certain events by the Company, as
specified. The Applicable Margin for ABR Loans will range from 25 to 225
basis points based upon certain events by the Company, as specified. At
December 31, 1998, the interest rate applicable to the Tranche B Term Loan
was 8.75% and interest incurred for the year ended December 31, 1998 was
$9,210,187 of which $7,710,187 was expensed and $1,500,000 was capitalized.
At June 30, 1999, the interest rate applicable to the Tranche B Term Loan was
8.29%, and for the six months ended June 30, 1999 interest incurred on the
Tranche B Term Loan was $9,843,750 of which $6,366,699 was expensed and
$3,477,051 was capitalized.
The loans from the Senior Credit Facility are subject to an annual commitment
fee which ranges from 0.50% to 1.25% of the available portion of the Tranche
A Term Loan and the Senior Revolving Credit Facility. The Company has
expensed $3,305,905 and $2,063,686 (unaudited), respectively, for the year
ended December 31, 1998 and for the six months ended June 30, 1999 related to
these bank commitment fees. The Senior Credit Facility requires the Company
to purchase interest rate hedging contracts covering amounts equal to at
least 50% of the total amount of the outstanding indebtedness of the Company.
As of December 31, 1998 and June 30, 1999, the Company hedged 100% of its
outstanding indebtedness of $225,000,000 to take advantage of favorable
interest rate swaps.
Initially, borrowings under the Senior Credit Facility are subject to a
maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio
is increased to 55% if certain specified operating benchmarks are achieved.
In addition, the Company must comply with certain financial and operating
covenants. The financial covenants include various debt to equity, debt to
EBITDA, interest coverage, and fixed charge coverage ratios, as defined in
the Senior Credit Facility. The operating covenants include minimum
subscribers, minimum aggregate service revenue, minimum coverage of
population and maximum capital expenditure thresholds. As of December 31,
1998 and June 30, 1999 (unaudited), the Company was in compliance with these
covenants.
The Company may utilize the Expansion Facility as long as the Company is not
in default of the Senior Credit Facility and is in compliance with each of
the financial covenants. However, none of the lenders are required to
participate in the Expansion Facility.
The Senior Credit Facility is collateralized by substantially all of the
assets of the Company. In addition, the Senior Credit Facility has been
guaranteed by the Company's subsidiaries and shall be guaranteed by
subsequently acquired or organized domestic subsidiaries of the Company.
Lucent Note Agreements
In May 1998, the Company entered into a Note Purchase Agreement (the Lucent
Note Agreement) with Lucent Technologies, Inc. (Lucent) which provides for
the issuance of increasing rate 8.5% Series A (the
F-16
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series A Notes) and 10.0% Series B (the Series B Notes) junior subordinated
notes (the Subordinated Notes) with an aggregate face value of $80,000,000.
The aggregate face value of the Subordinated Notes shall decrease dollar for
dollar, upon the occurrence of certain events as defined in the Lucent Note
Agreement. The proceeds of the Subordinated Notes are to be used to develop
the Company's network in certain designated areas. As of December 31, 1998,
the Company had $10,460,400 outstanding under the Series A Notes. As of June
30, 1999, the Company had $41,665,925 (unaudited) outstanding under the
Series A Notes. During the six months ended June 30, 1999, the Company
borrowed and repaid $40,000,000 on the Lucent Series B Notes plus $227,778 of
accrued interest. Interest expense for the year ended December 31, 1998 and
for the six months ended June 30, 1999 was $460,000 and $1,205,525
(unaudited), respectively.
The Series A and Series B Notes will not amortize and will have a maturity
date six months after the final maturity of the Company's high yield debt
offering, but in no event later than May 1, 2012. The Series A Notes will
have a mandatory redemption at par plus accrued interest from the proceeds of
a subsequent equity offering to the extent the net proceeds exceed an amount
identified in the Lucent Note Agreement. If the Series A Notes and Series B
Notes are not redeemed in full by January 2001 and January 2000,
respectively, the interest rate on each note will increase by 1.5% per annum
on January 1. However, the interest rate applicable to the Subordinated
Notes shall not exceed 12.125%. Interest payable on the Series A Notes and
the Series B Notes on or prior to May 11, 2004 shall be payable in additional
Series A and Series B Notes. Thereafter, interest shall be paid in arrears in
cash on each six month and yearly anniversary of the Series A and Series B
closing date or, if cash interest payments are prohibited under the Senior
Credit Facility and/or the Senior Subordinated Discount Notes, in additional
Series A and Series B Notes. As of December 31, 1998, interest accrued under
the Series A Notes of $460,400 has been included in long-term debt. As of
June 30, 1999, interest accrued under the Series A Notes of $1,665,925
(unaudited) has been included in long-term debt.
The Company may redeem the Subordinated Notes held by Lucent or any of its
affiliates at any time. The Series A Notes that are not held by Lucent or
any of its affiliates may be redeemed by the Company prior to May 2002 and
after May 2007. The Series B Notes that are not held by Lucent or any of its
affiliates may be redeemed by the Company prior to May 2000 and after May
2005. Any redemption after May 2007, in the case of the Series A Notes, and
May 2005, in the case of the Series B Notes, shall be subject to an interest
rate premium, as specified. All of the outstanding notes under the Lucent
Note Agreement as of December 31, 1998 and June 30, 1999 are held by Lucent.
The Company must comply with certain operating covenants. As of December 31,
1998 and June 30, 1999, the Company was in compliance with these operating
covenants.
In addition, Lucent has agreed to make available up to an additional
$80,000,000 of junior subordinated vendor financing in amounts up to 30% of
the value of the equipment, software and services provided by Lucent in
connection with any additional markets the Company acquires, subject to
certain conditions as specified (the Vendor Expansion Facility). The
expiration date for any notes issued pursuant to the Vendor Expansion
Facility is the date which is six months after the scheduled maturity of the
Notes, subject to mandatory prepayment if certain future events occur.
U.S. Government financing
F-17
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and June 30, 1999, the Company owes the U.S.
Government $9,192,938 and $20,743,584 (unaudited), less a discount of
$1,268,272 and $3,551,530 (unaudited), respectively, for the acquisition of
PCS licenses in New Orleans, Memphis, Beaumont and Little Rock obtained
during the 1997 F-Block auction. The terms of the notes include: an interest
rate of 6.25%, quarterly interest payments which commenced in July 1998 and
continue for the one year thereafter, then quarterly principal and interest
payments for the remaining 9 years. The promissory notes are collateralized
by the underlying PCS licenses.
During the six months ended June 30, 1999, the Company completed the
acquisition of additional PCS licenses from Digital PCS, Inc. and Wireless
2000, Inc. (see Note 7). As part of these acquisitions, the Company assumed
additional U.S. Government financing with the FCC amounting to $11,550,646,
less a discount of $2,396,215. The terms of the notes include an interest
rate of 6.125% for notes assumed from Digital PCS, Inc. and 7.00% for notes
assumed from Wireless 2000, Inc., quarterly interest payments for a two-year
period and then quarterly principal and interest payments for the remaining
eight years.
These notes are net of a discount of $1,268,272, and $3,551,530 (unaudited)
as of December 31, 1998 and June 30, 1999, respectively. The notes were
discounted using management's best estimate of the prevailing market interest
rate at the time of issuance of 10.25%.
Notes payable to stockholders
In July 1996, the Company issued $498,750 of subordinated promissory notes to
two stockholders. The notes bore interest at a rate of 10%, compounded semi-
annually, and were due in full in July 2002. In April 1997, these notes were
converted into 50 shares of Series A preferred stock.
In December 1997, the Company issued various promissory notes totaling
$2,808,500 to stockholders. The notes bore interest at a rate of 6% and were
converted into mandatorily redeemable preferred stock of the Company in July
1998. The notes were discounted using management's best estimate of the
prevailing market interest rate at the time of issuance of 10.25%. The
effect on the Company's 1997 financial statements of discounting these notes
was not material.
From January 1, 1998 to June 30, 1998, the Company borrowed approximately
$22,491,500 in the form of promissory notes from existing and prospective
stockholders to satisfy the working capital needs of the Company. The
promissory notes bore interest at the rate of 6.25% per annum compounded
quarterly and were payable in one lump sum on August 31, 1998. In July 1998,
these notes were converted to mandatorily redeemable preferred stock of the
Company (see Note 10) in connection with the AT&T Transaction.
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were
as follows:
<TABLE>
<S> <C>
1999 $ -
2000 450,719
2001 944,470
2002 1,004,897
2003 1,631,691
Thereafter 291,070,238
-----------
$295,102,015
============
</TABLE>
6. AT&T TRANSACTION
In January 1998, the Company entered into a Securities Purchase Agreement
(the Securities Purchase Agreement) with AT&T Wireless PCS, Inc. and TWR
Cellular, Inc. (both subsidiaries of AT&T Corporation and collectively
referred to as AT&T PCS), the stockholders of Holding and various venture
capital investment firms (the Cash Equity Investors). The Securities
Purchase Agreement provides the Company will be a provider of wireless
mobility services in its licensed regions utilizing the AT&T brand name.
Upon the receipt of FCC approval in July 1998, the Company finalized the
transaction contemplated in the Securities Purchase Agreement (the AT&T
Transaction). As a result, the Company (i) issued preferred stock and paid
AT&T $21,000,000 in exchange for 20 MHz PCS licenses with a fair value of
$94,850,000 and certain operating agreements with AT&T for exclusivity,
network membership, long distance and roaming with a fair value of
$27,050,000; (ii) issued preferred and common stock for 100% of the
outstanding ownership interests in Holding, which includes 10 MHz PCS
licenses which was recorded at historical cost; and (iii) issued preferred
and common stock for a cash commitment from the Cash Equity Investors of
$128,000,000 to be paid over a three year term (see Note 10) plus an
additional $5,000,000 upon the closing of the Digital PCS, Inc. transaction
(see Note 7).
The general terms of the operating agreements with AT&T are summarized below:
. AT&T Exclusivity: The Company will be AT&T's exclusive
facilities-based provider of mobile wireless telecommunications
services within the Company's Basic Trade Areas for an initial
ten year period. This agreement will automatically renew for a
one-year term and then operate on a year-to-year basis unless one
party terminates at least ninety (90) days prior to the end of
any one-year term.
The Company has determined the fair value of this agreement to be
$11,870,000 and is amortizing this value over the initial 10 year
term.
. Network Membership License Agreement: The Network Membership
License Agreement (the License Agreement) defines that AT&T will
make available to the Company use of the AT&T logo and the right
to refer to itself as a "Member of the AT&T Wireless Network" to
market its PCS services. Through the use of these rights, the
Company expects to participate in and benefit from AT&T
promotional and marketing efforts. The License Agreement has an
initial five-year term with a five-year renewal term if both the
Company and AT&T elect to renew at least ninety 90 days prior to
the expiration of the initial term.
F-18
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined the fair value of this agreement to be
$8,480,000 and is amortizing this value over the initial five
year term.
. Intercarrier Roamer Services Agreement: AT&T and the Company have
entered into a twenty-year reciprocal roaming agreement provided
that their customers who own tri-mode phones will roam on the
other's mobile wireless systems. Thereafter, this agreement shall
renew automatically on a year-to-year basis unless either the
Company or AT&T terminates this agreement by written notice at
least 90 days prior to the conclusion of the original or any
subsequent term. After ten years, this agreement may be
terminated by the Company or AT&T at any time upon 90 days prior
written notice. AT&T also agrees to permit the Company to have
outbound roaming on its network for twenty years at commercially
reasonable rates to the extent commercially and technologically
feasible. The outbound roaming agreement shall continue with
automatic ten-year renewals subject to a one-year cancellation
notice.
The Company has determined the value of this roaming agreement to
be $3,500,000 and is amortizing this value over the initial 10
year term.
. Long Distance Agreement: The long distance agreement provides
that AT&T will be the exclusive provider for long distance
services to the Company's customers within the Company's licensed
regions for an initial three year period. The long distance
agreement requires that the Company meet a minimum traffic volume
commitment during the term of the agreement. If the Company fails
to meet such volume commitments, the Company must pay to AT&T the
difference between the expected fee based on the volume of the
commitment and the fees based on actual volume.
The Company had determined the fair value of this agreement to be
$3,200,000 and is amortizing this value over the initial three
year term.
Triton PCS, Inc. (Triton), Tritel Communications (Tritel), and the Company
have adopted a common brand, SunCom, which is co-branded with equal emphasis
with the AT&T brand name and logo. On April 16, 1999, Triton, Tritel and
TeleCorp Communications formed a new company, Affiliate License Co., L.L.C.,
to own, register and maintain the marks SunCom, SunCom Wireless and other
SunCom and Sun formative marks (SunCom Marks) and to license the SunCom marks
to Triton, Tritel and the Company. Triton, Tritel and TeleCorp
Communications each have a 33% membership interest in Affiliate License Co.,
L.L.C. On April 16, 1999, Triton entered into an agreement to settle a
potential dispute regarding prior use of the SunCom brand. In connection
with this settlement, Triton agreed to pay $975,000 to acquire the SunCom
Marks which were contributed to Affiliate License Co., L.L.C. The Company
paid $325,000 in royalty payments to reimburse Triton for the contributed
SunCom marks.
7. ACQUISITIONS
On April 20, 1999, the Company completed the acquisition of 10 MHz PCS
licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana
Basic Trade Area's from Digital PCS, Inc. The total purchase price of
$5,604,380 wascomprised of $2,334,819 of mandatorily redeemable preferred
stock and common stock of the Company, the assumption of U.S. Government
financing with the FCC of $4,101,455, less a discount of $1,118,450, and
$286,556 in cash as reimbursement to Digital PCS, Inc., for interest due to
the FCC incurred prior to close and legal costs. The entire purchase price
has been allocated to the PCS license.
F-19
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PCS licenses $ 5,317,824
Other intangible assets relating to
legal costs and reimbursement of FCC
interest 286,556
-----------
$ 5,604,380
===========
</TABLE>
As a result of completing the transaction with Digital PCS, Inc., the Cash
Equity Investors have irrevocably committed to contribute $5,000,000 in
exchange for mandatorily redeemable preferred stock and common stock over a
two year period from the close of this transaction. As of June 30, 1999 the
Company has received $ 2,200,000 of the $ 5,000,000 commitment.
On May 24, 1999, the Company sold mandatorily redeemable preferred stock and
preferred stock to AT&T for $40,000,000. On May 25, 1999, the Company
acquired from AT&T 20 MHz PCS licenses covering the San Juan Major Trade
Area, 27 constructed cell sites, a switching facility, leases for additional
cell sites, the extension of the Network Membership License Agreement, Long
Distance Agreement, Intercarrier Roamer Services Agreement and AT&T
Exclusivity Agreement and the reimbursement of AT&T for microwave relocation
costs, salary and lease payments (the Puerto Rico Transaction) incurred prior
to acquisition. The total purchase price of this asset acquisition was
$99,694,055 in cash. In addition, the Company incurred legal fees of $252,340
related to this acquisition. The purchase price has been allocated to the
assets acquired, subject to adjustment, based upon their estimated fair value
as follows:
<TABLE>
<S> <C>
PCS licenses $ 70,421,295
Intangible assets - AT&T Agreements 17,310,000
Cell sites, site acquisition,switching
facility assets, and other assets 9,015,100
Microwave relocation costs 3,200,000
------------
$ 99,946,395
============
</TABLE>
As a result of completing this transaction, the Company's available
borrowings under the Lucent Note Agreement (see Note 5) increased by
$15,000,000 ($7,500,000 of Series A and $7,500,000 of Series B) and certain
Cash Equity Investors committed $39,996,600 in cash in exchange for
mandatorily redeemable preferred and common stock. The Cash Equity Investors
cash commitment of $39,996,600 will be funded over a three year period from
the close of this transaction. As of June 30, 1999, the Company received
$11,998,980 of this cash commitment. As a part of obtaining this additional
preferred and common stock financing, the Company paid $2,000,000 to a Cash
Equity Investor upon the closing of the transaction. In addition, certain
officers, the Chief Executive Officer and the Executive Vice President and
Chief Financial Officer of the Company were issued fixed and variable awards
of 5,643 and 8,212 restricted shares of mandatorily redeemable Series E
preferred stock and Class A common stock, respectively, in exchange for their
interest in Puerto Rico Acquisition Corporation. Puerto Rico Acquisition
Corporation was a special purpose entity wholly-owned by the Company's Chief
Executive Officer and Executive Vice President and Chief Financial Officer.
The fixed awards typically vest over a five-year period. The variable awards
vest based upon certain events taking place, such as build-out milestone POP
coverage and other events. The estimated fair value of these shares has been
recorded as deferred compensation and is being amortized over the related
vesting periods.
On June 2, 1999 the Company acquired from Wireless 2000, Inc. 15 MHz PCS
licenses in the Alexandria, Lake Charles and Monroe, Louisiana BTAs. The
total purchase price of $7,192,174 was comprised of $370,810 of mandatorily
redeemable preferred stock and common stock of the Company, the assumption of
U.S. Government financing with the FCC of $7,449,190, less a discount of
$1,277,765, and $649,939 in cash
F-20
<PAGE>
TELECORP PCS, INC. AND SUNSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
as reimbursement of microwave relocation costs and reimbursement of FCC
interest and legal costs. The purchase price has been allocated to the assets
acquired, subject to adjustment, based upon their estimated fair value as
follows:
<TABLE>
<S> <C>
PCS licenses $ 6,992,174
Microwave relocation costs 200,000
------------
$ 7,192,174
============
</TABLE>
8. MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Holding
Holding's authorized capital stock consisted of 6,000 shares of no par value
mandatorily redeemable Series A preferred stock, 125,000 shares of no par
value Class A common stock, 175,000 shares of no par value Class B common
stock and 175,000 shares of no par value Class C common stock. This capital
stock was in existence during 1996, 1997, and through July 1998, the closing
of the AT&T Transaction, at which time Holding became a wholly-owned
subsidiary of the Company. Subsequent to the AT&T Transaction, the
authorized and outstanding shares of Holding were cancelled and replaced with
1,000 authorized shares of common stock of which 100 shares were issued to
the Company.
TeleCorp
On May 14, 1999, TeleCorp restated its Certificate of Incorporation. The
Restated Certificate of Incorporation provides the Company with the authority
to issue 2,619,010 shares of stock, consisting of the following:
<TABLE>
<CAPTION>
Preferred Par Shares Par Shares
Stock Value authorized Common Stock Value authorized
------------------------------- -------- ---------- ------------------- -------- ----------
<S> <C> <C> <C> <C> <C>
Mandatorily redeemable Series A $ 0.01 100,000 Senior $ 0.01 70,000
Mandatorily redeemable Series B $ 0.01 200,000 Class A $ 0.01 950,000
Mandatorily redeemable Series C $ 0.01 215,000 Class B $ 0.01 950,000
Mandatorily redeemable Series D $ 0.01 50,000 Class C tracked $ 0.01 1,000
Mandatorily redeemable Series E $ 0.01 30,000 Class D tracked $ 0.01 3,000
Series F $ 0.01 50,000 Voting Preference $ 0.01 10
-------- ---------
Total 645,000 Total 1,974,010
======== =========
</TABLE>
F-21
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedules represents the transactions that took place with respect
to Holding's Mandatorily redeemable preferred stock and common stock for the
period from July 29, 1996 (date of inception) to December 31, 1998.
<TABLE>
<CAPTION>
Series A
preferred stock
-----------------------------
Shares Amount
--------- ----------------
<S> <C> <C>
Mandatorily redeemable preferred stock
--------------------------------------
Initial capitalization for cash 750 $ 7,500,000
Accretion of preferred stock dividends - 288,959
--------- ----------------
Balance, December 31, 1996 750 7,788,959
Issuance of preferred stock for cash 150 1,500,000
Accretion of preferred stock dividends - 725,557
Conversion of promissory note to preferred
stock 50 498,750
Noncash redemption of equity interests (see
Note 13) (583) (6,368,926)
--------- ----------------
Balance, December 31, 1997 367 4,144,340
Accretion of preferred stock dividends - 224,484
Recapitalization of Holding (367) (4,368,824)
--------- ----------------
Balance, December 31, 1998 - $ -
========= ================
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C
common stock common stock common stock
--------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount
------- ---------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common stock
- ------------------------
Initial capitalization for cash 8,750 $ 2,000 - $ - 25,520 $ -
Issuance of common stock 3,750 - 5,104 - - -
------- ---------- ------------ --------- ----------- ---------
Balance, December 31, 1996 12,500 2,000 5,104 - 25,520 -
Issuance of common stock for cash - - - - 6,875 -
Noncash redemption of equity
Interests (See Note 13) (7,666) (1,144) (3,130) - (19,868) -
-------- ---------- ------------ --------- ----------- ---------
Balance, December 31, 1997 4,834 856 1,974 - 12,527
Recapitalization of Holding (4,834) (856) (1,974) - (12,527) -
Elimination of 100% of equity
Interests in Holding - - - - - -
-------- ---------- ------------ --------- ----------- ---------
Balance, December 31, 1998 - $ - - $ - - $ -
======== ========== ============ ========= =========== =========
<CAPTION>
Common stock
--------------------
Shares Amount Total
--------- -------- ---------
<S> <C> <C> <C>
Common stock
- ------------------------
Initial capitalization for cash - $ - $ 2,000
Issuance of common stock - - -
--------- -------- ---------
Balance, December 31, 1996 - - 2,000
Issuance of common stock for cash - - -
Noncash redemption of equity
Interests (See Note 13) - - (1,144)
--------- -------- ---------
Balance, December 31, 1997 856
Recapitalization of Holding 100 - (856)
Elimination of 100% of equity
Interests in Holding (100) - -
--------- -------- ---------
Balance, December 31, 1998 - $ - $ -
========= ======== =========
</TABLE>
F-22
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following schedule represents the transactions that took place with respect
to TeleCorp's mandatorily redeemable preferred stock, Series F preferred stock
and common stock for the period July 1998 to June 30, 1999:
<TABLE>
<CAPTION>
Series A Series C Series D
preferred stock Preferred stock preferred stock
------------------------- --------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
--------- -------------- --------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mandatorily redeemable preferred stock
- --------------------------------------
Issuance of preferred stock
to AT&T PCS for licenses and
AT&T Agreements 66,723 $ 66,723,000 - $ - 34,267 $ 34,143,639
Issuance of preferred stock
to Cash Equity
Investors, net of issuance
costs of $1,027,695 - - 128,000 126,847,780 - -
Accretion of preferred stock dividends - 3,039,603 - 3,818,827 - 945,780
Noncash issuance of restricted stock - - - - - -
Repurchase of restricted stock for cash - - - - - -
Noncash issuance of preferred
stock for equity of Holding - - 7,348 4,334,276 - -
------ -------------- --------- ---------------- --------- ------------------
Balance, December 31, 1998 66,723 $ 69,762,603 135,348 $ 135,000,883 34,267 $ 35,089,419
Issuance of preferred stock
for cash, net of issuance
costs of $2,500,000 30,750 30,454,218 50,473 47,844,985 11,230 10,499,516
Issuance of preferred stock
for PCS licenses operating agreements - - 2,878 2,674,130 - -
Accretion of preferred stock dividends - 3,791,396 - 4,581,221 - 1,122,155
Noncash issuance of restricted stock - - - - - -
Repurchase of restricted stock for cash - - - - - -
------- -------------- --------- ---------------- --------- -----------------
Balance, June 30, 1999 (unaudited) 97,473 $ 104,008,217 188,699 $ 190,101,219 45,497 $ 46,711,090
======= ============== ========= ================ ========= =================
<CAPTION>
Series E
preferred stock
--------------------------
Shares Amount Total
--------- --------------- -------------------
<S> <C> <C> <C>
Mandatorily redeemable preferred stock
- --------------------------------------
Issuance of preferred stock
to AT&T PCS for licenses and
AT&T Agreements - $ - $ 100,866,639
Issuance of preferred stock to Cash Equity
Investors, net of issuance costs of $1,027,695 - - 126,847,780
Accretion of preferred stock
dividends - 541,038 8,345,248
Noncash issuance of restricted stock 5,505 5,505 5,505
Repurchase of restricted stock for cash (784) (792) (792)
Noncash issuance of preferred stock for
equity of Holding 14,156 10,215 4,344,491
------------ -------------- -----------------
Balance, December 31, 1998 18,877 $ 555,966 $ 240,408,871
Issuance of preferred stock
for cash, net of issuance
costs of $2,500,000 - - 88,798,719
Issuance of preferred stock
for PCS licenses operating agreements - - 2,674,130
Accretion of preferred stock dividends - 645,028 10,139,800
Noncash issuance of restricted stock 6,606 414,959 414,959
Repurchase of restricted stock for cash (577) (576) (576)
------------ -------------- -----------------
Balance, June 30, 1999 (unaudited) 24,906 $ 1,615,377 $ 342,435,903
============ ============== =================
</TABLE>
<TABLE>
<CAPTION>
Series F Class A Class C tracked
preferred stock common stock common stock
----------------------- ------------------------- -------------------
Shares Amount Shares Amount Shares Amount
----------- --------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Series F preferred and common stock
- -----------------------------------
Issuance of common stock to Cash Equity
Investors for cash - $ - 121,490 $ 1,214 358 $ 4
Issuance of preferred stock to
AT&T PCS for licenses and AT&T agreements 33,361 333 - - - -
Exchange of 100% of equity
interests in Predecessor
Company for equity in the Company - - 24,541 245 561 6
Noncash issuance of restricted stock - - 10,018 100 - -
Repurchase of restricted stock for cash - - (1,787) - - -
----------- --------- ----------- ----------- -------- --------
<CAPTION>
Class D tracked Voting preference
common stock common stock
------------------- -------------------
Shares Amount Shares Amount Total
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Series F preferred and common stock
- -----------------------------------
Issuance of common stock to Cash Equity
Investors for cash 2,678 $ 27 - $ - $ 1,245
Issuance of preferred stock to
AT&T PCS for licenses and AT&T agreements - - - - 333
Exchange of 100% of equity interests in
Predecessor
Company for equity in the Company 77 1 10 - 252
Noncash issuance of restricted stock - - - - 100
Repurchase of restricted stock for cash - - - - -
-------- -------- -------- -------- -------
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Balance, December 31, 1998 33,361 $ 333 154,262 $ 1,559 919 $ 10
Issuance of common stock and
preferred stock for cash 10,980 110 50,473 505 - -
Issurance of common stock for
PCS licenses operating agreements - - 2,814 28 - -
Noncash issuance of restricted stock - - 10,658 76 - -
Repurchase of restricted stock for cash - - (1,317) - - -
======== ========== =========== ============ ======= ===========
Balance, June 30, 1999 (unaudited) 44,341 $ 443 216,890 $ 2,168 919 $ 10
======== ========== =========== ============ ======= ===========
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 2,755 $ 28 10 $ - $ 1,930
Issuance of common stock and
preferred stock for cash - - - - 615
Issurance of common stock for
PCS licenses operating agreements - - - - 28
Noncash issuance of restricted stock - - - - 76
Repurchase of restricted stock for cash - - - - -
------- ------- ------ ------------ ----------
Balance, June 30, 1999 (unaudited) 2,755 $ 28 10 $ - $ 2,649
======= ======= ====== ============ ==========
</TABLE>
F-23
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There are no issued or outstanding shares of Series B preferred stock, Senior
common stock or Class B common stock as of June 30, 1999.
The conversion features and conversion prices of the Company's issued stock
are summarized below:
<TABLE>
<CAPTION>
Convertible Security Convertible Into Conversion Price
------------------------- ------------------------ -----------------------------------------
<S> <C> <C>
Series A preferred stock After July 2006, at the The Series A conversion rate is equal
holders' option, into to the liquidation preference of the
Class A common stock Series A preferred stock on the
conversion date divided by the market
price of the Class A common stock on
the conversion date.
Series C preferred stock At the option of the The liquidation preference of the
Company at the IPO date Series C preferred stock divided by
into either Class A or the IPO price.
B common stock
Series D and Series F If Series C preferred The liquidation preference divided by
preferred stock stock is converted then the IPO price.
automatically at the IPO
date into Senior common
stock
Series E preferred stock At the option of the The liquidation preference of the
Company at the IPO date Series E preferred stock divided by
into either Class A or the IPO price.
Class B common stock
Series F preferred stock At the holders' option, One share of Series F preferred stock
and Senior common stock into Class A, Class B or or Senior common stock for one share
Class D common stock, of either Class A, Class B or Class D
depending upon the common stock.
occurrence of certain
defined events
Class A common stock At the holders' option One share of Class B common stock for
into Class B common stock one share of Class A common stock.
Class C tracked common Subject to FCC constraints One share of Class A or Class B common
stock and Board approval, at stock for one share of Class C tracked
the holders' option and common stock.
by affirmative vote of
at least 66 2/3% of Class
A common stock into Class
A or Class B common stock
Class D tracked common Subject to FCC constraints One share of Class A or Class B common
stock and Board approval, at the stock for one share of Class D tracked
holders' option and by common stock.
affirmative vote of at
least 66 2/3% of Class A
common stock into Class A
or Class B common stock
</TABLE>
F-24
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The conversion features and conversion prices of the Company's issued stock are
summarized below:
Liquidation rights
In the event of any liquidation, dissolution or winding up of the Company, as
defined, the stockholders of the Company are entitled to liquidation
preferences as follows:
<TABLE>
<CAPTION>
Order of Distribution Stock Classification Distribution Preference
--------------------- ------------------------------------ --------------------------------------------
<S> <C> <C>
First Series A and Series B $1,000 per share plus accrued and
preferred stock unpaid dividends.
Second Series C and Series D Series C: actual paid-in capital per
preferred stock share plus accrued and unpaid
dividends plus interest of 6% per
annum on the actual paid-in capital,
compounded quarterly, less amount of
dividends declared and paid.
Series D: $1,000 per share plus
accrued and unpaid dividends plus an
amount equal to interest on $1,000
per share at a rate of 6% per annum,
compounded quarterly, less amount of
dividends declared and paid.
Third Series E preferred stock Accrued and unpaid dividends, plus an
amount equal to interest on $1,000
per share at 6% per annum, compounded
quarterly, less dividends declared
and paid.
Fourth Series F preferred stock Series F preferred: $0.01 per share
and Senior common stock plus accrued and unpaid dividends.
Senior common stock: The sum of the
liquidation preference of each share
of Series D and Series F preferred
stock converted in Senior common
stock divided by the aggregate number
of shares of Senior common stock
issued upon conversion of shares of
Series D and Series F preferred stock
</TABLE>
Dividends and voting rights
The holders of the Series A and Series B preferred stock are entitled to
cumulative quarterly cash dividends at an annual rate of 10% of the
liquidation preference of the then outstanding shares. The holders of the
remaining shares of preferred and common stock are entitled to dividends if
and when declared.
The Class A common stock has 4,990,000 voting rights and the Voting
Preference common stock has 5,010,000 voting rights. The remaining shares of
preferred and common stock shall have no voting rights, except as provided by
law or in certain limited circumstances.
Call and Redemption features
The preferred stock is callable at the option of the Company at a price equal
to the liquidation preference on the redemption date. The Series A preferred
stock is callable thirty days after the 10th anniversary of the issuance of
such shares. The Series B preferred stock is callable at any time. The
Series C and Series D preferred stock are callable at any time, provided that
the Series C and Series D Preferred Stock are called concurrently.
The Series A, Series B, Series C, Series D and Series E preferred stock are
redeemable thirty days after the 20th anniversary of the issuance of such
shares at the option of the holder at a price equal to the liquidation
preference on the redemption date. The Series F preferred stock is not
redeemable. Pursuant to a Management Agreement, the Company may redeem
certain shares of Class A common stock and Series E preferred stock held by
the Company's Chief Executive Officer and Executive Vice President (the TMC
officers). For the period from the finalization of the AT&T Transaction to
December 31, 1998, the Company accreted $8,345,248 of dividends in connection
with this redemption feature.
F-25
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tracked common stock
The Class C and Class D common stock have been designated as Tracked common
stock. The holders of the Tracked common stock are entitled to a dividend,
when available, equal to the excess of the fair value of the net assets of
Holding over the aggregate par value of the outstanding shares of the Tracked
common stock. After all other preferential liquidating distributions have
been made, the holders of the Tracked common stock will be entitled to a
liquidation preference equal to the excess of the fair value of the net
assets of Holding.
Participating stock
The Series F preferred stock, the Senior common stock and the Class A and B
common stock are participating stock, and the Board of Directors may not
declare dividends on or redeem, purchase or otherwise acquire for
consideration any shares of the Participating Stock, unless the Board of
Directors makes such declaration or payment on the same terms with respect to
all shares of participating stock, ratably in accordance with each class and
series of participating stock then outstanding.
9. RESTRICTED STOCK PLAN
In July 1998, the Company adopted a Restricted Stock Plan (the Plan) to
attract and retain key employees and to reward outstanding performance. Key
employees selected by management may elect to become participants in the Plan
by entering into an agreement which provides for issuance of fixed and
variable units consisting of Series E mandatorily redeemable preferred stock
and Class A common stock. The fixed units typically vest over a five or six
year period. The variable units vest based upon certain events taking place,
such as buildout milestones, Pop coverage and other events. Unvested shares
are forfeited upon termination of employment. The shares issued under the
Plan shall consist of units transferred to participants without payment as
additional compensation for their services to the Company. The total number
of units that may be awarded to key employees shall not exceed 5,505 units or
a defined number of shares of Series E preferred stock and Class A common
stock, respectively, as determined upon award. Any units not granted on or
prior to July 17, 2003 shall be awarded to two officers of the Company. Each
participant has voting, dividend and distribution rights with respect to all
shares of both vested and unvested common stock. Prior to the Class A shares
becoming publicly traded, the Company retains the right of first offer to buy
the employees' vested shares at the offer price. After the Class A shares
become publicly traded, the right of first offer will no longer exist for the
Series E preferred shares. In addition the shares contain rights of
inclusion and first negotiation. The Company may repurchase unvested shares,
and under certain circumstances, vested shares of participants whose
employment with the Company terminates. The repurchase price is equal to
$0.01 per share.
F-26
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Series E Fair value Class A Fair value
preferred stock per share common stock per share
----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Shares awarded 5,505 $ 1.00 10,018 $ 1.00
Repurchases (784) - (1,787) -
----------------- ------------------
Balance, December 31, 1998 4,721 $ 1.00 8,231 $ 1.00
Shares awarded 2,542 $ 52.00 5,383 $ 2.40
Repurchases (577) - (1,316) -
----------------- ------------------
Balance, June 30, 1999 (unaudited) 6,686 $1.00-$52.00 12,298 $1.00-$2.40
================= ==================
</TABLE>
Deferred compensation and compensation expense related to the issuance of
restricted stock to employees, based on the estimated fair value of the
preferred and common stock, was immaterial for the year ended December 31,
1998 and for the six months ended June 30, 1999.
Some of the awards granted under the Plan are variable awards. When it is
probable the future events will occur, the Company determines the fair value
of the variable awards of the Series E preferred stock and Class A common
stock, subject to a final measurement date upon the occurrence of defined
events. Outstanding fixed awards and variable awards as of December 31, 1998
and June 30, 1999 (unaudited) for each class of stock are as follows:
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30,
December 31, 1999
1998 (unaudited)
------------- ---------------
<S> <C> <C>
Series E preferred stock:
Fixed awards 3,664 5,280
Variable awards 1,057 1,406
------------- ---------------
Total Series E awards 4,721 6,686
============= ===============
Class A common stock:
Fixed awards 3,728 5,484
Variable awards 4,503 6,814
------------- ---------------
Total Class A awards 8,231 12,298
============= ===============
</TABLE>
F-27
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PREFERRED AND COMMON STOCK SUBSCRIPTIONS RECEIVABLE
In connection with the AT&T Transaction described in Note 6 and the
acquisitions described in Note 7, the Company received cash commitments of
$172,996,600 from the Cash Equity Investors in exchange for Series C preferred
stock and various classes of common stock. The agreements require the Cash
Equity Investors to fund their unconditional and irrevocable obligations in
installments in accordance with the following schedules:
<TABLE>
<CAPTION>
Due Date Amount
--------------------------------------------- --------------
<S> <C>
AT&T Transaction:
Initial closing (July 17, 1998) $ 39,375,005
December 31, 1998 16,125,005
Second anniversary of initial closing 36,250,005
Third anniversary of initial closing 36,249,985
--------------
$ 128,000,000
==============
</TABLE>
The initial contributions were provided in the form of short-term
interest bearing promissory notes (see Note 5). These notes were converted to
mandatorily redeemable preferred and common stock of the Company as partial
satisfaction of the $128,000,000 of committed contributions in connection
with the closing of the AT&T Transaction.
<TABLE>
<CAPTION>
Due Date Amount
---------------------------------------------- ---------------
<S> <C>
Digital PCS, Inc. Transaction:
Initial closing (April 20, 1999) $ 2,200,000
July 2000 1,400,000
July 2001 1,400,000
---------------
$ 5,000,000
===============
<CAPTION>
Due Date Amount
----------------------------------------------- ---------------
<S> <C>
Puerto Rico Transaction:
Initial closing (May 24, 1999) $ 11,996,600
December 31, 1999 6,000,000
First anniversary of initial closing 11,000,000
Second anniversary of initial closing 11,000,000
---------------
$ 39,996,600
===============
</TABLE>
Through December 31, 1998, the Company received $51,999,725 of the above
committed equity and received an additional $14,196,600 (unaudited) during
the six months ended June 30, 1999 (unaudited). The Company has recorded a
preferred stock subscription receivable of $75,914,054 and $103,000,531
(unaudited) as of December 31, 1998 and June 30, 1999, respectively, as a
reduction to the mandatorily redeemable preferred stock and a common stock
subscription receivable of $86,221 and $190,990 (unaudited) as of December
31, 1998 and June 30, 1999, respectively, as a reduction to stockholders
equity (deficit) for the unpaid commitment.
F-28
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
The tax effect of temporary differences which gives rise to significant
portions of the deferred tax assets as of December 31, 1997 and 1998,
respectively, are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Capitalized start-up costs $ 1,321,340 $ 17,599,251
Net operating losses 145,710 3,634,809
Depreciation and amortization - 288,985
Deferred rent - 74,504
Capitalized interest - (917,107)
Other (4,220) 174,952
--------------- --------------
1,462,830 20,855,394
Less valuation allowance (1,462,830) (20,855,394)
--------------- --------------
$ - $ -
=============== ==============
</TABLE>
For federal income tax purposes, start-up costs will be amortized over five
years once active business operations commence. There may be a limitation on
the annual utilization of net operating losses and capitalized start-up costs
as a result of certain ownership changes that have occurred since the
Company's inception. The net operating losses start expiring in 2017. A
valuation allowance is recognized if, based on the weight of available
evidence, it is more likely than not that some portion or all of the deferred
tax asset will not be realized. Based on the Company's financial results,
management has concluded that a full valuation allowance for all of the
Company's deferred tax assets is appropriate.
12. COMMITMENTS
In May 1998, the Company entered into a vendor procurement contract (the
Vendor Procurement Contract) with Lucent, pursuant to which the Company may
purchase up to $285,000,000 of radio, switching and related equipment and
services for the development of the Company's wireless communications
network. Through December 31, 1998 and June 30, 1999, the Company has
purchased approximately $90,900,000 and $130,900,000 (unaudited),
respectively, of equipment and services from Lucent.
The Company has operating leases primarily related to retail store locations,
distribution outlets, office space, and rent for the Company's network build-
out. The terms of some of the leases include a reduction of rental payments
and scheduled rent increases at specified intervals during the term of the
leases. The Company is recognizing rent expense on a straight-line basis
over the life of the lease, which establishes deferred rent
F-29
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on the balance sheet. As of December 31, 1998, the aggregate minimum rental
commitments under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1999 $ 10,755,694
2000 10,752,666
2001 10,507,474
2002 10,369,758
2003 8,520,560
Thereafter 23,139,323
-------------
Total $ 74,045,475
=============
</TABLE>
Rental expense, which is recorded ratably over the lease terms, was
approximately $2,000, $157,000, and $3,193,000 for the period ended December
31, 1996 and for the years ended December 31, 1997 and 1998, respectively.
The Company has entered into a series of agreements for software licenses,
consulting, transition support and maintenance with various vendors. The
total future commitments under the agreements are approximately $6,000,000 as
of December 31, 1998.
The Company has entered into letters of credit to facilitate local business
activities. The Company is liable under the letters of credit for
nonperformance of certain criteria under the individual contracts. The total
amount of outstanding letters of credit was $1,425,000 at December 31, 1998.
The outstanding letters of credit reduce the amount available to be drawn
under the Senior Credit Facility (see Note 5). The Company is unaware of any
events that would have resulted in nonperformance of a contract during the
year ended December 31, 1998.
13. RELATED PARTIES
The Company utilizes the services of a law firm in which the Executive Vice
President and Chief Financial Officer of the Company was also a partner. The
Company incurred expenses of approximately $110,000, $250,000, $2,123,000 and
$1,362,218 (unaudited) for the period ended December 31, 1996, for the years
ended December 31, 1997 and 1998 and for the six months ended June 30, 1999,
respectively, for legal services. As of December 31, 1997, 1998 and June 30,
1999, the Company owed the law firm $70,464, $160,000 and $798,676
(unaudited), respectively. Subsequent to December 31, 1997, the individual
resigned from the law firm but continues as special counsel.
The Company receives site acquisition, construction management, program
management, microwave relocation, and engineering services pursuant to a
Master Services Agreement with WFI/Entel Technologies, Inc. (Entel). The
Chief Executive Officer and Executive Vice President and Chief Financial
Office of the Company were formerly stockholders and senior officers of
Entel. Fees for the above services are as follows: $12,000 per site for site
acquisition services, $7,000 per site for construction management services,
$9,000 per site for program management and $1,100,000 for microwave
relocation services for all of the Company's existing regions. Fees for
engineering services are based upon Entel's customary hourly rates. For the
period ended December 31, 1996 and for the years ended December 31, 1997 and
1998 and for the six months ended June 30, 1999, the Company paid $30,829,
$1,939,795, $30,719,865 and $31,295,020 (unaudited), respectively, to Entel
for these services. As of December 31, 1997 and 1998 and June 30, 1999, the
Company owed Entel $170,596, $21,177,516 and $2,246,278 (unaudited),
respectively. Subsequent to December 31, 1997, the Chief Executive Officer
and Executive Vice President sold 100% of their interests in Entel.
F-30
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1997, Holding entered into an agreement to transfer PCS licenses,
operating assets, liabilities and U.S. Government financing, for the Houston,
Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by
Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa,
Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. (the THC entities).
These assets and liabilities were transferred in exchange for investment
units of the newly-formed THC entities which consisted of Class A, B and C
common stock and Series A preferred stock in August 1997. The carrying
amount of the total assets and liabilities transferred was $15,678,814 and
$12,034,212, respectively. Simultaneously, Holding reacquired shares of its
preferred and common stock in a $6,370,070 partial stock redemption through
the exchange of the investment units in the newly-formed companies of
$3,644,602, which represented the net difference between the cost of the
assets and liabilities transferred and the issuance of an aggregate of
$2,725,468 of notes payable to those newly-formed THC entities. Summarized
below is a reconciliation of this activity:
<TABLE>
<S> <C>
PCS licenses and other assets $ 15,678,814
U.S. Government financing
and other liabilities (12,034,212)
Investment units in the THC entities 3,644,602
Notes payable to the THC entities 2,725,468
--------------
Partial preferred and common
stock redemption $ 6,370,070
==============
</TABLE>
As a result of this transfer, Holding no longer retains any ownership
interest in the THC entities. Because this transaction was nonmonetary in
nature and occurred between entities with the same stockholder group, the
transaction was recorded at historical cost. Subsequent to the transfer, the
Company reduced the notes payable by $652,895, which represented certain
costs incurred by the Company on behalf of the THC entities for the year
ended December 31, 1997 pursuant to Transfer Agreements and Management
Agreements. The combined amounts owed THC Houston, Inc., THC Tampa, Inc.,
THC Melbourne, Inc., and THC Orlando, Inc. of $2,072,573 as of December 31,
1997 were repaid in full during 1998. As of December 31, 1998 and June 30,
1999, the combined amounts owed by the Company to THC Houston, Inc., THC
Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. were $547,047 and
$540,728 (unaudited), respectively.
As of December 31, 1997, the Company had amounts payable of $824,164 to
TeleCorp WCS, Inc. (WCS), an affiliate, formerly TeleCorp Management
Corporation, Inc. The amount payable to WCS represented $1,200,000 of funds
received by the Company on behalf of WCS related to wireless communications
service licenses owned by WCS reduced by expenses and other payments owed by
WCS to the Company. The entire balance due WCS as of December 31, 1997 was
repaid during 1998.
Pursuant to a Management Agreement, TeleCorp Management Corp. (TMC) provides
assistance to the Company in the form of administrative, operational,
marketing, regulatory and general business services. For
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
these services, beginning in July 1998, the Company pays a management fee to
TMC of $550,000 per year plus reimbursement of certain business expenses,
payable in equal monthly installments, plus an annual bonus. The management
agreement has a five-year term, but may be terminated by the Company upon the
occurrence of certain defined events. TMC may terminate the agreement at any
time with proper notice. The Officers of TMC own all of the ownership
interest in TMC. For the year ended December 31, 1998, the Company paid
approximately $250,000 to TMC for these services plus $282,500 in bonuses to
TMC officers. For the six months ended June 30, 1999, the Company paid
approximately $685,945 (unaudited) to TMC for these services.
The Company has entered into a Master Site Lease Agreement with American
Towers Inc., a company partially owned by certain stockholders of the
Company. Under this arrangement American Tower provides network site leases
for PCS deployment. The Company has incurred $16,862 of and no (unaudited)
expense for the year ended December 31, 1998 and the six months ended June
30, 1999, respectively.
14. DEFINED CONTRIBUTION PLAN
During 1998, the Company established the TeleCorp Communications, Inc. 401(k)
Plan (the 401(k) Plan), a defined contribution plan in which all employees
over the age of 21 are immediately eligible to participate in the 401(k)
Plan. TeleCorp Communications, Inc. is a wholly-owned subsidiary of the
Company. Under the 401(k) Plan, participants may elect to withhold up to 15%
of their annual compensation, limited to $160,000 of total compensation as
adjusted for inflation. The Company may make a matching contribution based
on a percentage of the participant's contributions. Participants vest in the
Company's matching contributions as follows: 20% after one year; 60% after
two years and 100% after three years. Total Company contributions to the
401(k) Plan were $505,495 and $918,358 (unaudited) for the year ended
December 31, 1998 and for the six months ended June 30, 1999.
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSORS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SUBSIDIARY GUARANTEE
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes. The Notes are fully and unconditionally
guaranteed on a joint and several basis by TeleCorp Communications, Inc. one
of the Company's wholly-owned subsidiaries. Summarized financial information
of TeleCorp, TeleCorp Communications, Inc. and non-guarantor subsidiaries as
of December 31, 1998 and June 30, 1999, and for the year ended December 31,
1998 and for the six months ended June 30, 1999 are as follows:
F-31
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsidiary Guarantee (continued)
Balance Sheet Information as of December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.- Non-Guarantor
TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated
-------------- ---------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,046,614 $ 21,440,720 $ (2,754,493) $ -- $ 111,732,841
Accounts receivable -- -- -- -- --
Inventory -- 778,235 -- -- 778,235
Intercompany receivables 279,077,565 -- -- (279,077,565) --
Prepaid expenses -- 811,999 1,373,445 -- 2,185,444
Other current assets 637,102 581,161 -- -- 1,218,263
-------------- ---------------------- --------------- --------------- ---------------
Total current assets 372,761,281 23,612,115 (1,381,048) (279,077,565) 115,914,783
Property and equipment, net 1,500,000 90,072,502 105,912,651 (16,531) 197,468,622
PCS licenses and microwave
relocation costs -- 12,456,838 105,650,418 -- 118,107,256
Intangible assets-AT&T
agreements -- -- 26,285,612 -- 26,285,612
Deferred financing costs, net 8,584,753 -- -- -- 8,584,753
FCC deposit -- -- -- -- --
Other assets 4,369,680 6,944 276,062 (4,369,680) 283,006
-------------- ---------------------- --------------- --------------- ---------------
Total assets $ 387,215,714 $ 126,148,399 $ 236,743,695 $ (283,463,776) $ 466,644,032
============== ====================== =============== =============== ===============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Due to affiliates $ -- $ 92,923,096 $ 185,154,469 $ (279,077,565) $ --
Accounts payable 11 8,331,045 6,260,866 -- 14,591,922
Accrued expenses 13,403 41,644,524 53,214,335 -- 94,872,262
Microwave relocation
obligation -- 6,636,369 -- -- 6,636,369
Long-term debt -- -- -- -- --
Accrued interest 3,991,500 -- 499,053 -- 4,490,553
Deferred revenue -- -- -- -- --
------------- ---------------------- --------------- --------------- ---------------
Total current liabilities 4,004,914 149,535,034 246,128,723 (279,077,565) 120,591,106
Long-term debt 235,460,400 -- 7,924,666 -- 243,385,066
Microwave relocation obligation -- 2,481,059 -- -- 2,481,059
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Accrued expenses -- -- -- -- 196,063
Deferred rent -- -- 196,063 -- --
------------- ------------- ------------- ------------- -------------
Total liabilities 239,465,314 152,016,093 254,249,452 (279,077,565) 366,653,294
------------- ------------- ------------- ------------- -------------
Mandatorily redeemable
preferred stock 240,408,879 -- -- -- 240,408,879
Deferred compensation -- (4,111) -- -- (4,111)
Treasury stock (8) -- -- -- (8)
Preferred stock
subscriptions receivable (75,914,054) -- -- -- (75,914,054)
------------- ------------- ------------- ------------- -------------
Total mandatorily
redeemable
preferred stock 164,494,817 (4,111) -- -- 164,490,706
------------- ------------- ------------- ------------- -------------
Series F preferred stock 333 -- -- -- 333
Common stock 1,597 -- -- -- 1,597
Additional paid in capital 188,374 (7,177) 4,369,680 (4,369,680) 188,374
Deferred compensation -- -- -- -- (7,177)
Common stock subscriptions
receivable (86,221) -- -- -- (86,221)
Treasury stock (18) -- -- -- (18)
Accumulated deficit (16,848,482) (25,856,406) (21,875,437) (16,531) (64,596,856)
------------- ------------- ------------- ------------- -------------
Total shareholders' equity
(deficit) (16,744,417) (25,863,583) (17,505,757) (4,386,211) (64,499,968)
------------- ------------- ------------- ------------- -------------
Total liabilities and
shareholders'
equity (deficit) $ 387,215,714 $ 126,148,399 $ 236,743,695 $(283,463,776) $ 466,644,032
============= ============= ============= ============= =============
</TABLE>
F-32
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsidiary Guarantee (continued)
Balance Sheet as of June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Telecorp
Communications,
Inc. Guarantor Non-Guarantor
Telecorp Subsidiary Subsidiaries Eliminations Consolidated
---------------- ----------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 165,830,722 $ (605,978) $ - $ (13,786,916) $ 151,437,828
Accounts receivable, net - 12,999,084 13,950 - 13,013,034
Inventory - 7,733,620 - - 7,733,620
Intercompany receivables 609,508,087 - - (609,508,087) -
Prepaid expenses - 686,984 1,479,276 - 2,166,260
Other current assets 34,088 205,139 3,847 - 243,074
---------------- ----------------- ------------- -------------- --------------
Total current assets 775,372,897 21,018,849 1,497,073 (623,295,003) 174,593,816
Property and equipment, net 5,480,254 155,188,091 160,007,163 (71,094) 320,604,414
PCS licenses and microwave relocation
costs - 84,774,797 119,540,376 - 204,315,173
Intangible assets-AT&T agreements 1,290,462 42,500 38,988,133 - 40,321,095
Deferred financing costs, net 18,684,989 - - - 18,684,989
FCC deposit - - 17,516,394 - 17,516,394
Other assets 4,598,101 923,655 17,803,025 (21,886,073) 1,438,708
---------------- ----------------- ------------- -------------- --------------
Total assets $ 805,426,703 $ 261,947,892 $ 355,352,164 $ (645,252,170) $ 777,474,589
================ ================= ============= ============== ==============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Due to affiliates $ - $ 286,540,760 $ 322,967,327 $ (609,508,087) $ -
Accounts payable - 20,061,053 22,661,510 (13,786,915) 28,935,648
Accrued expenses 1,701,106 20,615,267 4,290,703 - 26,607,076
Microwave relocation obligation - 5,733,393 - - 5,733,393
Accrued interest 3,815,623 - 354,989 - 4,170,612
Deferred Revenue - 705,362 - - 705,362
---------------- ---------------- ------------- -------------- --------------
Total current liabilities 5,516,729 333,655,835 350,274,529 (623,295,002) 66,152,091
---------------- ---------------- ------------- -------------- --------------
Long-term debt 601,495,246 - 17,192,054 - 618,687,300
Microwave relocation obligation - 1,710,220 - - 1,710,220
Accrued expenses - - 3,939,688 - 3,939,688
Deferred rent - - 463,734 - 463,734
---------------- ---------------- ------------- -------------- --------------
Total liabilities 607,011,975 335,366,055 371,870,005 (623,295,002) 690,953,033
---------------- ---------------- ------------- -------------- --------------
Mandatorily redeemable preferred stock 342,435,903 - - - 342,435,903
Deferred compensation (279,716) (4,111) - - (283,827)
Treasury stock - - - - -
Preferred stock subscriptions receivable (103,000,531) - - - (103,000,531)
---------------- ---------------- ------------- -------------- --------------
</TABLE>
<PAGE>
TELECORP PCS,INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Total mandatorily redeemable
preferred stock, net 239,155,656 (4,111) - - 239,151,545
--------------- -------------- -------------- -------------- --------------
Series F preferred stock 443 - - - 443
Common stock 2,206 - - - 2,206
Additional paid in capital 347,432 - 21,886,074 (21,886,074) 347,432
Deferred compensation (5,956) (7,177) - - (13,133)
Common stock subscriptions
receivable (190,990) - - - (190,990)
Treasury stock - - - - -
Accumulated deficit (40,894,063) (73,406,875) (38,403,915) (71,094) (152,775,947)
--------------- -------------- -------------- -------------- --------------
Total shareholders' equity (deficit) (40,740,928) (73,414,052) (16,517,841) (21,957,168) (152,629,989)
--------------- -------------- -------------- -------------- --------------
Total liabilities and
shareholders' equity (deficit) $ 805,426,703 $ 261,947,892 $ 355,352,164 $ (645,252,170) $ 777,474,589
=============== ============== ============== ============== ==============
</TABLE>
F-33
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsidiary Guarantee (continued)
Income Statement Information as of December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc. - Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
-------------- ------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue $ - $ - $ - $ - $ -
Equipment revenue - 777,187 260,509 (1,037,696) -
Roaming revenue - 29,231 - - 29,231
-------------- ------------------- ----------------- -------------- --------------
Revenue - 806,418 260,509 (1,037,696) 29,231
-------------- ------------------- ----------------- -------------- --------------
Operating expenses:
Cost of revenue - - - - -
Operations and development - 5,218,225 4,675,429 (121,169) 9,772,485
Selling and marketing - 4,920,442 1,404,224 6,324,666
General and administrative 974,761 16,136,799 10,027,554 (899,995) 26,239,119
Depreciation and amortization - 458,704 1,125,160 - 1,583,864
-------------- ------------------- ----------------- -------------- --------------
Total operating expense 974,761 26,734,170 17,232,367 (1,021,164) 43,920,134
-------------- ------------------- ----------------- -------------- --------------
Operating loss (974,761) (25,927,752) (16,971,858) (16,532) (43,890,903)
Other (income) expense:
Interest expense 11,922,994 - 11,269 - 11,934,263
Interest income (4,426,810) (86,517) (183,906) - (4,697,233)
Other expense 21,000 4,553 1,794 - 27,347
-------------- ------------------- ----------------- -------------- ------------
Net loss (8,491,945) (25,845,788) (16,801,015) (16,532) (51,155,280)
Accretion of mandatorily
redeemable preferred stock (8,566,922) - - - (8,566,922)
-------------- ------------------- ----------------- -------------- ------------
Net loss attributable
to common equity $ (17,058,867) $ (25,845,788) $ (16,801,015) $ (16,532) $(59,722,202)
============== =================== ================= ============== ============
</TABLE>
F-34
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsidiary Guarantee (continued)
Income Statement Information as of June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.- Non-Guarantor
TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated
-------- -------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue $ - $ 6,232,355 $ - $ - $ 6,232,355
Equipment revenue - 5,648,966 1,547,786 (1,547,786) 5,648,966
Roaming revenue - 9,486,916 - - 9,486,916
------------- ----------------- --------------- -------------- --------------
Revenue - 21,368,237 1,547,786 (1,547,786) 21,368,237
------------- ----------------- --------------- -------------- --------------
Operating expenses:
Cost of revenue 10,106,968 - - 10,106,968
Operations and development - 11,799,434 5,191,894 (1,493,224) 15,498,104
Selling and marketing - 20,610,792 313,920 - 20,924,712
General and administrative 353,592 20,669,546 1,417,749 - 22,440,187
Depreciation and
amortization 672,530 5,754,607 10,064,237 - 16,491,374
------------- ----------------- --------------- -------------- --------------
Total operating
expense 1,026,122 68,941,347 16,987,800 (1,493,224) 85,462,045
------------- ----------------- --------------- -------------- --------------
Operating loss (1,026,122) (47,573,110) (15,440,014) (54,562) (64,093,808)
Other (income) expense:
Interest expense 16,065,007 - 1,042,507 - 17,107,514
Interest income (2,949,948) (109,680) (4,978) - (3,064,606)
Other expense 8,089 137,556 1,030 - 146,675
------------- ----------------- --------------- -------------- --------------
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C>
Net loss (14,149,270) (47,600,986) (16,478,573) (54,562) (78,283,391)
Accretion of mandatorily
redeemable preferred stock (9,895,700) - - - (9,895,700)
------------- ----------------- --------------- -------------- --------------
Net loss attributable
to common equity $ (24,044,970) $ (47,600,986) $ (16,478,573) $ (54,562) $ (88,179,091)
============= ================= =============== ============== ==============
</TABLE>
F-35
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
15. Subsidiary Guarantee (continued)
December 31, 1998 Cash Flow Information:
- ---------------------------------------
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.-Guarantor
TeleCorp Subsidiary
------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,495,787) $ (26,644,880)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization - 581,120
Noncash compensation expense associated with the
issuance of restricted common stock and preferred
stock - -
Noncash interest expense associated with Lucent
notes and senior subordinated debt 460,400 -
Noncash general administrative expense charged by
affiliates - -
Amortization of deferred financing costs 524,924 -
Amortization of discount on notes payable - -
Changes in cash flow from operations resulting from
changes in assets and liabilities:
Accounts receivable (56,689) (472,572)
Inventory - (778,235)
Prepaid expenses - (816,020)
Other current assets (580,413) (104,568)
Other assets - (6,944)
Accounts payable - 2,260,294
Accrued expenses 13,414 16,211,148
Deferred rent - -
Accrued interest 3,991,500 -
------------------- ----------------------
Net cash used in operating activities (4,142,651) (9,770,657)
------------------- ----------------------
Cash flows from investing activities:
Expenditures for network under development, wireless
network and property and equipment - (58,205,039)
Capitalized interest on network under development
and wireless network (227,000) -
Expenditures for microwave relocation - (3,339,410,00)
Purchase of PCS licenses (21,000,000)
Deposit on PCS licenses - -
Partial refund of deposit on PCS licenses
------------------- ----------------------
Net cash used in investing activities (21,227,000) (61,544,449)
------------------- ----------------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
preferred stock 26,661,420 -
Receipt of preferred stock subscription receivable - -
Direct issuance costs from sale of mandatorily
redeemable preferred stock (1,027,694) -
Proceeds from sale of common stock 38,305 -
Proceeds from long-term debt 235,000,000 -
Purchases of treasury shares (26) -
Payments on notes payable - -
Payments of deferred financing costs (9,109,677) -
Proceeds from cash transfers from and expenses paid
by affiliates 1,064,858 121,750,000
Payments on behalf of and transfers to affiliates (134,210,920) (28,994,174)
------------------- ----------------------
Net cash provided by financing activities 118,416,266 92,755,826
------------------- ----------------------
Net increase in cash and cash equivalents 93,046,615 21,440,720
Cash and cash equivalents at the beginning of period - -
Cash and cash equivalents at the end of period $ 93,046,615 $ 21,440,720
=================== ======================
</TABLE>
F-36
<PAGE>
15. Subsidiary Guarantee (continued)
June 30, 1999 Cash Flow Information:
- -----------------------------------
<TABLE>
<CAPTION>
Telecorp Communications,
Telecorp Inc.-guarantor Subsidiary
--------------------- -------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,148,269) $ (47,553,042)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 172,448 5,754,607
Noncash compensation expense associated with the
issuance of restricted common stock and preferred stock - -
Noncash accretion of Series E preferred stock - 365,028
Noncash interest expense associated with Lucent
Notes and High Yield facility 8,512,801 -
Noncash general and administrative expense charged
by affiliates - -
Amortization of deferred financing costs 500,083 159,248
Amortization of discount on notes payable - -
Changes in cash flow from operations resulting from
changes in assets and liabilities:
Accounts receivable 56,689 (11,690,889)
Inventory - (6,955,385)
Prepaid expenses - 129,036
Other current assets 546,325 (100,572)
Other assets (1,166,859) (216,023)
Accounts payable - 17,800,759
Accrued expenses 1,687,692 (1,749,469)
Deferred rent - -
Accrued interest (451,236) -
--------------------- ---------------------
Net cash used in operating activities (4,290,326) (44,056,702)
--------------------- ---------------------
Cash flows from investing activities:
Expenditures for network under development,
wireless network and property and equipment - (96,303,039)
Capitalized interest on network under development
and wireless network (3,876,641) -
Expenditures for microwave relocation - (5,138,298)
Purchase of PCS licenses - (69,690,000)
Deposit on PCS licenses (28,877,743) -
Partial refund of deposit on PCS licenses 11,361,350 -
--------------------- ---------------------
Net cash used in investing activities (21,393,034) (171,131,337)
--------------------- ---------------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
preferred stock 60,410,929 -
Receipt of preferred stock subscription receivable 3,740,068 -
Direct issuance costs from sale of mandatorily
redeemable preferred stock (2,500,000) -
Proceeds from sale of common stock 5,477 -
Proceeds from long-term debt 397,635,000 -
Purchases of treasury shares (19) -
Payments on notes payable (40,000,000) -
Payments of deferred financing costs (10,600,517) -
Proceeds from cash transfers from and expenses
paid by affiliates 2,756,543 238,435,161
Payments on behalf of and transfers to affiliates (312,980,013) (45,293,822)
--------------------- ---------------------
Net cash provided by financing activities 98,467,468 193,141,339
--------------------- ---------------------
Net increase in cash and cash equivalents 72,784,108 (22,046,700)
Cash and cash equivalents at the beginning of period 93,046,614 21,440,720
--------------------- ---------------------
Cash and cash equivalents at the end of period $ 165,830,722 $ (605,980)
===================== =====================
</TABLE>
F-37
<PAGE>
16. SUBSEQUENT EVENTS
In February 1999, Viper Wireless, Inc. (Viper), was formed to participate
in the C-Block PCS license reauction for additional spectrum in most of the
Company's markets. Viper was initially capitalized for $100 and was
equally-owned by the Company's Chief Executive Officer and Executive Vice
President-Chief Financial Officer. In order to participate in the
reauction, the Company paid the FCC an initial deposit of $17,818,549, on
behalf of Viper. Simultaneously, the Company transferred this initial
deposit to Viper in exchange for an 85% ownership interest which
represented a 49.9% voting interest.
On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz
licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan Puerto
Rico and Jackson, Tennessee and 30 MHz licenses in Beaumont, Texas. The
total auction price is $32,286,000 plus legal fees of $46,566. During the
six months ended June 30, 1999, the FCC refunded $11,361,351 (unaudited) of
the initial deposit; however, the Company was required to pay the FCC
$11,059,194 as a final deposit on behalf of Viper. As of and for the six
months ended June 30, 1999, Viper has no financial activity other than its
capitalization which includes the transfer of the initial deposit to Viper.
The Company received final regulatory approval from the FCC on September 9,
1999. Upon finalization of this transaction, the Company will own 100% of
Viper. The entire purchase price has been allocated to the PCS licenses
acquired.
AT&T and certain of the Company's other stockholders have committed an
aggregate of up to approximately $32,300,000 in exchange for additional
shares of mandatorily redeemable preferred stock, Series F preferred stock
and common stock of the Company. As part of this financing, the Company paid
approximately $500,000 to an affiliate of a Cash Equity Investor for closing
this preferred and common stock financing. In May and July 1999, AT&T and the
certain Cash Equity Investors funded approximately $17,516,000 of their
commitment to the Company. The remaining funding is expected to be received
on September 29, 1999. The Company made its final payment of $14,769,600 to
the FCC on September 13, 1999 with respect to these licenses.
Additionally, certain employees, the Chief Executive Officer and the
Executive Vice President of the Company will be issued a total of 1,111
shares and 1,628 shares of mandatorily redeemable Series E preferred stock
and Class A common stock, respectively. The Chief Executive Officer and the
Executive Vice President's shares vest immediately and the employees' shares
vest ratably over five years. The estimated value of the Series E preferred
stock of $57,772 has been recorded as mandatorily redeemable preferred stock
of $57,772, accumulated deficit of $41,600 and deferred compensation of
$16,172, and the estimated value of the Class A common stock of $3,907 has
been recorded as common stock of $16, additional paid-in capital of $3,891,
accumulated deficit of $2,513 and defer red compensation of $1,394.
F-38
<PAGE>
On July 22, 1999, the Company implemented the 1999 Stock Option Plan to allow
employees and members of the Board of Directors to acquire shares of Class B
common stock. The options will have an option term of 10 years, ratable vesting
over a three to four year period, exercise prices equal to the estimated fair
value of the underlying Class B common stock and restrictions on exercisability
until, (i) a qualified initial public offering (IPO) to which the Class A voting
common stock has been registered under the Securities Act of 1933 for aggregate
proceeds of $20,000,000, (ii) the sale of all or substantially all of the assets
of the Company or (iii) a sale of all or substantially all of the outstanding
capital stock of the Company. The Company has reserved 587,159 shares of Class
B common stock for issuance under this plan.
F-38
<PAGE>
On July 22, 1999, the Company granted 189,250 stock options at an exercise price
of $0.02 per share. The number of options and exercise price have been adjusted
for a 100 for 1 stock split as approved by the Board of Directors on July 22,
1999. This stock split has not been retroactively reflected in the historical
financial statements. The stock options awarded during the six month period
ended June 30, 1999 represent variable awards since their exercisability is
restricted until an IPO, sale of assets or sale of the Company. Therefore the
measurement date from an accounting standpoint will occur when the
exercisability restrictions are relieved. At that point, the Company will
record compensation expense and deferred compensation based on the fair value of
the underlying common stock.
F-39
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
--------------------------------------------------------
The following unaudited pro forma condensed consolidated balance sheet is
based upon the historical consolidated financial statements of the Company. The
unaudited pro forma adjustments are based upon available information and certain
assumptions that management of the Company believes are reasonable. The
unaudited pro forma condensed consolidated balance sheet as of June 30, 1999 has
been prepared to illustrate the effects of the acquisition of C Block PCS
licenses by Viper Wireless, Inc. and the issuance of mandatorily redeemable
preferred stock, Series F preferred stock and common stock to AT&T and certain
Cash Equity Investors as if these transactions had occurred as of June 30, 1999.
The unaudited pro forma condensed consolidated balance sheet and
accompanying notes thereto should be read in conjunction with the historical
consolidated financial statements of the Company and the other financial
information included elsewhere in this Prospectus. The unaudited pro forma
condensed consolidated balance sheet does not purport to be indicative of what
the Company's consolidated financial position would actually have been had the
acquisition of C Block PCS licenses and the issuance of mandatorily redeemable
preferred stock, preferred stock, and common stock been completed on such date,
or to project the Company's consolidated financial position for any future
period.
F-40
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO
HISTORICAL VIPER WIRELESS FORMA
-------------------- ----------------------- --------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 151,437,828 $ (14,816,172) $ 136,621,656
Other current assets 23,155,988 - 23,155,988
-------------------- ----------------------- --------------------
Total current assets 174,593,816 159,777,644
Property and equipment, net 320,604,414 - 320,604,414
PCS licenses and microwave relocation costs 205,075,025 32,332,566 237,407,591
Intangible assets - AT&T agreements 40,321,095 - 40,321,095
Deferred financing costs, net 18,684,989 - 18,684,989
FCC deposit 17,516,394 (17,516,394) -
Other assets 1,438,708 - 1,438,708
-------------------- ----------------------- --------------------
Total assets $ 778,234,441 $ - $ 778,234,441
==================== ======================= ====================
Total current liabilities 66,152,091 - 66,152,091
</TABLE>
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
PRO
HISTORICAL VIPER WIRELESS FORMA
-------------------- ----------------------- --------------------
<S> <C> <C> <C>
Long-term debt 618,687,300 - 618,687,300
Other liabilities 6,873,494 - 6,873,494
-------------------- ----------------------- --------------------
691,712,885 - 691,712,885
-------------------- ----------------------- --------------------
Mandatorily redeemable preferred stock 342,435,903 25,820,654 368,256,557
Deferred compensation (283,827) (16,172) (299,999)
Treasury stock, at cost - - -
Preferred stock subscriptions receivable (103,000,531) (25,762,882) (128,763,413)
-------------------- ----------------------- --------------------
Total mandatorily redeemable preferred stock 239,151,545 41,600 239,193,145
-------------------- ----------------------- --------------------
Series F preferred stock 443 39 482
Common stock 2,206 235 2,441
Additional paid-in capital 347,432 69,550 416,982
Deferred compensation (13,133) (1,394) (14,527)
Common stock subscriptions receivable (190,990) (65,917) (256,907)
Treasury stock, at cost - - -
Accumulated deficit (152,775,947) (44,113) (152,820,000)
-------------------- ----------------------- -------------------
Total stockholders equity (deficit) (152,629,989) (41,600) (152,671,589)
------------------- ----------------------- -------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity (deficit) $ 778,234,441 $ - $ 778,234,441
================= ================== ================
</TABLE>
The accompanying note is an integral part of this unaudited pro forma condensed
consolidated balance sheet.
F-41
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
In February 1999, Viper was formed to participate in the C-Block PCS license
reauction for additional spectrum in most of the Company's markets. Viper was
initially capitalized and equally-owned by the Company's Chief Executive Officer
and Executive Vice President-Chief Financial Officer. In order to participate
in the reauction, the Company paid the FCC an initial deposit of $17,818,549, on
behalf of Viper. Simultaneously, the Company transferred this initial deposit
to Viper in exchange for an 85% ownership interest which represented a 49.9%
voting interest.
On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz
licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan Puerto Rico
and Jackson, Tennessee and 30 MHz licenses in Beaumont, Texas. The total
auction price is $32,286,000 plus legal fees of $46,566. During the six months
ended June 30, 1999, the FCC refunded $11,361,351 (unaudited) of the initial
deposit; however, the Company was required to pay the FCC $11,059,194
(unaudited) as a final deposit on behalf of Viper. As of and for the six months
ended June 30, 1999, Viper has no financial activity other than its
capitalization which includes the transfer of the initial deposit to Viper. The
Company received final regulatory approval from the FCC on September 9, 1999.
Upon finalization of this transaction, the Company will own 100% of Viper.
<PAGE>
The entire purchase price has been allocated to the PCS licenses acquired.
AT&T and certain of the Company's other stockholders have committed an aggregate
of up to approximately $32,300,000 in exchange for additional shares of
mandatorily redeemable preferred stock, Series F preferred stock and common
stock of the Company. As part of this financing, the Company paid $500,000 to an
affiliate of a Cash Equity Investor for closing this preferred and common
stock financing. In May and July 1999, AT&T and the certain Cash Equity
Investors funded approximately $17,516,300 of their commitment to the Company.
The remaining funding is expected to be received on September 29, 1999. The
Company made its final payment of $14,769,600 to the FCC on September 13, 1999
with respect to these licenses.
Additionally, certain employees, the Chief Executive Officer and the Executive
Vice President of the Company will be issued a total of 1,111 shares and 1,628
shares of mandatorily redeemable Series E preferred stock and Class A common
stock, respectively. The Chief Executive Officer and the Executive Vice
President's shares vest immediately and the employee's shares vest ratably over
five years. The estimated value of the Series E preferred stock of $57,772 has
been recorded as mandatorily redeemable preferred stock of $57,772, accumulated
deficit of $41,600 and deferred compensation of $16,172, and the estimated value
of the Class A common stock of $3,907 has been recorded as common stock of $16,
additional paid-in capital of $3,891, accumulated deficit of $2,513 and deferred
compensation of $1,394.
F-42
<PAGE>
The journal entries to record the Viper transaction are included below:
DEBIT CREDIT
----- ------
PCS license $ 32,332,566
Cash $ 14,816,172
FCC deposit $ 17,516,394
Preferred stock subscription receivable $ 25,762,882
Mandatorily redeemable preferred stock $ 25,762,882
Common stock subscription receivable $ 65,917
Series F preferred stock $ 39
Common stock $ 219
Additional paid-in capital $ 65,659
F-43
<PAGE>
________________________________________________________________________________
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This Prospectus Does Not Offer To Sell Or
Buy Any Securities In Any Jurisdiction Where It Is Unlawful. The information in
this prospectus is current as of , 1999.
________________________________________________________________________________
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................... 1
Risk Factors................................................. 9
Use of Proceeds.............................................. 20
Capitalization............................................... 21
Selected Historical and Pro Forma
Consolidated Financial Information...................... 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 25
Business..................................................... 36
The Exchange Offer........................................... 57
Management................................................... 67
Securities Ownership of Beneficial Owners
and Management.......................................... 78
Certain Relationships and Related Transactions............... 83
Our Indebtedness............................................. 102
Description of Capital Stock................................. 108
Description of the Notes..................................... 114
U.S. Federal Tax Considerations.............................. 152
Book-Entry; Delivery and Form................................ 159
Plan of Distribution......................................... 162
Legal Matters................................................ 162
Experts...................................................... 162
Available Information........................................ 163
Index to Financial Statements................................ F-1
</TABLE>
TELECORP PCS, INC.
$ 575,000,000
Exchange Offer for our
11 5/8% Senior Subordinated
Discount Notes due 2009
______________________
PROSPECTUS
______________________
, 1999
________________________________________________________________________________
Until , 1999 , all dealers that effect transactions in these
securities, whether or not participating in the exchange offer, may be required
to deliver a prospectus in connection therewith. This is in addition to the
obligation of dealers to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
________________________________________________________________________________
<PAGE>
[ALTERNATIVE PAGE]
This prospectus, dated September 16, 1999, is subject to completion and
amendment
PROSPECTUS
TELECORP PCS, INC.
11 5/8% Senior Subordinated Discount Notes Due 2009
You should carefully review the risk factors beginning on page __ of this
Prospectus.
Neither the SEC nor any state securities commission has approved or disapproved
of the notes, or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Chase Securities Inc. may use this prospectus in connection with offers and
sales of the notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of sale. Chase Securities Inc. may act as
a principal or agent in these transactions. For as long as a market-making
prospectus is required to be delivered, the ability of Chase Securities Inc. to
make a market in the notes may in part depend on our ability to maintain a
current market-making prospectus.
The date of this prospectus is , 1999.
A-1
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in the
prospectus in the "Risk Factors" section.]
RISK FACTORS
If holders fail to exchange the outstanding notes for the exchange notes, it may
weaken the market for the exchange notes, and there may be no market for
remaining outstanding notes.
The existence of a market for registered notes could adversely affect the
market for unregistered notes due to the limited amount of the unregistered
notes that remain outstanding. Generally, a lower outstanding or trading amount
of a security could result in less demand to purchase the security and could
result in lower prices for the security. For the same reasons, the existence of
a market for unregistered notes could adversely affect the trading market for
the registered notes.
A-2
<PAGE>
[ALTERNATIVE PROVISIONS]
There is no public market for the notes and there are restrictions on the resale
of the notes.
The notes are new securities with no established trading market. We do not
intend to list the notes on any securities exchange. Chase Securities Inc., one
of the initial purchasers of the notes in the original private offering, has
told us that they intend to make a market in the notes, as the law permits.
Chase Securities Inc. is not obligated to make a market, and may discontinue any
market-making activities at any time without notice. If Chase Securities Inc.
conducts any market-making activities, it may be required to deliver a market-
making prospectus when effecting offers and sales of the notes because
affiliates of Chase Securities Inc. beneficially own some of our capital stock.
For so long as a market-making prospectus is required to be delivered, the
ability of Chase Securities Inc. to make a market in the notes depends, in part,
on our ability to maintain a current market-making prospectus. A liquid market
for the notes may not develop.
A-3
<PAGE>
[ALTERNATIVE SECTION]
USE OF PROCEEDS
The net proceeds from the original private offering of the notes, after
deducting the initial purchasers' discounts and estimated fees and expenses
payable by us, were approximately $317.0 million. We intend to use:
. approximately $317.0 million of remaining net proceeds from the
offering of the outstanding notes;
. approximately $205.3 million of proceeds from sales of our equity
securities;
. approximately $487.6 million of borrowings under our senior
credit facilities;
. approximately $55.0 million of vendor financing provided by
Lucent; and
. internally generated cash,
to fund:
. approximately $555.2 million of capital expenditures;
. acquisitions of PCS licenses for approximately $123.0 million;
and
. operating losses and other working capital requirements,
including debt service and acquisition and financing closing costs, of
approximately $386.7 million.
We also received approximately $148.0 million of PCS licenses and agreements
in exchange for our common and preferred stock.
We did not receive proceeds from the exchange offer relating to the notes, and
will not receive any proceeds from market-making transactions by Chase
Securities Inc. See "Business--Network Development" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The vendor financing that we repaid with the proceeds from the sale of the
outstanding notes consisted of series B junior subordinated notes due 2012 with
an interest rate of 10%, increasing by 1.5% per year starting on January 1,
2001. We were required to redeem the Lucent series B notes following a change of
control and with any proceeds from offerings of high yield debt in excess of $80
million. See "Our Indebtedness--Vendor Financing."
A-4
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in
the prospectus in the "Description of the Notes" section.]
DESCRIPTION OF THE NOTES
General
In this section, we refer to our subsidiaries separately from us.
Capitalized terms used in this section and not otherwise defined have the
meanings described under "--Definitions."
The notes have been issued under the indenture, dated as of April 23, 1999,
among us, TeleCorp Communications, as our subsidiary guarantor, and Bankers
Trust Company, as trustee, a copy of which is available. The following is a
summary of particular provisions of the indenture. It does not restate the
indenture in its entirety. We urge you to read the indenture because it, and not
this description, defines your rights as holders of the notes. Copies of the
proposed form of exchange indenture are available as described below under the
subheading "Additional Information." The terms of the notes include the terms in
the indenture and those terms made a part of the indenture by the Trust
Indenture Act.
Important Covenants
Providing Financial Information.
The indenture provides that, whether or not required by the rules and
regulations of the SEC, so long as any notes are outstanding, we will furnish to
the holders of the notes:
(1) 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 these forms, including a section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes our financial condition and results of operations and that
of our consolidated subsidiaries and a report on the annual information
only by our certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if we were required to file these reports, in each case within
the time period specified in the SEC's rules and regulations.
We will file a copy of all information and reports with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations, unless the SEC will not accept the filing, and make this
information available to prospective investors upon request. In addition, we
will, for so long as any notes remain outstanding, furnish to the holders of
notes, upon request, the information required to be delivered under the
conditions for resale provisions of the Securities Act. We will also comply with
the reporting requirements of the Trust Indenture Act.
Amendments and Waivers
Subject to some exceptions, the indenture or the notes may be amended with the
written consent of the holders of a majority in aggregate principal amount at
maturity of the notes then outstanding, and any past default or compliance with
any provisions may be waived with the consent of the holders of a majority in
aggregate principal amount at maturity of the notes then outstanding. However,
without the consent of each holder of a note affected, no amendment may, among
other things:
(1) reduce the amount of the notes whose holders must consent to an amendment;
(2) reduce the rate of, or extend the time for payment of, interest or any
liquidated damages on any note;
(3) reduce the principal of any note, or extend the maturity of any note
beyond April 15, 2009;
A-5
<PAGE>
[ALTERNATIVE PROVISIONS]
(4) reduce the premium payable upon the redemption of any note or change the
time at which any note may be redeemed as described under "--Optional
Redemption;"
(5) make any note payable in money other than that stated in the note;
(6) make any change to the subordination provisions of the indenture that
adversely affects the rights of any holder of notes;
(7) impair the right of any holder of notes to receive payment of principal
of and interest or any liquidated damages on the holder's notes on or
after the due dates for the payment or to institute suit for the
enforcement of any payment on or with respect to the holder's notes;
(8) make any change in the amendment provisions which requires the consent of
each holder of the notes or in the waiver provisions; or
(9) modify the subsidiary guarantees in any manner adverse to the holders of
the notes.
Without the consent of any holder of the notes, we and the trustee may amend
the indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of our obligations
under the indenture;
(3) provide for uncertificated notes in addition to, or in place of,
certificated notes, provided that the uncertificated notes are issued in
registered form for purposes of the Internal Revenue Code, or in a manner
such that the uncertificated notes are described in the Internal Revenue
Code;
(4) make any change in the subordination provisions of the indenture that
would limit or terminate the benefits available to any holder of our
Senior Debt or any representative of the holder under the subordination
provisions;
(5) add additional guarantees with respect to the notes;
(6) secure the notes;
(7) add to our covenants for the benefit of the noteholders;
(8) surrender any right or power conferred upon us;
(9) make any change that does not adversely affect the rights of any holder
of the notes; or
(10) comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
No amendment may be made to the subordination provisions of the indenture,
however, that adversely affects the rights of any holder of our Senior Debt then
outstanding unless the holders of the Senior Debt, or any group or
representative of the holders authorized to give a consent, consent to the
change.
The consent of the noteholders will not be necessary under the indenture to
approve the particular form of any proposed amendment. It will be sufficient if
the consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, we will be required
to mail to noteholders a notice
A-6
<PAGE>
[ALTERNATIVE PROVISIONS]
briefly describing the amendment. However, the failure to give the notice to all
noteholders, or any defect in the notice, will not impair or affect the validity
of the amendment.
A-7
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in
the prospectus in the "Book-Entry; Delivery and Form" section.]
BOOK-ENTRY; DELIVERY AND FORM
The notes are represented by a permanent global certificate in definitive,
fully registered form. The global note is registered in the name of a nominee of
the Depository Trust Company.
A-8
<PAGE>
[ALTERNATIVE SECTION]
PLAN OF DISTRIBUTION
Chase Securities Inc. may use this prospectus in connection with offers and
sales of the notes in market-making transactions at negotiated prices relating
to prevailing market prices at the time of sale. Chase Securities Inc. must
deliver this prospectus because, by virtue of the ownership of some of our
equity by affiliates of Chase Securities Inc., we may be deemed to be
affiliates. Chase Securities Inc. may act as principal or agent in the
transaction. For as long as a market-making prospectus is required to be
delivered, the ability of Chase Securities Inc. to make a market in the notes
may in part depend on our ability to maintain a current market-making
prospectus.
The notes are new securities with no established trading market. We do not
intend to list the notes on any securities exchange. Any trading that does
develop will occur on the over-the-counter market. Chase Securities Inc. has
advised us that it intends to make a market in the notes, but it has no
obligation to do so. Chase Securities Inc. may discontinue any market-making at
any time. A liquid market may not develop for the notes, you may not be able to
sell your notes at a particular time and the prices that you receive when you
sell may not be favorable. Future trading prices of the notes will depend on
many factors, including our operating performance and financial condition,
prevailing interest rates and the market for similar securities.
Chase Securities Inc. acted as an initial purchaser in connection with the
initial private offering of the notes, and received customary compensation in
connection with the offering. Chase Securities Inc. and its affiliates perform
various investment banking and commercial banking services from time to time for
us and our affiliates. The Chase Manhattan Bank, an affiliate of Chase
Securities Inc., is the agent bank and a lender under our senior credit
facilities. Mr. Michael R. Hannon, a member of our board, is a General Partner
of Chase Capital Partners, an affiliate of Chase Securities Inc.. In addition,
affiliates of Chase Capital Partners own a portion of our common stock. For
further information concerning these relationships, see "Securities Ownership of
Beneficial Owners and Management."
Although there are no agreements to do so, Chase Securities Inc., and
others, may act as a broker or dealer in connection with the sale of notes
contemplated by this prospectus and may receive fees or commissions in
connection with sales.
We have agreed to indemnify Chase Securities Inc. against some liabilities
under the Securities Act or to contribute to payments that Chase Securities Inc.
may have to make in respect of such liabilities.
A-9
<PAGE>
[ALTERNATIVE SECTION]
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the notes. As permitted by the rules and
regulations of the SEC, this prospectus omits some information, exhibits and
undertakings contained in the registration statement. For further information
with respect to us and the notes, you should review the registration statement,
including the exhibits and the financial statements to the registration
statement, notes and schedules filed as a part of the registration statement.
The registration statement and the exhibits and schedules to the registration
statement, as well as the periodic reports and other information filed with the
SEC, may be inspected and copied at the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at
the regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of these materials may be obtained from the Public
Reference Section of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington DC 20549, and its public reference facilities in New York, New York
at the prescribed rates. You may obtain information as to the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website at http://www.sec.gov that contains periodic reports, proxy and
information statements and other information regarding registrants that file
documents electronically with the SEC. Statements contained in this prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of contract or
document filed as an exhibit to the registration statement, each statement being
qualified in all respects by reference. Under the indenture, we have agreed to
file with the SEC and provide to the holders of the notes annual reports and the
information, documents and other reports which are specified in the disclosure
and reporting provisions of the Exchange Act.
A-10
<PAGE>
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any securities in any jurisdiction where it is unlawful. The information in
this prospectus is current as of , 1999.
________________________________________________________________________________
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary............................................. 1
Risk Factors...................................................
Use of Proceeds................................................
Capitalization.................................................
Selected Historical and Pro Forma
Consolidated Financial Information........................
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............
Business.......................................................
Management.....................................................
Securities Ownership of Beneficial Owners
and Management............................................
Certain Relationships and Related Transactions.................
Our Indebtedness...............................................
Description of Capital Stock...................................
Description of the Notes.......................................
U.S. Federal Tax Considerations................................
Book-Entry; Delivery and Form..................................
Plan of Distribution...........................................
Legal Matters..................................................
Experts........................................................
Available Information..........................................
Index to Financial Statements.................................. F-1
</TABLE>
TELECORP PCS, INC.
$ 575,000,000
11 5/8% Senior Subordinated Discount Notes due 2009
______________________
PROSPECTUS
______________________
, 1999
________________________________________________________________________________
Until , 1999, all dealers that effect transactions in these
securities, may be required to deliver a prospectus in connection therewith.
This is in addition to the obligation of dealers to deliver a prospectus. When
acting as underwriters and with respect to their unsold allotments or
subscriptions.
________________________________________________________________________________
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the corporation) by reason of the fact that
the person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify the person serving in that capacity who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor,
against expenses actually and reasonably incurred by the person in connection
with the defense or settlement of the action or suit if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which the person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Delaware Court of Chancery or the court in which the action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for the expenses which the Court of
Chancery or other court shall deem proper. The provisions regarding
indemnification and advancement of expenses under Section 145 of the DGCL shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, stockholders' or disinterested directors' vote or otherwise.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that the provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption); or
(iv) for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 145(e) of the DGCL, our Third Amended and Restated
Certificate of Incorporation and our Amended and Restated Laws provide that we
shall indemnify our directors and officers, and, to the extent our board at any
time authorizes, incorporators, employees or agents, as such, to the fullest
extent permitted by applicable law, and that expenses reasonably incurred by any
officer or director or other person entitled to indemnification in connection
with a threatened or actual action or proceeding shall be advanced or promptly
reimbursed by us in advance of the final disposition of the action or
proceeding, provided that, if required to do so under the DGCL, we receive an
undertaking by or on behalf of the officer or director or other person to repay
the amount if and to the extent that it is ultimately determined by final
judicial decision from which there is no further right of appeal that the
officer or director or other person is not entitled to indemnification. Our
Third Amended and Restated Certificate of Incorporation provides that the rights
are not exclusive.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) The following exhibits are, unless indicated below, filed herewith.
EXHIBIT INDEX
Exhibit Description of Document
Number -----------------------
- ------
3.1 Third Amended and Restated Certificate of Incorporation, dated May 14,
1999, of TeleCorp PCS, Inc.
3.1.2 Certificate of Incorporation, dated June 19, 1998, of TeleCorp Operating
Company, Inc.
3.1.3 Certificate of Amendment of the Certificate of Incorporation, dated July
9, 1998, of TeleCorp Operating Company, Inc.
3.1.4* Amendment No.1 to the Third Amended and Restated Certificate of
Incorporation, filed August 27, 1999, of TeleCorp PCS, Inc.
3.1.5* Fourth Amended and Restated Certificate of Incorporation, filed August
27, 1999, of TeleCorp PCS, Inc.
3.2 Amended and Restated Bylaws, dated July 17, 1998, of TeleCorp PCS, Inc.
3.3 Bylaws of TeleCorp Communications, Inc.
4.1 Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes due 2009
5.1** Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.2 General Agreement for Purchase of PCS Systems and Services by and
between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of
May 12, 1998, as amended
10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity Investors,
TeleCorp Investors and Management Stockholders identified, dated as of
January 23, 1998
10.4.1 Network Membership License Agreement by and among AT&T Corp., including
AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated as of July
17, 1998
10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March 30,
1999
10.5.1 Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp Management
Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999
10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May 25,
1999
10.7 Roaming Administration Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
II-2
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party to,
and the Chase Manhattan Bank, as Administrative Agent and Issuing Bank,
TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust
Company, as Documentation Agent, dated as of July 17, 1998 (the "Credit
Agreement")
10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as
of December 18, 1998
10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March
1, 1999
10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999
10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999
10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of
April 7, 1999
10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999
10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999
10.9 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T Wireless
PCS, Inc. and certain Cash Equity Investors identified in, dated as of
March 22, 1999
10.9.1 Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
March 30, 1999.
10.9.2 Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T
10.9.3 Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of May
14, 1999.
10.9.4 Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
July 15, 1999.
10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp
Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999
10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc.,
Puerto Rico Acquisition Corp. and certain Management Stockholders and
Cash Equity Investors, dated as of March 30, 1999
10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and
TeleCorp Communications, Inc., dated as of December 21, 1998
10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
II-3
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
10.15 License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.16 License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T
Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors,
Management Stockholders, and TeleCorp PCS, Inc.
10.17.2 Amendment No. 1 to the Stockholders' Agreement, dated March 30, 1999
10.18 Purchase Agreement, dated April 20, 1999, by and among Chase Securities
Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc., TeleCorp PCS,
Inc. and TeleCorp Communications, Inc.
10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by
and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman
Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp
Investors and the Management Stockholders.
10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.23 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.24 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.25 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp
PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.26 Agreement among the Parties, dated as of June 30, 1999, by and among
TeleCorp PCS, Inc., the Cash Equity Investors, Entergy Technology
Holding Company, AT&T Wireless PCS, Inc., TWR Cellular Inc. and other
stockholders.
10.27 Amended and Restated Agreement, dated April 16, 1999, by and among
TeleCorp Communications, Inc., Triton PCS, Inc., Tritel Communications,
Inc. and Affiliate License Co, L.L.C.
10.28 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
10.29 TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999.
12.1 Statement re: computation of ratios.
II-4
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
21.1 Subsidiaries of TeleCorp PCS, Inc.
23.1** Consent of McDermott, Will & Emery (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP
23.3 Consent of PricewaterhouseCoopers, LLP
23.4* Consent of PricewaterhouseCoopers, LLP
24.1 Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
25.1 Statement of Eligibility of trustee on Form T-1
27.1 Financial Data Schedule
99.1** Letter of Transmittal
99.2** Notice of Guaranteed Delivery
99.3** Exchange Agent Agreement
________________
* Filed herewith.
** To be filed by amendment.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment) which, individually or in the aggregate, represent a
fundamental change in the information described in the registration
statement. In spite of the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC under Rule 424(b) if , in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price described in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to the information in the registration.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering.
(c) To respond to requests for information that is incorporated by
reference into the prospectus under Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved, that was not
the subject of and included in the registration statement when it became
effective.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant under the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against
II-6
<PAGE>
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against the
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling persons of the registrant in the
successful defense of any action suit or proceeding) is asserted by the
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether the indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of the issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 3 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Arlington, Commonwealth of Virginia, on September 15, 1999.
TELECORP PCS, INC.
By: /s/ Gerald T. Vento
---------------------------------------------
Gerald T. Vento
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
3 to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
September 15, 1999 By: /s/ Gerald T. Vento
-----------------------------
Gerald T. Vento
Chief Executive Officer and Chairman (Principal
Executive Officer)
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Thomas H. Sullivan
Executive Vice President, Chief Financial Officer
and Director (Principal Financial and
Accounting Officer)
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Michael R. Hannon
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Scott Anderson
Director
</TABLE>
<PAGE>
______________, 1999 By:________________________________
Rohit M. Desai
Director
<TABLE>
<S> <C> <C>
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Gary S. Fuqua
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
James M. Hoak
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Mary Hawkins-Key
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
William Kussell
Director
September 15, 1999 By: /s/ Thomas H. Sullivan.
-----------------------------
William Laverack, Jr.
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Joseph O'Donnell
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
Michael Schwartz
Director
September 15, 1999 By: /s/ Thomas H. Sullivan
-----------------------------
James F. Wade
Director
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 3 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Arlington, Commonwealth of Virginia, on September 15, 1999.
TELECORP COMMUNICATIONS, INC.
By: /s/ Gerald T. Vento
--------------------------------------------
Gerald T. Vento
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
3 to the registration statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
September 15, 1999 By: /s/ Gerald T. Vento
----------------------------------------
Gerald T. Vento
Chief Executive Officer and Director
(Principal Executive Officer)
September 15, 1999 By: /s/ Thomas H. Sullivan
----------------------------------------
Thomas H. Sullivan
President, Secretary, Treasurer and Director
(Principal Financial and Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description of Document
Number -----------------------
- ------
3.1 Third Amended and Restated Certificate of Incorporation, dated May 14,
1999, of TeleCorp PCS, Inc.
3.1.2 Certificate of Incorporation, dated June 19, 1998, of TeleCorp
Operating Company, Inc.
3.1.3 Certificate of Amendment of the Certificate of Incorporation, dated
July 9, 1998, of TeleCorp Operating Company, Inc.
3.1.4* Amendment No.1 to the Third Amended and Restated Certificate of
Incorporation, filed August 27, 1999, of TeleCorp PCS, Inc.
3.1.5* Fourth Amended and Restated Certificate of Incorporation, filed August
27, 1999, of TeleCorp PCS, Inc.
3.2 Amended and Restated Bylaws, dated July 17, 1998, of TeleCorp PCS,
Inc.
3.3 Bylaws of TeleCorp Communications, Inc.
4.1 Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes due 2009
5.1** Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.2 General Agreement for Purchase of PCS Systems and Services by and
between TeleCorp PCS, Inc. and Lucent Technologies, Inc., dated as of
May 12, 1998, as amended
10.3 Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS Inc, TWR Cellular, Inc. and certain Cash Equity
Investors, TeleCorp Investors and Management Stockholders identified,
dated as of January 23, 1998
10.4.1 Network Membership License Agreement by and among AT&T Corp.,
including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated
as of July 17, 1998
10.4.2 Amendment No. 1 to Network Membership License Agreement, dated March
30, 1999
10.5.1 Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.5.2 Amendment No. 1 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999
10.6.1 Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.6.2 Amendment No. 1 to Intercarrier Roamer Service Agreement, dated May
25, 1999
10.7 Roaming Administration Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998
10.8.1 Credit Agreement by and among TeleCorp PCS, Inc., the Lenders party
to, and the Chase Manhattan Bank, as Administrative Agent and Issuing
Bank, TD Securities (USA) Inc., as Syndication Agent, and Bankers
Trust Company, as Documentation Agent, dated as of July 17, 1998 (the
"Credit Agreement")
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
10.8.2 First Amendment, Consent, and Waiver to the Credit Agreement, dated as
of December 18, 1998
10.8.3 Second Amendment and Waiver to the Credit Agreement, dated as of March
1, 1999
10.8.4 Third Amendment to the Credit Agreement, dated as of March 30, 1999
10.8.5 Fourth Amendment to the Credit Agreement, dated as of March 31, 1999
10.8.6 Fifth Amendment and Acceptance to the Credit Agreement, dated as of
April 7, 1999
10.8.7 Sixth Amendment to the Credit Agreement, dated as of April 7, 1999
10.8.8 Seventh Amendment to the Credit Agreement, dated as of May 21, 1999
10.9 Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS, Inc. and certain Cash Equity Investors identified in,
dated as of March 22, 1999
10.9.1 Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
March 30, 1999.
10.9.2 Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
April 6, 1999.
10.9.3 Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
May 14, 1999.
10.9.4 Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp PCS,
Inc., AT&T Wireless PCS, Inc. and Cash Equity Investors, dated as of
July 15, 1999.
10.10 Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp
Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1, 1999
10.11 Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS, Inc.,
Puerto Rico Acquisition Corp. and certain Management Stockholders and
Cash Equity Investors, dated as of March 30, 1999
10.12 Letter of Agreement by and between AT&T Wireless Services, Inc. and
TeleCorp Communications, Inc., dated as of December 21, 1998
10.13 Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.14 Preferred Stock Purchase Agreement, dated May 24, 1999, by and between
AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
10.15 License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.16 License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
10.17.1 Stockholders' Agreement, dated as of July 17, 1998, by and among AT&T
Wireless PCS, Inc., TWR Cellular, Inc., Cash Equity Investors,
Management Stockholders, and TeleCorp PCS, Inc.
10.17.2 Amendment No. 1 to the Stockholders' Agreement, dated March 30, 1999
10.18 Purchase Agreement, dated April 20, 1999, by and among Chase
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.19 Exchange and Registration Rights Agreement, dated April 23, 1999, by
and among Chase Securities Inc., BT Alex. Brown Incorporated, Lehman
Brothers Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.20 Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Cash Equity Investors, the TeleCorp
Investors and the Management Stockholders.
10.21 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Steven Chandler.
10.23 Employee Agreement, dated as of July 17, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.24 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie Dobson.
10.25 Separation Agreement, dated as of March 8, 1999, by and among TeleCorp
PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.26 Agreement among the Parties, dated as of June 30, 1999, by and among
TeleCorp PCS, Inc., the Cash Equity Investors, Entergy Technology
Holding Company, AT&T Wireless PCS, Inc., TWR Cellular Inc. and other
stockholders.
10.27 Amended and Restated Agreement, dated April 16, 1999, by and among
TeleCorp Communications, Inc., Triton PCS, Inc., Tritel
Communications, Inc. and Affiliate License Co, L.L.C.
10.28 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
10.29 TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999.
12.1 Statement re: computation of ratios.
21.1 Subsidiaries of TeleCorp PCS, Inc.
23.1** Consent of McDermott, Will & Emery (contained in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP
23.3 Consent of PricewaterhouseCoopers, LLP
23.4* Consent of PricewaterhouseCoopers, LLP
24.1 Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
25.1 Statement of Eligibility of trustee on Form T-1
27.1 Financial Data Schedule
99.1** Letter of Transmittal
<PAGE>
Exhibit Description of Document
Number -----------------------
- ------
99.2** Notice of Guaranteed Delivery
99.3** Exchange Agent Agreement
________________
* Filed herewith.
** To be filed by amendment.
<PAGE>
EXHIBIT 3.1.4
CERTIFICATE OF AMENDMENT
------------------------
AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF TELECORP PCS, INC
TeleCorp PCS, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is TeleCorp PCS, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation
-----------
was filed with the Secretary of State of the State of Delaware (the "Secretary
of State") on November 14, 1997 and was amended and restated pursuant to a
Restated Certificate of Incorporation filed with the Secretary of State on July
16, 1998, a Second Amended and Restated Certificate of Incorporation filed with
the Secretary of State on April 20, 1999 and a Third Amended and Restated
Certificate of Incorporation filed with the Secretary of State on May 14, 1999
(the "Third Amended and Restated Certificate").
SECOND: This Amendment No. 1 to the Third Amended and Restated
Certificate of Incorporation (the "Amendment") has been duly adopted in
accordance with the provisions of Sections 242 of the General Corporation Law of
the State of Delaware and written consent has been given by the stockholders of
the Company in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
THIRD: This Amendment hereby amends the provisions of the
Corporation's Third Restated Certificate of Incorporation, as follows:
Section 4.1 of Article IV of the Third Amended and Certificate of
Incorporation of the Corporation shall be deleted in its entirety and replaced
with Section 4.1 as follows:
4.1 Classes of Stock. The total number of shares of all classes of stock
----------------
which the Corporation shall have authority to issue is 202,996,000, consisting
of (a) 12,595,000 shares of preferred stock (the "Preferred Stock"), consisting
---------------
of 100,000 shares designated "Series A Convertible Preferred Stock," par value
$.01 per share (the "Series A Preferred Stock"), 200,000 shares designated
------------------------
"Series B Preferred Stock," par value $.01 per share (the "Series B Preferred
------------------
Stock"), 215,000 shares designated "Series C Preferred Stock," par value $.01
- -----
per share (the "Series C Preferred Stock"), 50,000 shares designated "Series D
------------------------
Preferred Stock," par value $.01 per share (the "Series D Preferred Stock"),
------------------------
30,000 shares designated "Series E Preferred Stock," par value $.01 per share
(the "Series E Preferred Stock"), 5,000,000 shares designated "Series F
------------------------
Preferred Stock," par value $1.00 per share (the "Series F Preferred Stock"),
------------------------
and 7,000,000 shares designated "Senior Common Stock," par value $1.00 per share
(the "Senior Common Stock"), and (b) 190,401,000 shares of common stock, par
-------------------
value $1.00 per share (the "Common Stock"), consisting of 95,000,000 shares
------------
designated "Class A Voting Common Stock" (the "Class A Common Stock"),
--------------------
95,000,000 shares designated "Class B Non-Voting Common Stock" (the "Class B
-------
Common Stock"), 100,000 shares designated "Class C Common Stock" (the "Class C
- ------------ -------
Common Stock"), 300,000 shares designated "Class D Common Stock" (the "Class D
- ------------ -------
Common Stock") and 1,000 shares designated "Voting Preference Common Stock" (the
- ------------
"Voting
------
<PAGE>
Preference Common Stock"). (Capitalized terms used herein and not otherwise
- -----------------------
defined shall have the meanings set forth in Section 4.14.)
<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this Amendment this 31 day of August, 1999.
/s/ Thomas H. Sullivan
------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
<PAGE>
EXHIBIT 3.1.5
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TELECORP PCS, INC.
TeleCorp PCS, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is TeleCorp PCS, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation
-----------
was filed with the Secretary of State of the State of Delaware (the "Secretary
of State") on November 14, 1997 and was amended and restated pursuant to a
Restated Certificate of Incorporation filed with the Secretary of State on July
16, 1998, a Second Amended and Restated Certificate of Incorporation filed with
the Secretary of State on April 20, 1999, a Third Amended and Restated
Certificate of Incorporation filed with the Secretary of State on May 14, 1999
and amended by Amendment No. 1 to the Third Amended and Restated Certificate
filed with the Secretary of State on August 31, 1999 (the "Third Amended and
Restated Certificate").
SECOND: This Fourth Amended and Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and written consent has been given by
the stockholders of the Company in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: This Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Corporation's Third Restated
Certificate, as follows:
ARTICLE I
The name of the Corporation shall be TeleCorp PCS, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in, carry on and conduct
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "GCL").
---
<PAGE>
ARTICLE IV
4.1 Classes of Stock. The total number of shares of all classes of stock
----------------
which the Corporation shall have authority to issue is 202,996,000, consisting
of (a) 12,595,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), consisting of 100,000 shares designated "Series A
---------------
Convertible Preferred Stock" (the "Series A Preferred Stock"), 200,000 shares
------------------------
designated "Series B Preferred Stock" (the "Series B Preferred Stock"), 215,000
------------------------
shares designated "Series C Preferred Stock" (the "Series C Preferred Stock"),
------------------------
50,000 shares designated "Series D Preferred Stock" (the "Series D Preferred
------------------
Stock"), 30,000 shares designated "Series E Preferred Stock" (the "Series E
- ----- --------
Preferred Stock"), 5,000,000 shares designated "Series F Preferred Stock" (the
- --------------- ------------------------
"Series F Preferred Stock"), and 7,000,000 shares designated "Senior Common
------------------------ -------------
Stock" (the "Senior Common Stock"), and (b) 190,401,000 shares of common stock,
-------------------
par value $0.01 per share (the "Common Stock"), consisting of 95,000,000 shares
------------
designated "Class A Voting Common Stock" (the "Class A Common Stock"),
--------------------
95,000,000 shares designated "Class B Non-Voting Common Stock" (the "Class B
-------
Common Stock"), 100,000 shares designated "Class C Common Stock" (the "Class C
- ------------ -------
Common Stock"), 300,000 shares designated "Class D Common Stock" (the "Class D
- ------------ -------
Common Stock") and 1,000 shares designated "Voting Preference Common Stock" (the
- ------------ ---
"Voting Preference Common Stock"). (Capitalized terms used herein and not
------------------------------
otherwise defined shall have the meanings set forth in Section 4.14.)
4.2 Additional Series of Preferred Stock.
(a) Subject to approval by holders of shares of any class or series of
Preferred Stock to the extent such approval is required by its terms, the Board
of Directors of the Corporation (the "Board of Directors") is hereby expressly
------------------
authorized, by resolution or resolutions, to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock in addition to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred
Stock and the Senior Common Stock. Before any shares of any such series are
issued, the Board of Directors shall fix, and hereby is expressly empowered to
fix, by resolutions, the following provisions of the shares thereof:
(i) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(ii) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(iii) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(iv) whether the shares of such series shall be subject to redemption by
the
-2-
<PAGE>
Corporation, and, if so, the times, prices and other conditions of such
redemption;
(v) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(vi) whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(vii) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of this
class or any other securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(viii) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(ix) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(x) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions
thereof.
(b) The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
(c) Shares of Preferred Stock of any series that have been redeemed
(whether through the operation of a sinking fund or otherwise) or that, if
convertible or exchangeable, have been converted into or exchanged for any other
security shall have the status of authorized and unissued shares of Preferred
Stock of the same series and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a new
series of shares of Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other series of shares of Preferred
Stock, all subject to the conditions or restrictions on issuance set forth
-3-
<PAGE>
in the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of shares of Preferred Stock.
(d) Subject to the provisions of this Restated Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration and for
such corporate purposes as the Board of Directors may from time to time
determine.
4.3 Powers, Preferences and Rights of the Series A Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series A Preferred Stock and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series A Preferred Stock shall, with respect to the
-------
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, rank on a parity with the Series B Preferred Stock, and rank
senior to Junior Stock.
(b) Dividends and Distributions.
---------------------------
(i) Dividends. The holders of shares of Series A Preferred Stock shall be
---------
entitled to receive, as and when declared by the Board of Directors, out of
funds legally available therefor, dividends on each outstanding share of Series
A Preferred Stock, at an annual rate per share equal to ten percent (10%) of the
Liquidation Preference, calculated on the basis of a 360-day year consisting of
twelve 30-day months. Dividends shall be paid quarterly in arrears on the
Dividend Payment Date commencing September 30, 1998 in the manner provided in
paragraph (iii) below.
(ii) Accrued Dividends, Record Date. Dividends payable pursuant to
------------------------------
paragraph (i) above shall begin to accrue and be cumulative from the date on
which shares of Series A Preferred Stock are issued, and shall begin to accrue
on a daily basis, in each case whether or not earned or declared. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of the dividends payable
pursuant to paragraph (i) above, which record date shall not be more than 60
days prior to the Dividend Payment Date.
(iii) Payment. All dividends shall be payable in cash. Until the 42nd
-------
Dividend Payment Date, the Corporation shall have the option to defer payment of
dividends on Series A Preferred Stock. Any dividend payments so deferred shall
be payable on and not earlier than the 42nd Dividend Payment Date.
(iv) Dividends Pro Rata. All dividends paid with respect to shares of
------------------
Series A Preferred Stock pursuant to this Section 4.3(b) shall be paid pro rata
to the holders entitled thereto. In the event that the funds legally available
therefor shall be insufficient for the payment of the entire amount of cash
dividends payable at any Dividend Payment Date, subject to Section 4.3(c), such
funds shall be allocated for the payment of dividends with respect to the shares
of Series A Preferred Stock and Series B Preferred Stock pro rata based upon the
Liquidation Preference of the outstanding shares.
-4-
<PAGE>
(c) Certain Restrictions.
--------------------
(i) Notwithstanding the provisions of Sections 4.3(b), (e) and (f), cash
dividends on the Series A Preferred Stock may not be declared, paid or set apart
for payment, nor may the Corporation redeem, purchase or otherwise acquire any
shares of Series A Preferred Stock, if (A) the Corporation is not solvent or
would be rendered insolvent thereby or (B) at such time the terms and provisions
of any law or agreement of the Corporation, including any agreement relating to
its indebtedness, specifically prohibit such declaration, payment or setting
apart for payment or such redemption, purchase or other acquisition, or provide
that such declaration, payment or setting apart for payment or such redemption,
purchase or other acquisition would constitute a violation or breach thereof or
a default thereunder.
(ii) So long as shares of Series A Preferred Stock are outstanding or
dividends payable on shares of Series A Preferred Stock have not been paid in
full in cash, then the Corporation shall not declare or pay cash dividends on,
or redeem, purchase or otherwise acquire for consideration, any shares of Common
Stock or other shares of Junior Stock, except with the prior written consent of
holders of a majority of the outstanding shares of Series A Preferred Stock,
except that the Corporation may acquire, in accordance with the terms of any
agreement between the Corporation and its employees, shares of Common Stock or
Preferred Stock at a price not greater than the Market Price as of such date.
(iii) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to make any distribution with respect to, or purchase
or otherwise acquire for consideration, any shares of capital stock of the
Corporation, unless the Corporation could, pursuant to paragraph (ii) above,
make such distribution or purchase or otherwise acquire such shares at such time
and in such manner.
(d) Voting Rights; Election of Directors.
------------------------------------
(i) The holders of shares of Series A Preferred Stock shall not have any
right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraphs (ii) and (iii) below or
as provided by law, and the shares of Series A Preferred Stock shall not be
included in determining the number of shares voting or entitled to vote on any
such matters (other than the matters described in paragraphs (ii) and (iii)
below or as otherwise required by law).
(ii) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of a majority of
the outstanding shares of Series A Preferred Stock in person or by proxy, at
each special and annual meeting of stockholders called for the purpose, or by
written consent, shall be necessary to (A) authorize, increase the authorized
number of shares of or issue (including on conversion or exchange of any
convertible or exchangeable securities or by reclassification) any shares of any
class or classes of Senior Stock or Parity Stock or any
-5-
<PAGE>
additional shares of Series A Preferred Stock, (B) authorize, adopt or approve
each amendment to this Restated Certificate of Incorporation that would increase
or decrease the par value of the shares of Series A Preferred Stock, alter or
change the powers, preferences or rights of the shares of Series A Preferred
Stock or alter or change the powers, preferences or rights of any other capital
stock of the Corporation if such alteration or change results in such capital
stock being Senior Stock or Parity Stock, (C) amend, alter or repeal any
provision of this Restated Certificate of Incorporation so as to affect the
shares of Series A Preferred Stock adversely, or (D) authorize or issue any
security convertible into, exchangeable for or evidencing the right to purchase
or otherwise receive any shares of any class or classes of Senior Stock or
Parity Stock.
(iii) So long as the Initial Holders own in the aggregate at least two-
thirds (2/3) of the number of shares of Series A Preferred Stock owned by it on
the date hereof, holders of shares of Series A Preferred Stock shall have the
exclusive right, voting separately as a single class, to nominate two directors
of the Corporation or, at any time after the later of (x) the IPO Date or (y)
the date on which shares of Class A Common Stock and Voting Preference Common
Stock vote as a single class for all purposes, one director. The foregoing right
to nominate two directors (or one director) may be exercised at any annual
meeting of stockholders or a special meeting of stockholders or holders of
Series A Preferred Stock held for such purpose or any adjournment thereof, or by
the written consent, delivered to the Secretary of the Corporation, of the
holders of a majority of the issued and outstanding shares of Series A Preferred
Stock. Notwithstanding the foregoing, the Initial Holders shall have the right,
exercisable at any time by written notice delivered to the Secretary of the
Corporation, to surrender and cancel irrevocably such right to nominate two
directors (or one director) of the Corporation.
(e) Redemption at Option of the Corporation. The Corporation shall have
---------------------------------------
the right to redeem shares of Series A Preferred Stock pursuant to the following
provisions:
(i) The Corporation shall not have any right to redeem shares of the
Series A Preferred Stock prior to, with respect to any share of the Series A
Preferred Stock, the 30th day after the tenth anniversary of the issuance of
such share. Thereafter, subject to the restrictions in Section 4.3(c)(i), the
Corporation shall have the right, at its sole option and election, to redeem the
shares of the Series A Preferred Stock, in whole but not in part, at any time at
a redemption price (the "Series A Redemption Price") per share equal to the
-------------------------
Liquidation Preference as of the redemption date;
(ii) Notice of any redemption of the Series A Preferred Stock shall be
mailed at least ten, but not more than 60, days prior to the date fixed for
redemption to each holder of Series A Preferred Stock to be redeemed, at such
holder's address as it appears on the books of the Corporation. In order to
facilitate the redemption of the Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of Series A
Preferred Stock to be redeemed, or may cause the transfer books of the
Corporation to be closed for the transfer of the Series A Preferred Stock, not
more
-6-
<PAGE>
than 60 days prior to the date fixed for such redemption;
(iii) Within two Business Days after the redemption date specified in the
notice given pursuant to paragraph (ii) above and the surrender of the
certificate(s) representing shares of Series A Preferred Stock, the Corporation
shall pay to the holder of the shares being redeemed the Series A Redemption
Price therefor. Such payment shall be made by wire transfer of immediately
available funds to an account designated by such holder or by overnight delivery
(by a nationally recognized courier) of a bank check to such holder's address as
it appears on the books of the Corporation; and
(iv) Effective upon the date of the notice given pursuant to paragraph
(ii) above, notwithstanding that any certificate for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding, the rights to receive dividends thereon shall
cease to accrue from and after the date of redemption designated in the notice
of redemption and all rights of the holders of the shares of the Series A
Preferred Stock called for redemption shall cease and terminate, excepting only
the right to receive the Series A Redemption Price therefor in accordance with
paragraph (iii) above and the right to convert such shares into shares of Class
A Common Stock until the close of business on the third Business Day preceding
the redemption date, as provided in Section 4.3(i).
(f) Redemption at Option of Holder.
------------------------------
(i) No holder of shares of Series A Preferred Stock shall have any right
to require the Corporation to redeem any shares of Series A Preferred Stock
prior to, with respect to any share of the Series A Preferred Stock, the 30th
day after the twentieth anniversary of the issuance of such share. Thereafter,
subject to the restrictions set forth in Section 4.3(c)(i), each holder of
shares of Series A Preferred Stock shall have the right, at the sole option and
election of such holder, to require the Corporation to redeem all (but not less
than all) of the shares of Series A Preferred Stock owned by such holder at a
price per share equal to the Series A Redemption Price;
(ii) The holder of any shares of the Series A Preferred Stock may exercise
such holder's right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series A Preferred Stock to be redeemed,
accompanied by a written notice stating that such holder elects to require the
Corporation to redeem all (but not less than all) of such shares in accordance
with the provisions of this Section 4.3(f), which notice may specify an account
for delivery of the Series A Redemption Price;
(iii) Within two Business Days after the surrender of such certificates,
the Corporation shall pay to the holder of the shares being redeemed the Series
A Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a
-7-
<PAGE>
nationally recognized courier) of a bank check to such holder's address as it
appears on the books of the Corporation; and
(iv) Such redemptions shall be deemed to have been made at the close of
business on the date of the receipt of such notice and of such surrender of the
certificates representing the shares of the Series A Preferred Stock to be
redeemed and the rights of the holder thereof, except for the right to receive
the Series A Redemption Price therefor in accordance herewith, shall cease on
such date of receipt and surrender.
(g) Reacquired Shares. Any shares of the Series A Preferred Stock
-----------------
redeemed or purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued pursuant to Section 4.2(c) as part
of a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions or restrictions on issuance
set forth herein.
(h) Liquidation, Dissolution or Winding Up.
--------------------------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or payment
to holders of Junior Stock, the holders of shares of Series A Preferred Stock
shall be entitled to be paid an amount equal to the Liquidation Preference with
respect to each share of Series A Preferred Stock.
(ii) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock and Series B Preferred Stock shall be distributed among
and paid to such holders ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.
(iii) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.3(h).
(i) Conversion.
----------
(i) Stockholders' Right To Convert. No holder of shares of Series A
------------------------------
Preferred Stock shall have any right to convert any shares of Series A Preferred
Stock into Class A Common Stock or any other securities of the Corporation prior
to July 17, 2006. Thereafter, each share of Series A Preferred Stock held by the
Initial Holders or a Qualified Transferee shall be convertible, at the sole
option and election of the Initial Holders or Qualified Transferee, into fully
paid and non-assessable shares of Class A
-8-
<PAGE>
Common Stock.
(ii) Number of Shares of Class A Common Stock Issuable upon Conversion.
-----------------------------------------------------------------
The number of shares of Class A Common Stock to be issued upon conversion of
shares of Series A Preferred Stock pursuant to paragraph (i) above shall be
equal to the product of (A) the Series A Conversion Rate as of the date of the
applicable notice pursuant to paragraph (iv) below, multiplied by (B) the number
of shares of Series A Preferred Stock to be converted.
(iii) Fractional Shares. Notwithstanding any other provision of this
-----------------
Restated Certificate of Incorporation, the Corporation shall not be required to
issue fractions of shares upon conversion of any shares of Series A Preferred
Stock or to distribute certificates which evidence fractional shares. In lieu of
fractional shares, the Corporation may pay therefor, at the time of any
conversion of shares of Series A Preferred Stock as herein provided, an amount
in cash equal to such fraction multiplied by the Market Price of a share of
Class A Common Stock on such date.
(iv) Mechanics of Conversion. The Initial Holders or Qualified Transferee
-----------------------
may exercise its option to convert by surrendering for such purpose to the
Corporation, at its principal office or such other office or agency maintained
by the Corporation for that purpose, certificates representing the shares of
Series A Preferred Stock to be converted, accompanied by a written notice,
delivered in accordance with the terms of the Stockholders Agreement, stating
that such holder elects to convert such shares in accordance with this Section
4.3(i). The date of receipt of such certificates and notice by the Corporation
at such office shall be the conversion date (the "Series A Conversion Date"). If
------------------------
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. Within ten Business Days after
the Series A Conversion Date (or, if at the time of such surrender the shares of
Class A Common Stock are not listed or admitted for trading on any national
securities exchange and are not quoted on NASDAQ or any similar service, within
ten Business Days of the determination of the Market Price pursuant to the
Appraisal Procedure), the Corporation shall issue to such holder a number of
shares of Class A Common Stock into which such shares of Series A Preferred
Stock are convertible pursuant to paragraph (ii) above. Certificates
representing such shares of Class A Common Stock shall be delivered to such
holder at such holder's address as it appears on the books of the Corporation.
(v) Termination of Rights. All shares of Series A Preferred Stock which
---------------------
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Series A Conversion Date, except only the right of the holders
thereof to receive shares of Class A Common Stock in exchange therefor and
payment of any declared and unpaid dividends thereon.
-9-
<PAGE>
(vi) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Class A Common Stock upon the conversion of shares of
Series A Preferred Stock shall be made without charge to the holder of shares of
Series A Preferred Stock for any issue or transfer tax, or other incidental
expense in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Corporation.
(vii) Reorganization, Reclassification and Merger Adjustment. If there
------------------------------------------------------
occurs any capital reorganization or any reclassification of the Class A Common
Stock of the Corporation, the consolidation or merger of the Corporation with or
into another Person (other than a merger or consolidation of the Corporation in
which the Corporation is the continuing corporation and which does not result in
any reclassification or change of outstanding shares of its Class A Common
Stock) or the sale or conveyance of all or substantially all of the assets of
the Corporation to another Person, then each share of Series A Preferred Stock
shall thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Class A Common Stock of the
Corporation upon such reorganization, reclassification, consolidation, merger,
sale or conveyance, in respect of that number of shares of Class A Common Stock
into which such share of Series A Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or conveyance; and, in any such case, appropriate adjustments (as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be conclusive) shall be made to assure that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or other assets thereafter
deliverable upon the conversion of the Series A Preferred Stock.
(viii) Notice of Adjustment. Whenever the securities or other property
--------------------
deliverable upon the conversion of the Series A Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall promptly give
written notice thereof to each holder of shares of Series A Preferred Stock at
such holder's address as it appears on the transfer books of the Corporation and
shall forthwith file, at its principal executive office and with any transfer
agent or agents for the Series A Preferred Stock and the Class A Common Stock, a
certificate, signed by the Chairman of the Board, President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, Treasurer or
one of its Assistant Treasurers, stating the securities or other property
deliverable per share of Series A Preferred Stock calculated to the nearest cent
or to the nearest one-hundredth of a share and setting forth in reasonable
detail the method of calculation and the facts requiring such adjustment and
upon which such calculation is based. Each adjustment shall remain in effect
until a subsequent adjustment hereunder is required.
(ix) Reservation of Class A Common Stock. The Corporation shall at all
-----------------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series A Preferred Stock the maximum number of its authorized but unissued
shares of Class A
-10-
<PAGE>
Common Stock as is reasonably anticipated to be sufficient to permit the
conversion of all outstanding shares of Series A Preferred Stock, and shall take
all action required to increase the authorized number of shares of Class A
Common Stock if at any time there shall be insufficient authorized but unissued
shares of Class A Common Stock to permit such reservation or to permit the
conversion of all outstanding shares of Series A Preferred Stock.
(j) Qualified Transfer. If at any time an Initial Holders or Qualified
------------------
Transferee desires to sell, transfer or otherwise dispose of shares of Series A
Preferred Stock pursuant to a Qualified Transfer, it shall, with respect to each
such proposed transfer, give written notice (a "Qualified Transfer Notice") to
-------------------------
the Corporation at its principal executive office specifying up to ten
prospective transferees. Upon receipt of such notice, the Corporation shall have
ten days to give written notice to the Initial Holders or Qualified Transferee
specifying its disapproval of (A) any or all of such prospective transferees if
it has good reason for such disapproval and specifying such reason and (B) up to
two of such prospective transferees with or without good reason.
(k) Notice of Certain Events. In case the Corporation shall propose at any
------------------------
time or from time to time (i) to declare or pay any dividend payable in stock of
any class to the holders of Common Stock or to make any other distribution to
the holders of Common Stock, (ii) to offer to the holders of Common Stock rights
or warrants to subscribe for or to purchase any additional shares of Common
Stock or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Common Stock, (iv) to
effect any consolidation, merger or sale, transfer or other disposition of all
or substantially all of the property, assets or business of the Corporation
which would, if consummated, adjust the Series A Conversion Rate or the
securities issuable upon conversion of shares of Series A Preferred Stock, or
(v) to effect the liquidation, dissolution or winding up of the Corporation,
then, in each such case, the Corporation shall mail to each holder of shares of
Series A Preferred Stock, at such holder's address as it appears on the transfer
books of the Corporation, a written notice of such proposed action, which shall
specify (A) the date on which a record is to be taken for the purpose of such
dividend or distribution of rights or warrants or, if a record is not to be
taken, the date as of which the holders of shares of Common Stock of record to
be entitled to such dividend or distribution of rights or warrants are to be
determined, or (B) the date on which such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up is expected to
become effective, and such notice shall be so given as promptly as possible but
in any event at least ten Business Days prior to the applicable record,
determination or effective date, specified in such notice.
(l) Certain Remedies. Any registered holder of shares of Series A
----------------
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Restated Certificate of Incorporation and to
enforce specifically the terms and provisions of this Restated Certificate of
Incorporation in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which such holder
may be entitled at law or in equity.
-11-
<PAGE>
4.4 Powers, Preferences and Rights of the Series B Preferred Stock. The
--------------------------------------------------------------
Series B Preferred Stock shall rank on a parity with the Series A Preferred
Stock, and the powers, preferences and rights of the Series B Preferred Stock,
and the qualifications, limitations, and restrictions thereof, shall be
identical to those of the Series A Preferred Stock, except that (a) shares of
Series B Preferred Stock shall not be, pursuant to the terms of Section 4.3(i)
or otherwise, convertible into shares of Common Stock or any other security
issued by the Corporation, (b) the Corporation may redeem shares of Series B
Preferred Stock in accordance with the terms of Section 4.3(e) at any time
without regard to whether the redemption date is before, on or after the date
referred to in Section 4.3(e)(i), (c) shares of Series B Preferred Stock may be
issued by the Corporation in accordance with the terms of Section 4.12, (d)
holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or
otherwise, have the right to elect any directors of the Corporation and (e) the
words "Series B Preferred Stock" and "Series A Preferred Stock" shall be
substituted for all references in Section 4.3 to Series A Preferred Stock and
Series B Preferred Stock, respectively.
4.5 Powers, Preferences and Rights of the Series C Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series C Preferred Stock and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series C Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock and the Series B Preferred Stock with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (ii) junior to the Series D Preferred Stock with respect to the
distribution of assets on a Statutory Liquidation, (iii) on a parity with the
Series D Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up (other than on a Statutory Liquidation),
(iv) on a parity with the Series D Preferred Stock and the Common Stock with
respect to the payment of dividends, and (v) senior to the Common Stock and any
series or class of the Corporation's common or preferred stock, now or hereafter
authorized (other than Series A Preferred Stock, Series B Preferred Stock or
Series D Preferred Stock), with respect to the distribution of assets on
liquidation, dissolution and winding up.
(b) Dividends. Holders of Series C Preferred Stock shall be entitled to
----------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation; provided that, in no event shall dividends in
--------
excess of the Liquidation Preference be declared or paid. So long as shares of
Series C Preferred Stock are outstanding or dividends payable on shares of
Series C Preferred Stock have not been paid in full in cash, the Corporation
shall not declare or pay cash dividends on, or redeem, purchase or otherwise
acquire for consideration, any shares of any class of common stock or series of
preferred stock ranking junior to or on a parity with the Series C Preferred
Stock, except that the Corporation may acquire, in accordance with the terms of
any agreement between the Corporation and its employees, shares of Common Stock
or Preferred Stock at a price not greater than the Market Price as of such date.
The Corporation shall not declare or pay cash dividends on, or redeem, purchase
or otherwise acquire for consideration, any shares of Series D Preferred Stock
unless concurrently
-12-
<PAGE>
therewith the Corporation shall declare or pay cash dividends on, or redeem,
purchase or otherwise acquire for consideration, as the case may be, shares of
Series C Preferred Stock ratably in accordance with the number of shares of
Series C Preferred Stock and Series D Preferred Stock then outstanding.
(c) Liquidation Preference.
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series C Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such assets are capital or
surplus of any nature, after payment is made to holders of all series of
preferred stock ranking senior to the Series C Preferred Stock with respect to
rights on liquidation, dissolution or winding up (including, in the case of a
Statutory Liquidation, the Series D Preferred Stock), but before any payment
shall be made or any assets distributed to the holders of Common Stock or any
series of preferred stock ranking junior to the Series C Preferred Stock with
respect to rights on liquidation, dissolution or winding up, an amount equal to
the Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Series C Preferred Stock and any other
series of preferred stock ranking on a parity with Series C Preferred Stock with
respect to rights on liquidation, dissolution or winding up (including, in the
case of a liquidation, dissolution or winding up other than a Statutory
Liquidation, the Series D Preferred Stock), to receive their full preferential
amounts, the entire assets of the Corporation shall be distributed among the
holders of Series C Preferred Stock and all such other series ratably in
accordance with their respective Liquidation Preference.
(iii) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the Corporation,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 4.5(c).
(d) Voting Rights.
-------------
(i) The holders of shares of Series C Preferred Stock shall not have
any right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Series C Preferred Stock shall not be included in
determining the number of shares voting or entitled to vote on any such matters
(other than the matters described in paragraph (ii) below or as otherwise
required by law).
(ii) The affirmative vote of holders of not less than a majority of
Series C Preferred Stock shall be required to (A) authorize, increase the
authorized number of shares of or issue (including on conversion or exchange of
any convertible or exchangeable securities or by reclassification) any shares of
any class or classes of stock
-13-
<PAGE>
ranking senior to or pari passu with the Series C Preferred Stock or any
additional shares of Series C Preferred Stock, (B) authorize, adopt or approve
each amendment to this Restated Certificate of Incorporation that would increase
or decrease the par value of the shares of Series C Preferred Stock, alter or
change the powers, preferences or rights of the shares of Series C Preferred
Stock or alter or change the powers, preferences or rights of any other capital
stock of the Corporation if such alteration or change results in such capital
stock ranking senior to or pari passu with the Series C Preferred Stock, (C)
amend, alter or repeal any provision of this Restated Certificate of
Incorporation so as to affect the shares of Series C Preferred Stock adversely,
or (D) authorize or issue any security convertible into, exchangeable for or
evidencing the right to purchase or otherwise receive any shares of any class or
classes of stock senior to or pari passu with the Series C Preferred Stock.
(e) Conversion. The shares of Series C Preferred Stock shall be
----------
convertible into shares of Common Stock as follows:
(i) Optional Conversion. On the IPO Date, each share of Series C
-------------------
Preferred Stock then outstanding shall be convertible, at the option of the
Corporation, into the number of fully paid and non-assessable shares of Common
Stock as is determined by dividing the Liquidation Preference of the Series C
Preferred Stock as of the IPO Date by the IPO Price; provided, that the
foregoing option, if exercised, shall be exercised with respect to all shares of
Series C Preferred Stock then outstanding.
(ii) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of shares of Series C Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled after
determination of the aggregate full number of shares of Common Stock issuable in
respect of the Series C Preferred Stock then being converted, the Corporation
shall pay cash equal to such fraction multiplied by the IPO Price.
(iii) Mechanics of Conversion. All holders of record of shares of
-----------------------
Series C Preferred Stock will be given at least 30 but not more than 60 days'
prior written notice of the IPO Date and the place designated for conversion of
all shares of Series C Preferred Stock pursuant to this Section 4.5(e). Such
notice will be sent by first class or registered mail, postage prepaid, to each
record holder of Series C Preferred Stock at such holder's address last shown on
the records of the transfer agent for the Series C Preferred Stock (or the
records of the Corporation if it serves as its own transfer agent). Within ten
days after the date of such notice, each holder of shares of Series C Preferred
Stock shall notify the Corporation as to whether it desires to receive shares of
Class A Common Stock or Class B Common Stock. Any holder who fails to give such
notice shall be deemed to have selected Class A Common Stock. On or before the
IPO Date, each holder of shares of Series C Preferred Stock shall surrender his
or its certificate(s) for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
-14-
<PAGE>
duly executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the IPO Date and the surrender of the
certificate(s) representing shares of Series C Preferred Stock, the Corporation
shall issue and deliver to such holder, or on his or its written order to his or
its nominees, one or more certificates for the number of whole shares of Common
Stock issuable upon such conversion in accordance with the provisions hereof,
together with cash in lieu of fractional shares calculated in accordance with
paragraph (ii) above.
(iv) Reservation of Shares. The Corporation shall at all times when
----------------------
the Series C Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series C Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series C Preferred Stock. Before taking
any action which would cause Common Stock, upon the conversion of Series C
Preferred Stock, to be issued below the then par value of the shares of Common
Stock, the Corporation will take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common Stock to the
holders of Series C Preferred Stock.
(v) Termination of Rights. All shares of Series C Preferred Stock
---------------------
which are subject to conversion pursuant to this paragraph (e), which have not
been surrendered prior to the IPO Date, shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the IPO Date, except only the right of the holders thereof to receive shares of
Common Stock in exchange therefor. On and as of the IPO Date, the shares of
Common Stock issuable upon such conversion shall be deemed to be outstanding,
and the holder thereof shall be entitled to exercise and enjoy all rights with
respect to such shares of Common Stock, including the rights, if any, to receive
notices and to vote. Shares of Series C Preferred Stock converted into Common
Stock will be restored to the status of authorized but unissued shares of
preferred stock without designation as to series, and may thereafter be issued,
whether or not designated as shares of Series C Preferred Stock.
(vi) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of Series
C Preferred Stock shall be made without charge to the holder of shares of Series
C Preferred Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
(vii) Reservation of Class A Common Stock. The Corporation shall at all
-----------------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series C Preferred Stock the maximum number of its authorized but unissued
shares of Class A Common Stock as is reasonably anticipated to be sufficient to
permit the conversion of
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<PAGE>
all outstanding shares of Series C Preferred Stock, and shall take all action
required to increase the authorized number of shares of Class A Common Stock if
at any time there shall be insufficient authorized but unissued shares of Class
A Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Series C Preferred Stock.
(f) Redemption at Option of the Corporation. The Corporation shall have
---------------------------------------
the right to redeem shares of Series C Preferred Stock pursuant to the following
provisions:
(i) Subject to the restrictions set forth in Section 4.5(h)(i), the
Corporation shall have the right, at its sole option and election, to redeem the
shares of the Series C Preferred Stock, in whole but not in part, at any time at
a redemption price per share equal to the Liquidation Preference thereof as of
the redemption date; provided, that concurrently with such redemption, the
Corporation shall redeem the shares of Series D Preferred Stock, in whole and
not in part, at a redemption price per share equal to the Liquidation Preference
thereof as of the redemption date; provided, further, that if the funds legally
available to the Corporation are insufficient to effect the redemption of the
Series C Preferred Stock and the Series D Preferred Stock in full, such funds
shall be allocated among the shares of Series C Preferred Stock and Series D
Preferred Stock ratably in accordance with the number of shares of each Series
outstanding as of the redemption date;
(ii) Notice of any redemption of the Series C Preferred Stock and
Series D Preferred Stock shall be mailed at least ten but not more than 60 days
prior to the date fixed for redemption to each holder of Series C Preferred
Stock and Series D Preferred Stock to be redeemed, at such holder's address as
it appears on the books of the Corporation. In order to facilitate the
redemption of the Series C Preferred Stock and Series D Preferred Stock, the
Board of Directors may fix a record date for the determination of holders of
Series C Preferred Stock and Series D Preferred Stock to be redeemed, or may
cause the transfer books of the Corporation to be closed for the transfer of the
Series C Preferred Stock and Series D Preferred Stock, not more than 60 days
prior to the date fixed for such redemption;
(iii) Within two Business Days after the redemption date specified in
the notice given pursuant to paragraph (ii) above and the surrender of the
certificate(s) representing shares of Series C Preferred Stock or Series D
Preferred Stock, as the case may be, the Corporation shall pay to the holder of
the shares being redeemed the Series C Redemption Price or the Series D
Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a nationally recognized courier) of a bank check to such
holder's address as it appears on the books of the Corporation; and
(iv) Effective upon the date of the notice given pursuant to paragraph
(ii) above, notwithstanding that any certificate for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed
-16-
<PAGE>
outstanding, the rights to receive dividends thereon shall cease to accrue from
and after the date of redemption designated in the notice of redemption and all
rights of the holders of the shares of the Series C Preferred Stock or Series D
Preferred Stock, as the case may be, called for redemption shall cease and
terminate, excepting only the right to receive the Series C Redemption Price or
the Series D Redemption Price therefor in accordance with paragraph (iii) above.
(g) Redemption at Option of Holder.
------------------------------
(i) No holder of shares of Series C Preferred Stock shall have any
right to require the Corporation to redeem any shares of Series C Preferred
Stock prior to, with respect to any share of Series C Preferred Stock, the 30th
day after the twentieth anniversary of the issuance of such share. Thereafter,
subject to the restrictions set forth in Section 4.5(h)(i), each holder of
shares of Series C Preferred Stock shall have the right, at the sole option and
election of such holder, to require the Corporation to redeem all (but not less
than all) of the shares of Series C Preferred Stock owned by such holder at a
price per share equal to the Series C Redemption Price;
(ii) The holder of any shares of the Series C Preferred Stock may
exercise such holder's right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series C Preferred Stock to be redeemed,
accompanied by a written notice stating that such holder elects to require the
Corporation to redeem all (but not less than all) of such shares in accordance
with the provisions of this Section 4.5(g), which notice may specify an account
for delivery of the Series C Redemption Price;
(iii) Within two Business Days after the surrender of such certificates,
the Corporation shall pay to the holder of the shares being redeemed the Series
C Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a nationally recognized courier) of a bank check to such
holder's address as it appears on the books of the Corporation; and
(iv) Such redemptions shall be deemed to have been made at the close
of business on the date of the receipt of such notice and of such surrender of
the certificates representing the shares of the Series C Preferred Stock to be
redeemed and the rights of the holder thereof, except for the right to receive
the Series C Redemption Price therefor in accordance herewith, shall cease on
such date of receipt and surrender.
(h) Certain Restrictions.
--------------------
(i) Notwithstanding the provisions of Sections 4.5(b), (e) or (f),
cash dividends on the Series C Preferred Stock may not be declared, paid or set
apart for payment, nor may the Corporation redeem, purchase or otherwise acquire
any shares of Series C Preferred Stock, if (A) the Corporation is not solvent or
would be rendered
-17-
<PAGE>
insolvent thereby or (B) at such time the terms and provisions of any law or
agreement of the Corporation, including any agreement relating to its
indebtedness, specifically prohibit such declaration, payment or setting apart
for payment or such redemption, purchase or other acquisition, or provide that
such declaration, payment or setting apart for payment or such redemption,
purchase or other acquisition would constitute a violation or breach thereof or
a default thereunder.
(ii) So long as shares of Series C Preferred Stock are outstanding or
dividends payable on shares of Series C Preferred Stock have not been paid in
full in cash, the Corporation shall not declare or pay cash dividends on, or
redeem, purchase or otherwise acquire for consideration, any shares of Common
Stock or other shares of capital stock of the Corporation ranking junior to or
on a parity basis with the Series C Preferred Stock, except with the prior
written consent of holders of a majority of the outstanding shares of Series C
Preferred Stock, except that the Corporation may acquire, in accordance with the
terms of any agreement between the Corporation and its employees, shares of
Common Stock from its employees at a price equal to such employee's purchase
price therefor without such consent.
(iii) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to make any distribution with respect to, or purchase
or otherwise acquire for consideration, any shares of Common Stock or other
shares of capital stock of the Corporation ranking junior to or on a parity
basis with the Series C Preferred Stock unless the Corporation could, pursuant
to paragraph (i) above, make such distribution or purchase or otherwise acquire
such shares at such time and in such manner.
4.6 Powers, Preferences and Rights of the Series D Preferred Stock.
--------------------------------------------------------------
(a) General. The powers, preferences and rights of the Series D Preferred
-------
Stock, and the qualifications, limitations, and restrictions thereof, shall be
identical to those of the Series C Preferred Stock, except that (i) the Series D
Preferred Stock shall rank with respect to the other series and classes of
capital stock of the Corporation as provided in paragraph (b) below, (ii) the
Series D Preferred Stock shall not be convertible into Common Stock, but shall
be convertible into Senior Common Stock as provided in paragraph (c) below,
(iii) the shares of Series D Preferred Stock shall be subject to redemption, pro
rata with the Series C Preferred Stock, in accordance with Section 4.5(f), and
(iv) the words "Series D Preferred Stock" and "Series C Preferred Stock" shall
be substituted for all references in Section 4.5 to Series C Preferred Stock and
Series D Preferred Stock, respectively.
(b) Ranking. The Series D Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock and the Series B Preferred Stock with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (ii) senior to the Series C Preferred Stock with respect to the
distribution of assets on a Statutory Liquidation, (iii) on a parity with the
Series C Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up (other than on a
-18-
<PAGE>
Statutory Liquidation), (iv) on a parity with the Series C Preferred Stock and
the Common Stock with respect to the payment of dividends, and (v) senior to the
Common Stock and any series or class of the Corporation's common or preferred
stock, now or hereafter authorized (other than Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock), with respect to the distribution
of assets on liquidation, dissolution and winding up.
(c) Conversion. In the event that the shares of Series C Preferred Stock
----------
are converted into shares of Common Stock in accordance with Section 4.5(e), the
shares of Series D Preferred Stock shall be convertible into shares of Senior
Common Stock as follows:
(i) Automatic Conversion. On the IPO Date, each share of Series D
--------------------
Preferred Stock then outstanding shall automatically be converted into a number
of fully paid and non-assessable shares of Senior Common Stock as is determined
by dividing the Liquidation Preference of the Series D Preferred Stock as of the
IPO Date by the IPO Price.
(ii) Fractional Shares. No fractional shares of Senior Common Stock
-----------------
shall be issued upon conversion of shares of Series D Preferred Stock. In lieu
of any fractional share to which the holder would otherwise be entitled after
determination of the aggregate full number of shares of Senior Common Stock
issuable in respect of the Series D Preferred Stock then being converted, the
Corporation shall pay cash equal to such fraction multiplied by the Liquidation
Preference of the Series D Preferred Stock.
(iii) Mechanics of Conversion. All holders of record of shares of Series D
-----------------------
Preferred Stock will be given at least 30 but not more than 60 days' prior
written notice of the IPO Date and the place designated for conversion of all
shares of Series D Preferred Stock pursuant to this Section 4.6(c). Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Series D Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series D Preferred Stock (or the records
of the Corporation if it serves as its own transfer agent). On or before the IPO
Date, each holder of shares of Series D Preferred Stock shall surrender his or
its certificate(s) for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the IPO Date and the surrender of the
certificate(s) representing shares of Series D Preferred Stock, the Corporation
shall issue and deliver to such holder, or on his or its written order to his or
its nominees, one or more certificates for the number of shares of Senior Common
Stock issuable upon such conversion in accordance with the provisions hereof.
(iv) Reservation of Shares. The Corporation shall at all times when the
----------------------
Series D Preferred Stock shall be outstanding, reserve and keep available out of
its authorized
-19-
<PAGE>
but unissued stock, for the purpose of effecting the conversion of the Series D
Preferred Stock, such number of its duly authorized shares of Senior Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series D Preferred Stock. Before taking any action which
would cause Senior Common Stock, upon the conversion of Series D Preferred
Stock, to be issued below the then par value of the shares of Senior Common
Stock, the Corporation will take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Senior Common Stock to the
holders of Series D Preferred Stock.
(v) Adjustments for Dividends. Upon any conversion of Series D Preferred
-------------------------
Stock, no adjustment to the conversion ratio shall be made for declared and
unpaid dividends on the Series D Preferred Stock surrendered for conversion or
on the Senior Common Stock delivered upon conversion.
(vi) Termination of Rights. All shares of Series D Preferred Stock which
---------------------
shall be subject to conversion as herein provided, which have not been so
surrendered prior to the IPO Date, shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and terminate on the IPO
Date, except only the right of the holders thereof to receive shares of Senior
Common Stock in exchange therefor and payment of any declared and unpaid
dividends thereon. On and as of the IPO Date, the shares of Senior Common Stock
issuable upon such conversion shall be deemed to be outstanding, and the holder
thereof shall be entitled to exercise and enjoy all rights with respect to such
shares of Senior Common Stock, including the rights, if any, to receive notices
and to vote. Shares of Series D Preferred Stock converted into Senior Common
Stock will be restored to the status of authorized but unissued shares of
preferred stock without designation as to series, and may thereafter be issued,
whether or not designated as shares of Series D Preferred Stock.
(vii) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Senior Common Stock upon the conversion of shares of
Series D Preferred Stock shall be made without charge to the holder of shares of
Series D Preferred Stock for any issue or transfer tax, or other incidental
expense in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Corporation.
4.7 Powers, Preferences and Rights of the Series E Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series E Preferred Stock, and the
qualifications, limitations and restrictions thereof, shall be identical to
those of the Series C Preferred Stock, except that (a) the Series E Preferred
Stock shall rank, with respect to the payment of dividends and the distribution
of assets on liquidation, dissolution or winding up, (i) junior to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock and (ii) senior to the Series F Preferred Stock, Senior Common
Stock and the Common Stock and any series or class of the Corporation's common
or preferred stock, now or hereafter authorized (other than
-20-
<PAGE>
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock), (b) the provisos to Section 4.5(f)(i) shall not
apply to a redemption of the Series E Preferred Stock, and (c) the words "Series
E Preferred Stock" and "Series C Preferred Stock" shall be substituted for all
references in Section 4.5 to Series C Preferred Stock and Series E Preferred
Stock, respectively.
4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series F Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series F Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock with
respect to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, (ii) on a parity with the Senior Common
Stock with respect to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, (iii) on a parity with the Common Stock
with respect to the distribution of assets on liquidation, dissolution or
winding up (other than on a Statutory Liquidation), (iv) senior to the Common
Stock with respect to the distribution of assets on a Statutory Liquidation (v)
on a parity with the Common Stock with respect to the payment of dividends, and
(vi) senior to any series or class of the Corporation's common or preferred
stock hereafter authorized (other than Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock, Senior Common Stock or Common Stock), with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
and winding up.
(b) Dividends. Holders of Series F Preferred Stock shall be entitled to
---------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation.
(c) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series F Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such assets are capital or
surplus of any nature, after payment is made to holders of all series of
preferred stock ranking senior to the Series F Preferred Stock with respect to
rights on liquidation, dissolution or winding up, but before any payment shall
be made or any assets distributed to the holders of Common Stock or any series
of preferred stock ranking junior to the Series F Preferred Stock with respect
to rights on liquidation, dissolution or winding up, an amount equal to the
Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Series F Preferred Stock and any other
series of preferred stock ranking on a
-21-
<PAGE>
parity with Series F Preferred Stock with respect to rights on liquidation,
dissolution or winding up, to receive their full preferential amounts, the
entire assets of the Corporation shall be distributed among the holders of
Series F Preferred Stock and all such other series ratably in accordance with
their respective Liquidation Preference.
(iii) After payment to the holders of Series F Preferred Stock of the
amounts set forth in paragraph (i) above, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Participating Stock in proportion to the
shares of Participating Stock then held by them as of the date of the
liquidation, dissolution or winding up of the Corporation.
(iv) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the Corporation,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 4.8(c).
(d) Voting Rights.
-------------
(i) The holders of shares of Series F Preferred Stock shall not have
any right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Series F Preferred Stock shall not be included in
determining the number of shares voting or entitled to vote on any such matters
(other than the matters described in paragraph (ii) below or as otherwise
required by law).
(ii) The affirmative vote of holders of not less than a majority of
Series F Preferred Stock shall be required to (A) authorize, increase the
authorized number of shares of or issue (including on conversion or exchange of
any convertible or exchangeable securities or by reclassification) any shares of
any class or classes of stock ranking senior to or pari passu with the Series F
Preferred Stock or any additional shares of Series F Preferred Stock, (B)
authorize, adopt or approve each amendment to this Restated Certificate of
Incorporation that would increase or decrease the par value of the shares of
Series F Preferred Stock, alter or change the powers, preferences or rights of
the shares of Series F Preferred Stock or alter or change the powers,
preferences or rights of any other capital stock of the Corporation if such
alteration or change results in such capital stock ranking senior to or pari
passu with the Series F Preferred Stock, (C) amend, alter or repeal any
provision of this Restated Certificate of Incorporation so as to affect the
shares of Series F Preferred Stock adversely, or (D) authorize or issue any
security convertible into, exchangeable for or evidencing the right to purchase
or otherwise receive any shares of any class or classes of stock senior to or
pari passu with the Series F Preferred Stock.
(e) Conversion. The shares of Series F Preferred Stock shall be
----------
convertible into shares of Common Stock or Senior Common Stock as follows:
(i) Optional Conversion. Each share of Series F Preferred Stock shall
-------------------
be
-22-
<PAGE>
convertible, at the option of the holder thereof, at any time and from time to
time, into one fully paid and non-assessable share of Non-Tracked Common Stock;
provided that, unless and until the Tracked Common Stock shall be convertible
into Class A Common Stock or Class B Common Stock in accordance with Section
4.10(e)(iii), each of the first 631.27 shares of Series F Preferred Stock
converted pursuant to this paragraph shall be convertible into one fully paid
and non-assessable share of Class D Common Stock.
(ii) Automatic Conversion. In the event that the Series C Preferred
--------------------
Stock is converted into Common Stock in accordance with Section 4.5(e), then on
the IPO Date, each share of Series F Preferred Stock then outstanding shall
automatically be converted into one fully paid and non-assessable share of
Senior Common Stock.
(iii) Mechanics of Optional Conversion. In order for a holder of Series F
--------------------------------
Preferred Stock to convert such shares into shares of Common Stock, such holder
shall surrender the certificate(s) for such shares of Series F Preferred Stock
at the office of the transfer agent for the Series F Preferred Stock (or if the
Corporation serves as its own transfer agent, at the principal office of the
Corporation), together with written notice that such holder elects to convert
all or any number of the shares of the Series F Preferred Stock represented by
such certificate(s). If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date (the "Optional Conversion Date"). The Corporation shall, within
------------------------
ten Business Days after the Optional Conversion Date, issue and deliver at such
office to such holder of Series F Preferred Stock, or to his or its nominees,
one or more certificates for the number of whole shares of Common Stock (and any
shares of Series F Preferred Stock represented by the certificate delivered to
the Corporation by the holder thereof that are not converted into Common Stock)
issuable upon such conversion in accordance with the provisions hereof.
(iv) Mechanics of Automatic Conversion. All holders of record of
---------------------------------
shares of Series F Preferred Stock will be given at least 30 but not more than
60 days' prior written notice of the IPO Date and the place designated for
conversion of all shares of Series F Preferred Stock pursuant to this Section
4.8(e). Such notice will be sent by first class or registered mail, postage
prepaid, to each record holder of Series F Preferred Stock at such holder's
address last shown on the records of the transfer agent for the Series F
Preferred Stock (or the records of the Corporation if it serves as its own
transfer agent). On or before the IPO Date, each holder of shares of Series F
Preferred Stock shall surrender his or its certificate(s) for all such shares to
the Corporation at the place designated in such notice. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. As soon as practicable after the IPO
Date and the surrender of the certificates representing shares of Series F
Preferred Stock, the
-23-
<PAGE>
Corporation shall issue and deliver to such holder, or on his or its written
order to his or its nominees, one or more certificates for the number of whole
shares of Senior Common Stock issuable upon such conversion in accordance with
the provisions hereof.
(v) Reservation of Shares. The Corporation shall at all times when
---------------------
the Series F Preferred Stock shall be outstanding, reserve and keep available
out of its authorized but unissued stock, for the purpose of effecting the
conversion of the Series F Preferred Stock, such number of its duly authorized
shares of Common Stock and Senior Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series F
Preferred Stock. Before taking any action which would cause Common Stock or
Senior Common Stock, upon the conversion of Series F Preferred Stock, to be
issued below the then par value of the shares of Common Stock or Senior Common
Stock, as the case may be, the Corporation will take any corporate action that
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and non-assessable shares of Common
Stock or Senior Common Stock, as the case may be, to the holders of Series F
Preferred Stock.
(vi) Adjustments for Dividends. Upon any conversion of Series F
-------------------------
Preferred Stock, no adjustment to the conversion ratio shall be made for
declared and unpaid dividends on the Series F Preferred Stock surrendered for
conversion or on the Common Stock or Senior Common Stock delivered upon
conversion.
(vii) Termination of Rights. All shares of Series F Preferred Stock which
---------------------
shall have been surrendered for conversion as herein provided or, as to shares
of Series F Preferred Stock which are subject to automatic conversion pursuant
to paragraph (ii) above, which have not been so surrendered prior to the IPO
Date, shall no longer be deemed to be outstanding and all rights with respect to
such shares, including the rights, if any, to receive notices and to vote, shall
immediately cease and terminate on the Optional Conversion Date or the IPO Date,
as the case may be, except only the right of the holders thereof to receive
shares of Common Stock or Senior Common Stock, as the case may be, in exchange
therefor and payment of any declared and unpaid dividends thereon. On and as of
the Optional Conversion Date or the IPO Date, the shares of Common Stock or
Senior Common Stock, as the case may be, issuable upon such conversion shall be
deemed to be outstanding, and the holder thereof shall be entitled to exercise
and enjoy all rights with respect to such shares of Common Stock or Senior
Common Stock, including the rights, if any, to receive notices and to vote.
Shares of Series F Preferred Stock converted into Common Stock or Senior Common
Stock will be restored to the status of authorized but unissued shares of Common
Stock or preferred stock without designation as to class or series, and may
thereafter be issued, whether or not designated as shares of Class A Common
Stock or Series F Preferred Stock.
(viii) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock or Senior Common Stock upon the
conversion of shares of Series F Preferred Stock shall be made without charge to
the holder of shares of Series F Preferred Stock for any issue or transfer tax,
or other incidental expense in respect of the
-24-
<PAGE>
issuance or delivery of such certificates or the securities represented thereby,
all of which taxes and expenses shall be paid by the Corporation.
(ix) Reorganization, Reclassification and Merger Adjustment. If there
------------------------------------------------------
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Corporation
to another Person, then each share of Series F Preferred Stock shall thereafter
be convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock of the Corporation upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, in respect of that
number of shares of Common Stock into which such share of Series F Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, consolidation, merger, sale or conveyance; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be conclusive) shall be
made to assure that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon the conversion of the
Series F Preferred Stock.
(f) Certain Restrictions.
--------------------
(i) Notwithstanding the provisions of Sections 4.8(b), cash dividends
on the Series F Preferred Stock may not be declared, paid or set apart for
payment, nor may the Corporation redeem, purchase or otherwise acquire any
shares of Series F Preferred Stock, if (A) the Corporation is not solvent or
would be rendered insolvent thereby or (B) at such time the terms and provisions
of any law or agreement of the Corporation, including any agreement relating to
its indebtedness, specifically prohibit such declaration, payment or setting
apart for payment or such redemption, purchase or other acquisition, or provide
that such declaration, payment or setting apart for payment or such redemption,
purchase or other acquisition would constitute a violation or breach thereof or
a default thereunder.
(ii) The Corporation shall not permit any Subsidiary of the
Corporation, or cause any other Person, to make any distribution with respect
to, or purchase or otherwise acquire for consideration, any shares of Common
Stock or other shares of capital stock of the Corporation ranking junior to or
on a parity basis with the Series F Preferred Stock unless the Corporation
could, pursuant to paragraph (i) above, make such distribution or purchase or
otherwise acquire such shares at such time and in such manner.
(g) Redemption. The Series F Preferred Stock is not redeemable.
----------
-25-
<PAGE>
(h) Sinking Fund. There shall be no sinking fund for the payment of
------------
dividends or Liquidation Preferences on the Series F Preferred Stock.
4.9 Powers, Preferences and Rights of the Senior Common Stock. The
---------------------------------------------------------
powers, preferences and rights of the Senior Common Stock, and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Senior Common Stock shall rank, with respect to the
-------
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, (ii) on a parity with the Series F Preferred Stock, and (iii) senior to
the Common Stock and any series or class of the Corporation's common or
preferred stock, now or hereafter authorized (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock).
(b) Dividends. Holders of Senior Common Stock shall be entitled to
---------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation.
(c) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Senior Common Stock shall be entitled to receive out
of the assets of the Corporation, whether such assets are capital or surplus of
any nature, after payment is made to holders of all series of preferred stock
ranking senior to the Senior Common Stock with respect to rights on liquidation,
dissolution or winding up, but before any payment shall be made or any assets
distributed to the holders of Common Stock or any series of preferred stock
ranking junior to the Senior Common Stock with respect to rights on liquidation,
dissolution or winding up, an amount equal to the Liquidation Preference and no
more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Senior Common Stock and any other series of
preferred stock ranking on a parity with Senior Common Stock with respect to
rights on liquidation, dissolution or winding up, to receive their full
preferential amounts, the entire assets of the Corporation shall be distributed
among the holders of Senior Common Stock and all such other series ratably in
accordance with their respective Liquidation Preference.
(iii) After payment to the holders of Senior Common Stock of the amounts
set forth in paragraph (i) above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of the Participating Stock in proportion to the shares of
Participating Stock then held by them as of the date of the liquidation,
dissolution or winding up of the Corporation.
(iv) Neither the consolidation or merger of the Corporation with or into
any
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<PAGE>
other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.9(c).
(d) Voting Rights.
-------------
(i) The holders of shares of Senior Common Stock shall not have any
right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Senior Common Stock shall not be included in
determining the number of shares voting or entitled to vote on any such matters
(other than the matters described in paragraph (ii) below or as otherwise
required by law).
(ii) The affirmative vote of holders of not less than a majority of
Senior Common Stock shall be required to (A) authorize, increase the authorized
number of shares of or issue (including on conversion or exchange of any
convertible or exchangeable securities or by reclassification) any shares of any
class or classes of stock ranking senior to or pari passu with the Senior Common
Stock or any additional shares of Senior Common Stock, (B) authorize, adopt or
approve each amendment to this Restated Certificate of Incorporation that would
increase or decrease the par value of the shares of Senior Common Stock, alter
or change the powers, preferences or rights of the shares of Senior Common Stock
or alter or change the powers, preferences or rights of any other capital stock
of the Corporation if such alteration or change results in such capital stock
ranking senior to or pari passu with the Senior Common Stock, (C) amend, alter
or repeal any provision of this Restated Certificate of Incorporation so as to
affect the shares of Senior Common Stock adversely, or (D) authorize or issue
any security convertible into, exchangeable for or evidencing the right to
purchase or otherwise receive any shares of any class or classes of stock senior
to or pari passu with the Senior Common Stock.
(e) Conversion. The shares of Senior Common Stock shall be convertible
----------
into shares of Common Stock as follows:
(i) Optional Conversion. Each share of Senior Common Stock shall be
-------------------
convertible, at the option of the holder thereof, at any time and from time to
time, into one fully paid and non-assessable share of Non-Tracked Common Stock;
provided that, unless and until the Tracked Common Stock shall be convertible
into Class A Common Stock or Class B Common Stock in accordance with Section
4.10(e)(iii), each of the first 631.27 shares of Senior Common Stock converted
pursuant to this paragraph shall be convertible into one fully paid and non-
assessable share of Class D Common Stock; provided, further that, if the
Corporation shall effect any change in the Senior Common Stock, whether through
stock dividends, stock splits, reverse stock splits, combinations or otherwise,
without payment to the Corporation of any consideration therefor in money,
services or property, then the terms of this proviso shall be adjusted by a
corresponding amount.
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<PAGE>
(ii) Mechanics of Optional Conversion. In order for a holder of Senior
--------------------------------
Common Stock to convert such shares into shares of Common Stock, such holder
shall surrender the certificate(s) for such shares of Senior Common Stock at the
office of the transfer agent for the Senior Common Stock (or if the Corporation
serves as its own transfer agent, at the principal office of the Corporation),
together with written notice that such holder elects to convert all or any
number of the shares of the Senior Common Stock represented by such
certificate(s). If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date. The Corporation shall, within ten Business Days after the
conversion date, issue and deliver at such office to such holder of Senior
Common Stock, or to his or its nominees, one or more certificates for the number
of whole shares of Common Stock (and any shares of Senior Common Stock
represented by the certificate delivered to the Corporation by the holder
thereof that are not converted into Common Stock) issuable upon such conversion
in accordance with the provisions hereof.
(iii) Reservation of Shares. The Corporation shall at all times when the
---------------------
Senior Common Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Senior Common Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Senior Common Stock. Before taking any action which would
cause Common Stock, upon the conversion of Senior Common Stock, to be issued
below the then par value of the shares of Common Stock, the Corporation will
take any corporate action that may, in the opinion of its counsel, be necessary
in order that the Corporation may validly and legally issue fully paid and non-
assessable shares of Common Stock to the holders of Senior Common Stock.
(iv) Adjustments for Dividends. Upon any conversion of Senior Common
-------------------------
Stock, no adjustment to the conversion ratio shall be made for declared and
unpaid dividends on the Senior Common Stock surrendered for conversion or on the
Common Stock delivered upon conversion.
(v) Termination of Rights. All shares of Senior Common Stock which
---------------------
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the conversion date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
declared and unpaid dividends thereon. On and as of the conversion date, the
shares of Common Stock issuable upon such conversion shall be deemed to be
outstanding, and the holder thereof shall be entitled to exercise and enjoy all
rights with respect to such shares of Common Stock, including the rights, if
any,
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<PAGE>
to receive notices and to vote. Shares of Senior Common Stock converted into
Common Stock will be restored to the status of authorized but unissued shares of
preferred stock without designation as to series, and may thereafter be issued,
whether or not designated as shares of Senior Common Stock.
(vi) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of Senior
Common Stock shall be made without charge to the holder of shares of Senior
Common Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
(vii) Reorganization, Reclassification and Merger Adjustment. If there
------------------------------------------------------
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Corporation
to another Person, then each share of Senior Common Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock of the Corporation upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, in respect of that
number of shares of Common Stock into which such share of Senior Common Stock
might have been converted immediately prior to such reorganization,
reclassification, consolidation, merger, sale or conveyance; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be conclusive) shall be
made to assure that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon the conversion of the
Senior Common Stock.
4.10 Common Stock.
------------
(a) General. Except as otherwise provided herein, all shares of Common
-------
Stock issued and outstanding shall be identical, and shall entitle the holders
thereof to the same rights, powers and privileges of stockholders under Delaware
law. For purposes of this Section 4.10 (and the definitions relating thereto),
the Class A Common Stock and the Class B Common Stock are herein collectively
referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and
the Class D Common Stock are herein collectively referred to as the "Tracked
Common Stock".
(b) Dividends. Subject to Section 4.11(b) and the express terms of any
---------
outstanding series of Preferred Stock, dividends may be paid in cash or
otherwise with respect to each class of Common Stock out of the assets of the
Corporation, upon the
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<PAGE>
terms, and subject to the limitations, provided in this Section 4.10(b), as the
Board of Directors may determine.
(i) Dividends on the Non-Tracked Common Stock. Dividends on the
-----------------------------------------
Non-Tracked Common Stock may be declared and paid only out of the excess of (A)
the funds of the Corporation legally available therefor over (B) the Tracked
Business Available Dividend Amount (the "Non-Tracked Business Available
------------------------------
Dividend Amount").
- ---------------
(ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common
---------------------------------
Stock may be declared and paid only out of the lesser of (A) the funds of the
Corporation legally available therefor and (B) the Tracked Business Available
Dividend Amount. The Corporation shall not declare or pay cash dividends on, or
redeem, purchase or otherwise acquire for consideration, any shares of Tracked
Common Stock unless concurrently therewith the Corporation shall declare or pay
cash dividends on, or redeem, purchase or otherwise acquire for consideration,
as the case may be, on the same terms, all shares of Tracked Common Stock
ratably in accordance with the number of shares of each class of Tracked Common
Stock then outstanding.
(iii) Discrimination in Dividends Among the Tracked and Non-Tracked Common
--------------------------------------------------------------------
Stock. The Board of Directors may at any time, subject to the provisions of
- -----
Sections 4.10(b)(i) and (ii) and Section 4.11, declare and pay dividends
exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common
Stock or on both such categories of Common Stock in equal or unequal amounts,
notwithstanding the relative amounts of the Non-Tracked Business Available
Dividend Amount and the Tracked Business Available Dividend Amount.
(c) Voting.
------
(i) The holders of shares of Common Stock shall be entitled to such
voting rights as hereinafter provided, and shall be entitled to notice of any
stockholders' meeting and to vote upon such matters as provided herein and in
the by-laws of the Corporation, and as may be provided by law. Holders of any
class of Common Stock shall not be entitled to cumulate their votes for any
purpose. Except as otherwise required by law or provided herein, regardless of
the number of shares of any class of Common Stock then outstanding, each class
of Common Stock shall be entitled to the number of votes enumerated below and
the number of votes or fractional votes to which each share of a particular
class of Common Stock shall be entitled shall be the quotient determined by
dividing the aggregate number of votes to which such class of Common Stock is
entitled by the number of shares of such class of Common Stock then outstanding.
Except as otherwise required by law or provided herein, the Class A Common Stock
shall have 4,990,000 votes; the Class B Common Stock shall have no votes; the
Class C Common Stock shall have no votes; the Class D Common Stock shall have no
votes; and the Voting Preference Common Stock shall have 5,010,000 votes.
(ii) A quorum for the transaction of business shall be present when a
majority
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<PAGE>
of the shares of Voting Preference Common Stock outstanding as of the record
date are present and when shares of all classes of Common Stock with at least
5,010,000 votes are present, except that (x) with respect to actions requiring a
majority vote of the Class A Common Stock, the presence of a majority of the
outstanding shares of Class A Common Stock shall also be required for a quorum
to be present, (y) with respect to actions requiring the vote of a majority vote
of the Class C Common Stock, the presence of a majority of the outstanding
shares of Class C Common Stock shall also be required for a quorum to be present
and (z) with respect to actions requiring the vote of a majority vote of the
Class D Common Stock, the presence of a majority of the outstanding shares of
Class D Common Stock shall also be required for a quorum to be present. Except
as otherwise required by law or provided herein, the majority vote of the Voting
Preference Common Stock present at any meeting at which a quorum is present
shall be sufficient to approve any action required to be approved by the holders
of the Common Stock.
(iii) In any matter requiring a separate class vote of holders of any
class of Common Stock or a separate vote of two or more classes of Common Stock
voting together as a single class, for the purposes of such a class vote, each
share of Common Stock of such classes shall be entitled to one vote per share.
(iv) In the event that the Corporation shall have received an opinion of
regulatory counsel of nationally recognized standing to the effect that the
rules, regulations or policies of the Federal Communications Commission (the
"FCC") permit the Class A Common Stock and the Voting Preference Common Stock
---
(x) to be voted as a single class on all matters, (y) to be treated as a single
class for purposes of all quorum requirements and (z) to have one vote per
share, then, unless the Board of Directors of the Corporation shall have
determined, within 30 days after the date of receipt of such opinion, that
obtaining the FCC consent described below would be reasonably expected to have a
significant detrimental effect on the Corporation, the Corporation shall, upon
the affirmative vote of 66-2/3% or more of the Class A Common Stock, seek
consent from the FCC to permit the Class A Common Stock and Voting Preference
Common Stock to vote and act as a single class in the manner described above.
From and after the date that such consent is obtained, the Class A Common Stock
and the Voting Preference Common Stock shall be voted as a single class on all
matters, shall be treated as a single class for purposes of all quorum
requirements, and shall have one vote per share; provided, that the voting
rights of the Class B Common Stock, Class C Common Stock and Class D Common
Stock and the Preferred Stock shall remain unaffected.
(v) The holders of shares of Class B Common Stock shall be entitled to
vote as a separate class on any amendment, repeal or modification of any
provision of this Restated Certificate of Incorporation that adversely affects
the powers, preferences or special rights of the holders of the Class B Common
Stock.
(d) Dissolution, Liquidation or Winding Up. Upon the dissolution,
--------------------------------------
liquidation or winding up of the Corporation, after any preferential amounts to
be distributed to the holders of the Preferred Stock and any other class or
series of stock having a preference
-31-
<PAGE>
over the Common Stock then outstanding have been paid or declared and funds
sufficient for the payment thereof in full set apart for payment, (i) the
holders of the Tracked Common Stock shall be entitled to receive pro rata the
Tracked Business Available Liquidation Amount and (ii) the holders of the Non-
Tracked Common Stock shall be entitled to receive pro rata the excess of (A) all
the remaining assets of the Corporation available for distribution to its
stockholders over (B) the Tracked Business Available Liquidation Amount.
(e) Conversion.
----------
(i) Each share of Class B Common Stock may, at the option of the holder
thereof, at any time, be converted into one fully paid and non-assessable share
of Class A Common Stock.
(ii) Each share of Class A Common Stock may, at the option of the holder
thereof, at any time, be converted into one fully paid and non-assessable share
of Class B Common Stock.
(iii) In the event that the Corporation shall have received an opinion of
regulatory counsel of nationally recognized standing to the effect that the
rules, regulations or policies of the FCC permit the conversion of shares of
Tracked Common Stock into Class A Common Stock or Class B Common Stock, then,
unless the Board of Directors of the Corporation shall have determined, within
30 days after receipt of such opinion, that permitting such conversion would be
reasonably expected to have a significant detrimental effect on the Corporation,
shares of Class C Common Stock and Class D Common Stock shall, upon the
affirmative vote of 66-2/3% or more of the Class A Common Stock, be convertible
as follows: (x) each share of Class C Common Stock may, at the option of the
holder thereof, be converted into one fully paid and non-assessable share of
Class A Common Stock or Class B Common Stock, and (y) each share of Class D
Common Stock may, at the option of the holder thereof, be converted into one
fully paid and non-assessable share of Class A Common Stock or Class B Common
Stock.
4.11 Participating Stock.
-------------------
(a) Changes in Capital Stock. The Corporation shall not effect any
------------------------
change in or reclassification of any class or series of the outstanding
Participating Stock, whether through stock dividends, stock splits, reverse
stock splits, combinations or otherwise, without the payment to the Corporation
of any consideration therefor in money, services or property, unless
concurrently therewith the Corporation shall effect a corresponding change in
each other class and series of the outstanding Participating Stock.
(b) Dividends and Distributions. The Corporation shall not declare or
---------------------------
pay cash dividends on, or redeem, purchase or otherwise acquire for
consideration, any shares of
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<PAGE>
Participating Stock unless concurrently therewith the Corporation shall declare
or pay cash dividends on, or redeem, purchase or otherwise acquire for
consideration, as the case may be, on the same terms, all shares of
Participating Stock ratably in accordance with the number of shares of each
class and series of Participating Stock then outstanding.
(c) Notices. Any written notice or communication by the Corporation to
-------
holders of any class or series of Participating Stock shall be sent to all
holders of Participating Stock.
4.12 Exchange of Capital Stock. Notwithstanding any other provision of
-------------------------
this Restated Certificate of Incorporation to the contrary, in the event that
AT&T Wireless PCS, Inc. terminates its obligations under Section 8.6 of the
Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any
Overlap Territory (as defined therein) (any such termination being referred to
hereinafter as the "Exchange Event"), the following provisions shall apply:
--------------
(a) Right to Exchange. The Corporation shall have the right, exercisable
-----------------
in its sole discretion by written notice (the "Exchange Notice") given to the
---------------
Initial Holders and Section 4.12 Transfers within 60 days after the Exchange
Event, to:
(i) require the Initial Holders and each Section 4.12 Transferee to
exchange for an equivalent number of shares of Series B Preferred Stock either
(A) all of the shares of Series A Preferred Stock then owned by the Initial
Holders and each Section 4.12 Transferee or (B) a number of shares of Series A
Preferred Stock then owned by each such holder equal to the product of (x) the
number of shares of Series A Preferred Stock then owned by such holder
multiplied by (y) a fraction, the numerator of which is equal to the number of
POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the
denominator of which is equal to the total number of POPs in the Territory (as
defined in the Stockholders Agreement); and
(ii) require the Initial Holders and each Section 4.12 Transferee to
exchange, for a number of shares of Series B Preferred Stock determined in
accordance with paragraph (b) below, either (A) all of the shares of Series D
Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial
Holder on the date hereof (or shares of Common Stock or Senior Common Stock into
which such shares of Series D Preferred Stock, Series F Preferred Stock and
Senior Common Stock shall have been converted) and that the Initial Holders or a
Section 4.12 Transferee continues to own on the date of delivery of the Exchange
Notice (any such shares of Series D Preferred Stock, Series F Preferred Stock or
Common Stock being referred to hereinafter collectively as "Original Shares") or
---------------
(B) a number of Original Shares of Series D Preferred Stock, Series F Preferred
Stock and Common Stock equal to the product of (x) the number of Original Shares
of Series D Preferred Stock, Series F Preferred Stock, Senior Common Stock and
Common Stock, as the case may be, then owned by each such holder, multiplied by
(y) a fraction, the numerator of which is equal to the number of POPs in the
Overlap Territory and the denominator of which is equal to the total number of
POPs in the Territory;
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<PAGE>
provided, that (x) if the Corporation exercises its right under clause (i)(A) of
this paragraph (a), it shall be required to exercise its right under clause
(ii)(A) of this paragraph (a), and vice-versa; and if the Corporation exercises
its right under clause (i)(B) of this paragraph (a), it shall be required to
exercise its right under clause (ii)(B) of this paragraph (a), and vice-versa
and (y) the provisions of this Section 4.12(a) shall not apply to any Section
4.12 Transferee which is a Cash Equity Investor.
(Shares of Series A Preferred Stock, Series D Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock (and shares of Common Stock and
Senior Common Stock into which such shares shall have been converted) and shares
of Common Stock subject to exchange pursuant to this Section 4.12 are
hereinafter referred to collectively as "Exchange Shares.")
---------------
(b) Number of Shares of Series B Preferred Stock Issuable in Exchange. The
-----------------------------------------------------------------
number of shares of Series B Preferred Stock issuable in exchange for Original
Shares pursuant to clause (ii) of paragraph (a) above shall be equal to the
quotient of the aggregate purchase price paid by the Initial Holders for the
Original Shares being exchanged, divided by $1,000.
(c) Fractional Shares. Notwithstanding any other provision of this
-----------------
Restated Certificate of Incorporation, the Corporation shall not be required to
issue fractions of shares upon exchange of any Exchange Shares or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Corporation may pay therefor, at the time of any exchange of Exchange Shares as
herein provided, an amount in cash equal to such fraction multiplied by the
Market Price of a share of Common Stock on such date.
(d) Mechanics of Exchange. The Exchange Notice shall specify the date
---------------------
fixed for the exchange (the "Exchange Date"), which shall be at least ten but no
-------------
more than 60 days following delivery of the Exchange Notice, and the place
designated for exchange of the Exchange Shares pursuant to this Section 4.12.
Such notice will be sent by first class or registered mail, postage prepaid, to
the Initial Holders and each Section 4.12 Transferee at such holder's address
last shown on the records of the transfer agent for the Exchange Shares (or the
records of the Corporation if it serves as its own transfer agent). On or before
the Exchange Date, the Initial Holders and each Section 4.12 Transferee shall
surrender its certificate or certificates for all such shares to the Corporation
at the place designated in such notice. If required by the Corporation,
certificates surrendered for exchange shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the Initial Holders and each Section 4.12
Transferee or its attorney duly authorized in writing.
(e) Termination of Rights. On and after the Exchange Date (whether or not
---------------------
the applicable certificates have theretofore been surrendered), all rights with
respect to the Exchange Shares, including the rights, if any, to receive notices
and to vote, will terminate, except only the rights of the Initial Holders and
Section 4.12 Transferees to receive certificates for the number of shares of
Series B Preferred Stock into which such Exchange Shares have been exchanged,
upon surrender of its certificate or certificates
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<PAGE>
therefor, and payment of any declared but unpaid dividends thereon (which shall
accrue and be payable at the times and on the other terms applicable to such
dividends when declared) and payment of any deferred dividends in respect of
Series A Preferred Stock which shall be payable as set forth in Section
4.3(b)(iii). Within ten Business Days after the Exchange Date, the Corporation
shall issue and deliver to the Initial Holders and each Section 4.12 Transferee,
or on its written order to its nominees, a certificate or certificates for the
number of whole shares of Series B Preferred Stock issuable upon such exchange
in accordance with the provisions hereof, together with cash in lieu of
fractional shares calculated in accordance with paragraph (c) of this Section
4.12.
(f) Reservation of Shares. The Corporation shall at all times reserve and
---------------------
keep available for issuance upon the exchange of Exchange Shares the maximum
number of its authorized but unissued shares of Series B Preferred Stock as is
reasonably anticipated to be sufficient to permit the exchange of all
outstanding Exchange Shares, and shall take all action required to increase the
authorized number of shares of Series B Preferred Stock if at any time there
shall be insufficient authorized but unissued shares of Series B Preferred Stock
to permit such reservation or to permit the exchange of all outstanding Exchange
Shares.
(g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no
-------------------------
adjustment to the rate of conversion shall be made for accrued and unpaid
dividends (whether or not declared) on the Exchange Shares, as the case may be,
surrendered for exchange or on the Series B Preferred Stock delivered upon
exchange.
(h) No Exchange Charge or Tax. The issuance and delivery of certificates
-------------------------
for shares of Series B Preferred Stock upon the exchange of Exchange Shares
shall be made without charge to the Initial Holder for any issue or transfer
tax, or other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
4.13 Redemption of Capital Stock; FCC Approval.
-----------------------------------------
(a) Redemption. Notwithstanding any other provision of this Restated
----------
Certificate of Incorporation to the contrary, outstanding shares of capital
stock of the Corporation held by Disqualified Holders shall always be subject to
redemption by the Corporation, by action of the Board of Directors, if, in the
judgment of the Board of Directors, such action should be taken, pursuant to
Section 151(b) of the GCL or any other applicable provision of law, to the
extent necessary to prevent the loss or secure the reinstatement of any license
or franchise from any governmental agency held by the Corporation or any of its
subsidiaries to conduct any portion of the business of the Corporation or any of
its subsidiaries, which license or franchise is conditioned upon some or all of
the holders of the Corporation's stock possessing prescribed qualifications. The
terms and conditions of such redemption shall be as follows:
(i) the redemption price of the shares to be redeemed pursuant to this
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<PAGE>
Section 4.13 shall be equal to the lesser of (x) the Market Price or (y) if such
stock was purchased by such Disqualified Holder within one year of the Section
4.13 Redemption Date, such Disqualified Holder's purchase price for such shares;
(ii) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(iii) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall be
determined by the Board of Directors, which may include selection first of the
most recently purchased shares thereof, selection by lot or selection in any
other manner determined by the Board of Directors;
(iv) at least 30 days' written notice of the Section 4.13 Redemption Date
shall be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder); provided, however, that only 10
days' written notice of the Redemption Date shall be given to record holders if
the cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for their
shares to be redeemed; provided, further, that the record holders of the shares
selected to be redeemed may transfer such shares prior to the Section 4.13
Redemption Date to any holder that is not a Disqualified Holder and, thereafter,
for so long as such shares are not held by a Disqualified Holder, such shares
shall not be subject to redemption by the Corporation;
(v) from and after the Section 4.13 Redemption Date, any and all rights
of whatever nature (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series as such
shares) with respect to the shares selected from redemption held by Disqualified
Holders on the Section 4.13 Redemption Date shall cease and terminate and such
Disqualified Holders thenceforth shall be entitled only to receive the cash or
Redemption Securities payable upon redemption; and
(vi) such other terms and conditions as the Board of Directors shall
determine.
(b) FCC Approval. Notwithstanding anything herein to the contrary, if
------------
Federal Communications Commission or other regulatory approval is required to be
obtained prior to the conversion of shares of any series or class of Preferred
Stock or Common Stock, the holder thereof may nevertheless elect to convert any
or all of its shares by written notice given to the Corporation in accordance
with the applicable provision hereof, provided, that such conversion shall not
become effective until the close of business on the date of the receipt of the
last of any such approvals and of the surrender of the certificates representing
the shares of the applicable Preferred Stock or Common Stock to be converted,
and the rights of the holder thereof shall continue in full force and effect
pending the receipt of all such approvals, except that, in the case of the
Series A
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<PAGE>
Preferred Stock, no dividends shall be payable in respect of the period
following the Series A Conversion Date, unless the required approvals are not
obtained and the conversion has not been effected within one year of the Series
A Conversion Date and the applicable conversion notice is withdrawn, in which
event the obligation to pay dividends from and after the Series A Conversion
Date shall be payable in accordance with the terms of Section 4.3(b).
4.14 Definitions. For the purposes of this Restated Certificate of
-----------
Incorporation, the following terms shall have the meanings indicated:
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with that Person. For purposes of this
definition, "control" (including the terms "controlling" and "controlled") means
the power to direct or cause the direction of the management and policies of a
Person, directly or indirectly, whether through the ownership of securities or
partnership or other ownership interests, by contract or otherwise.
"Appraisal Procedure" means the following procedure for determining
-------------------
the Market Price, for the purpose of calculating the Series A Conversion Rate,
in the event that the shares of Class A Common Stock are not listed or admitted
for trading on any national securities exchange and are not quoted on NASDAQ or
any similar service:
(i) Two independent accounting or investment banking firms of nationally
recognized standing (each, an "Appraiser"), one chosen by the Corporation and
---------
one by the holders of a majority of the outstanding shares of Series A Preferred
Stock, shall each determine and attempt to mutually agree upon, the Market
Price. Each party shall deliver a notice to the other appointing its Appraiser
within 15 days after the applicable notice and surrender pursuant to Section
4.3(iv). If either the Corporation or such holders fail to appoint an appraiser
within such 15-day period, the Market Price shall be determined by the Appraiser
that has been so appointed.
(ii) If within 30 days after appointment of the two Appraisers they are
unable to agree upon the Market Price, an independent accounting or investment
banking firm of nationally recognized standing shall within ten days thereafter
be chosen to serve as a third Appraiser by the mutual consent of such first two
Appraisers. The determination of the Market Price by the third Appraiser so
appointed and chosen shall be made within 30 days after the selection of such
third Appraiser.
(iii) If three Appraisers shall be appointed and the determination of one
Appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such Appraiser shall be excluded, the
remaining two determinations shall be averaged, and such average shall be
binding and conclusive on the Corporation and the holders of the Series A
Preferred Stock; otherwise the average of all three determinations shall be
binding and conclusive on the Corporation and the holders of the
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Series A Preferred Stock.
(iv) In connection with any appraisal conducted pursuant to this Appraisal
Procedure, the Appraiser shall adhere to the guidelines provided in the
definition of "Market Price" set forth below, including the proviso thereto.
(v) The fees and expenses of each Appraiser shall be borne by the
Corporation.
"Board of Directors" has the meaning specified in Section 4.2(a).
------------------
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Class A Common Stock" has the meaning specified in Section 4.1.
--------------------
"Class B Common Stock" has the meaning specified in Section 4.1.
--------------------
"Class C Common Stock" has the meaning specified in Section 4.1.
--------------------
"Class D Common Stock" has the meaning specified in Section 4.1.
--------------------
"Closing Price" shall mean, with respect to each share of any class or
-------------
series of capital stock for any day, (i) the last reported sale price regular
way or, in case no such sale takes place on such day, the average of the closing
bid and asked prices regular way, in either case as reported on the principal
national securities exchange on which such class or series of capital stock is
listed or admitted for trading or (ii) if such class or series of capital stock
is not listed or admitted for trading on any national securities exchange, the
last reported sale price or, in case no such sale takes place on such day, the
average of the highest reported bid and the lowest reported asked quotation for
such class or series of capital stock, in either case as reported on NASDAQ or a
similar service if NASDAQ is no longer reporting such information.
"Common Stock" has the meaning specified in Section 4.1.
------------
"Disqualified Holder" shall mean any holder of shares of capital stock
-------------------
of the Corporation whose holding of such stock, either individually or when
taken together with the holding of shares of capital stock of the Corporation by
any other holders, may result, in the judgment of the Board of Directors, in the
loss of, or the failure to secure the reinstatement of, any license or franchise
from any governmental agency held by the corporation or any of its subsidiaries
or affiliates to conduct any portion of the business of the corporation or any
of its subsidiaries or affiliates.
"Dividend Payment Date" shall mean the last day of each March, June,
---------------------
September and December, except that if any Dividend Payment Date is not a
Business Day, then the next succeeding Business Day shall be the Dividend
Payment Date.
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<PAGE>
"Fully Diluted Basis" shall mean, with respect to the outstanding
-------------------
shares of Common Stock, the number of shares of Common Stock outstanding
assuming the conversion of all outstanding convertible securities (other than
the Series A Preferred Stock) and the exercise of all outstanding warrants,
options or other rights to subscribe for or purchase any shares of Common Stock.
"Initial Holder" means AT&T Wireless PCS Inc., a Delaware corporation,
--------------
TWR Cellular, Inc., a Delaware corporation, and/or any of their respective
Affiliates that is a Subsidiary of AT&T Corp.
"Invested Amount" means, as of any date with respect to each share of
---------------
Series C Preferred Stock held by any stockholder, an amount equal to the
quotient of (i) the aggregate paid-in capital actually paid with respect to all
shares of Series C Preferred Stock held by such stockholder as of such date
divided by (ii) the total number of shares of Series C Preferred Stock held by
such stockholder.
"IPO Date" shall mean the first date on which (a) the Common Stock
--------
shall have been registered pursuant to an effective Registration Statement under
the Securities Act of 1933, as amended, (b) the aggregate gross proceeds
received by the Corporation in connection with such Registration Statement(s)
equals or exceeds $20 million, and (c) the Common Stock shall be listed for
trading on the New York Stock Exchange or the American Stock Exchange or
authorized for trading on NASDAQ, including without limitation its National
Market System.
"IPO Price" shall mean the price per share at which shares of Common
---------
Stock are offered to the public in the Corporation's initial public offering of
Common Stock.
"Junior Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, any capital stock of the
Corporation, including without limitation the Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock and the Common Stock, ranking junior to the Series A Preferred
Stock or Series B Preferred Stock, as the case may be, with respect to
dividends, distribution in liquidation or any other preference, right or power.
"Liquidation Preference" shall mean, as of any date, and subject to
----------------------
adjustment for subdivisions or combinations affecting the number of shares of
the applicable series of Preferred Stock:
(i) with respect to each share of Series A Preferred Stock and
Series B Preferred Stock, $1,000 plus accrued and unpaid dividends thereon;
(ii) with respect to each share of Series C Preferred Stock, the
Invested Amount plus accrued and unpaid dividends on such share (if any), plus
an amount equal to interest on the Invested Amount at the rate of six percent
(6%) per annum, compounded quarterly, less the amount of dividends (if any)
theretofore declared and paid in respect of such share;
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<PAGE>
(iii) with respect to each share of Series D Preferred Stock, $1,000
plus accrued and unpaid dividends thereon (if any), plus an amount equal to
interest on $1,000 at the rate of six percent (6%) per annum, compounded
quarterly, from the date of issuance of such share to and including the date of
the calculation, less the amount of dividends (if any) theretofore declared and
paid in respect of such share;
(iv) with respect to each share of Series E Preferred Stock,
accrued and unpaid dividends thereon (if any), plus an amount equal to interest
on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from
the date of issuance of such share to and including the date of the calculation,
less the amount of dividends (if any) theretofore declared and paid in respect
of such share;
(v) with respect to each share of Series F Preferred Stock, $.01
plus accrued and unpaid dividends thereon; and
(vi) with respect to each share of Senior Common Stock, the
quotient of (a) the sum of (i) the Liquidation Preference with respect to each
share of Series D Preferred Stock, multiplied by the aggregate number of shares
of Series D Preferred Stock converted into shares of Senior Common Stock in
accordance with Section 4.6(c) and (ii) the Liquidation Preference with respect
to each share of Series F Preferred Stock, multiplied by the aggregate number of
shares of Series F Preferred Stock converted into shares of Senior Common Stock
in accordance with Section 4.8(e)(ii), divided by the aggregate number of shares
of Senior Common Stock issued upon conversion of shares of Series D Preferred
Stock and Series F Preferred Stock.
"Market Price" shall mean, with respect to each share of any class or
------------
series of capital stock for any day, (i) the average of the daily Closing Prices
for the ten consecutive trading days commencing 15 days before the day in
question or (ii) if on such date the shares of such class or series of capital
stock are not listed or admitted for trading on any national securities exchange
and are not quoted on NASDAQ or any similar service, the cash amount that a
willing buyer would pay a willing seller (neither acting under compulsion) in an
arm's-length transaction without time constraints per share of such class or
series of capital stock as of such date, viewing the Corporation on a going
concern basis, as determined (A) in the case of a determination of "Market
Price" for the purpose of calculating the Series A Conversion Rate, pursuant to
the Appraisal Procedure and (B) in the case of a determination of Market Price
for any other purpose, in good faith by the Board of Directors, whose
determination shall be conclusive; provided that, in determining such cash
amount, the following shall be ignored: (i) any contract or legal limitation in
respect of shares of Common Stock or Preferred Stock, including transfer, voting
and other rights, (ii) the "minority interest" or "control" status of shares of
Common Stock into which shares of Series A Preferred Stock would be converted,
and (iii) any illiquidity arising by contract in respect of the shares of Common
Stock and any voting rights or control rights amongst the stockholders.
"NASDAQ" shall mean the National Association of Securities Dealers
------
Automated Quotations System.
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<PAGE>
"Non-Tracked Common Stock" has the meaning specified in Section
------------------------
4.10(a).
"Non-Tracked Business Available Dividend Amount" has the meaning
----------------------------------------------
specified in Section 4.10(b)(i).
"Optional Conversion Date" has the meaning specified in 4.6(c)(iii).
------------------------
"Parity Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, any capital stock of the
Corporation ranking on a parity with the Series A Preferred Stock or Series B
Preferred Stock, as the case may be, with respect to dividends, distribution in
liquidation or any other preference, right or power.
"Participating Stock" shall mean, collectively, the Series F
-------------------
Preferred Stock, the Senior Common Stock and the Non-Tracked Common Stock.
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, governmental agency or political subdivision thereof or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Stock" has the meaning specified in Section 4.1.
---------------
"Qualified Transfer" shall mean a sale, transfer or other disposition
------------------
of shares of Series A Preferred Stock to any prospective transferee specified in
a Qualified Transfer Notice, other than a prospective transferee as to which the
Corporation disapproves in accordance with the terms of the second sentence of
Section 4.3(j), provided such sale, transfer or other disposition is made
pursuant to a binding agreement entered into no later than 180 days after the
applicable Qualified Transfer Notice is given.
"Qualified Transferee" shall mean, with respect to any shares of
--------------------
Series A Preferred Stock, (i) any Cash Equity Investor that acquired such shares
pursuant to Section 4.2 of the Stockholders Agreement or (ii) any other holder
that acquired such shares in a Qualified Transfer from an Initial Holders or
Qualified Transferee.
"Qualified Transfer Notice" has the meaning specified in Section
-------------------------
4.3(i)(x).
"Redemption Securities" shall mean any debt or equity securities of
---------------------
the Corporation, any of its subsidiaries or affiliates or any other corporation,
or any combination thereof, having such terms and conditions as shall be
approved by the Board of Directors and which, together with any cash to be paid
as part of the redemption price payable pursuant to Section 4.13, in the opinion
of any nationally recognized investment banking firm selected by the Board of
Directors (which may be a firm which provides investment banking, brokerage or
other services to the Corporation), has a value, at the time notice of
redemption is given pursuant to Section 4.13(d) at least equal to the price
required to be paid pursuant to Section 4.13(a) (assuming, in the case of
Redemption Securities to be publicly traded, that such Redemption Securities
were fully distributed and subject only to normal trading activity).
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<PAGE>
"Section 4.12 Transferee" shall mean any transferee of shares of
------------------------
Series A Preferred Stock, Series D Preferred Stock and Series F Preferred Stock
issued to the Initial Holder on the date hereof (or any shares of Senior Common
Stock or Common Stock into which any such shares are converted) that are
acquired in a private transaction.
"Section 4.13 Redemption Date" shall mean the date fixed by the Board
----------------------------
of Directors for the redemption of any shares of stock of the corporation
pursuant to Section 4.13.
"Senior Common Stock" has the meaning specified in Section 4.1.
-------------------
"Senior Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, as the case may be, any capital
stock of the Corporation ranking senior to the Series A Preferred Stock or the
Series B Preferred Stock, as the case may be, with respect to dividends,
distribution in liquidation or any other preference, right or power.
"Series A Conversion Date" has the meaning specified in Section
------------------------
4.3(i)(iv).
"Series A Conversion Rate" shall mean, as of any date of
------------------------
determination, a fraction in which the numerator is the Liquidation Preference
of one share of Series A Preferred Stock as of such date, and the denominator is
the Market Price of Class A Common Stock as of such date.
"Series A Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series A Redemption Price" has the meaning specified in Section
-------------------------
4.3(e)(i).
"Series B Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series C Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series D Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series E Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series F Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Statutory Liquidation" means the liquidation of the Corporation
---------------------
pursuant to Section 275 of the GCL, as amended.
"Stockholders Agreement" means the July 1998 Stockholders Agreement by
----------------------
and among the Corporation, the Initial Holders and the other stockholders of the
Corporation named therein, as the same may be amended, modified or supplemented
in accordance with the terms thereof, a copy of which is available for
inspection by any stockholder at the principal executive offices of the
Corporation.
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<PAGE>
"Subsidiary" shall mean, with respect to any Person, a corporation or
----------
other entity of which 50% or more of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
"Tracked Business Available Dividend Amount" shall mean, on any date,
------------------------------------------
the excess (if any) of (i) the fair market value of the total assets of Tracked
Subsidiary (including, without limitation, investments held by Tracked
Subsidiary), less the total amount of the liabilities of Tracked Subsidiary, in
each case as of such date determined in accordance with generally accepted
accounting principles, over (ii) the aggregate par value of, or any greater
amount determined in accordance with GCL to be capital in respect of, all
outstanding shares of the Tracked Common Stock.
"Tracked Business Available Liquidation Amount" shall mean, on any
---------------------------------------------
date, the fair market value of the total assets of Tracked Subsidiary
(including, without limitation, investments held by Tracked Subsidiary, less the
total amount of the liabilities of Tracked Subsidiary, in each case as of such
date determined in accordance with generally accepted accounting principles.
"Tracked Common Stock" has the meaning specified in Section 4.10(a).
--------------------
"Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc.
------------------
ARTICLE V
Election of Directors need not be by written ballot.
ARTICLE VI
Subject to the separate class vote requirements relating to any class
or series of Preferred Stock, the holders of shares of Common Stock representing
at least two-thirds (2/3) of the votes entitled to be cast for the election of
directors of the Corporation, voting together as a single class, in person or by
proxy, at a special or annual meeting of stockholders called for the purpose, or
by written consent, may amend, alter or repeal this Restated Certificate of
Incorporation or the bylaws of the Corporation (the "Bylaws").
------
ARTICLE VII
7.1 Indemnification. Any person who was or is a party or is threatened to
---------------
be made a party to any threatened, pending, or completed action, suit, or
proceeding (a "Proceeding"), whether civil, criminal, administrative, or
----------
investigative (whether or not by or in the right of the Corporation), by reason
of the fact that such person, or a person of whom such person is the legal
representative, is or was a director, officer, incorporator, employee, or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, incorporator, employee, partner, trustee, or agent of another
corporation, partnership, joint venture, trust,
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<PAGE>
employee benefit plan or other enterprise (an "Other Entity"), shall be entitled
------------
to be indemnified by the Corporation to the full extent then permitted by law
against expenses (including counsel fees and disbursements), judgments, fines
(including excise taxes assessed on a person with respect to an employee benefit
plan), and amounts paid in settlement incurred by him in connection with such
Proceeding. Persons who are not Directors or officers of the Corporation may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board of Directors at
any time specifies that such persons are entitled to the benefits of this
Article VII.
7.2 Advancement of Expenses. The Corporation shall, from time to time,
-----------------------
reimburse or advance to any Director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
if (and only if) required by the GCL, such expenses incurred by or on behalf of
any Director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
7.3 Rights Not Exclusive. The rights to indemnification and reimbursement
--------------------
or advancement of expenses provided by, or granted pursuant to, this Article VII
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Restated Certificate of
Incorporation, the Bylaws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
7.4 Continuing Rights. The rights to indemnification and reimbursement or
-----------------
advancement of expenses provided by, or granted pursuant to, this Article VII
shall continue as to a person who has ceased to be a Director or officer (or
other person indemnified hereunder), shall inure to the benefit of the
executors, administrators, legatees and distributees of such person, and in
either case, shall inure whether or not the claim asserted is based on matters
which antedate the adoption of this Article VII.
7.5 Insurance. The Corporation shall have power to purchase and maintain
---------
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer, employee or agent of an Other Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Article VII, the Bylaws or under Section
145 of the GCL or any other provision of law.
7.6 Contract Rights; No Repeal. The provisions of this Article VII shall
--------------------------
be a contract
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<PAGE>
between the Corporation, on the one hand, and each Director and officer who
serves in such capacity at any time while this Article VII is in effect and any
other person indemnified hereunder, on the other hand, pursuant to which the
Corporation and each such Director, officer, or other person intend to be
legally bound. No repeal or modification of this Article VII shall affect any
rights or obligations with respect to any state of facts then or, heretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
7.7 Enforceability; Burden of Proof. The rights to indemnification and
-------------------------------
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article VII shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such Proceeding.
7.8 Service at the Request of the Corporation. Any Director or officer of
-----------------------------------------
the Corporation serving in any capacity in (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
7.9 Right to Be Covered by Applicable Law. Any person entitled to be
-------------------------------------
indemnified or to reimbursement or advancement of expenses as a matter of right
pursuant to this Article VII may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be made,
by a notice in writing to the Corporation, at the time indemnification or
reimbursement or advancement of expenses is sought; provided, however, that if
no such notice is given, the right to indemnification or reimbursement or
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
ARTICLE VIII
No Director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
Director, provided that this
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<PAGE>
provision does not eliminate the liability of the Director (i) for any breach of
the Director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which the Director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, counsel fees and disbursements). Each person who serves as a
Director of the Corporation while this Article VIII is in effect shall be deemed
to be doing so in reliance on the provisions of this Article VIII, and neither
the amendment or repeal of this Article VIII, nor the adoption of any provision
of this Restated Certificate of Incorporation inconsistent with this Article
VIII, shall apply to or have any effect on the liability or alleged liability of
any Director of the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such Director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article VIII are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of Directors
of the Corporation, as such, whether such limitations or eliminations arise
under or are created by any law, rule, regulation, bylaw, agreement, vote of
stockholders or disinterested Directors, or otherwise.
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<PAGE>
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this Fourth Amended and Restated Certificate of Incorporation this 31
day of August, 1999.
/s/ Thomas H. Sullivan
--------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Telecorp PCS, Inc. of our report dated
March 8, 1999, except for the information in Note 16, for which is dated
September 13, 1999 relating to the financial statements of Telecorp PCS, Inc,
which appears in such Prospectus. We also consent to the references to us under
the headings "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
McLean, VA
September 16, 1999
