<PAGE>
As filed with the Securities and Exchange Commission on November , 1999
Registration No. 333-89393
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
TELECORP PCS, INC.
(Exact name of registrant as specified in its charter)
Delaware 4812 54-1872248
(Primary Standard (I.R.S. Employer
(State or other Industrial Classification Identification No.)
jurisdiction of Code Number)
incorporation or
organization)
-----------
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
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:
Thomas J. Murphy William P. Rogers, Jr.
David A. Cifrino Cravath, Swaine & Moore
McDermott, Will & Emery 825 Eighth Avenue
28 State Street New York, New York 10019
Boston, Massachusetts 02109 (212) 474-1270
(617) 535-4000
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. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1999.
PROSPECTUS
7,800,000 Shares
TeleCorp PCS, Inc.
Class A Common Stock
--------
We are selling 7,800,000 shares of our class A common stock. The underwriters
named in this prospectus may purchase up to 1,170,000 additional shares of our
class A common stock to cover over-allotments.
This is our initial public offering and no public market currently exists for
our shares. We currently expect that the initial public offering price will be
between $16.00 and $18.00 per share. We have applied for quotation of the class
A common stock on the Nasdaq National Market under the symbol "TLCP".
--------
Investing in our class A common stock involves risks. See "Risk Factors"
beginning on page 6.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to TeleCorp (before expenses) $ $
</TABLE>
--------
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
--------
Salomon Smith Barney Lehman Brothers
Deutsche Banc Alex. Brown Merrill Lynch & Co.
, 1999
<PAGE>
[Map showing TeleCorp PCS and AT&T Wireless networks in south-central and
northeast United States and Puerto Rico, and captions.]
[TeleCorp and AT&T Wireless markets shaded in appropriate regions. TeleCorp
and SunCom logos also displayed.]
[Pictures of wireless phones and users.]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Historical and Pro Forma Consolidated Financial Information..... 20
Management's Discussion and Analysis of Financial Conditions and Results
of Operations........................................................... 22
The Wireless Communications Industry..................................... 36
Business................................................................. 38
Management............................................................... 59
Principal Stockholders and Beneficial Ownership of Management............ 68
Certain Relationships and Related Transactions........................... 72
Description of Indebtedness.............................................. 89
Description of Capital Stock............................................. 95
Shares Eligible for Future Sale.......................................... 103
Material U.S. Tax Consequences to Non-U.S. Holders....................... 105
Underwriting............................................................. 108
Legal Matters............................................................ 109
Experts.................................................................. 109
Available Information.................................................... 110
Index to Financial Statements............................................ F-1
</TABLE>
------------
Until , 1999, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
TeleCorp
We are the largest AT&T Wireless affiliate in the United States, with
licenses covering approximately 16.5 million people. We provide wireless
personal communications services in selected markets in the south-central and
northeast United States and in Puerto Rico, encompassing eight of the 100
largest metropolitan areas in the United States. Commencing with the launch of
our New Orleans market in February 1999, we have successfully launched our
services in 20 markets, including all of our major markets, and currently have
more than 100,000 subscribers. Our senior management team has substantial
experience in the wireless communications industry with companies such as AT&T,
Bell Atlantic and Sprint PCS.
Strategic Alliance with AT&T
We entered into a venture with AT&T in July 1998 under which AT&T
contributed personal communications services, or PCS, licenses to us in
exchange for ownership in our company. AT&T is one of our largest investors,
beneficially owning approximately 16% of our class A common stock upon
completion of this offering. As an AT&T Wireless affiliate, we enjoy numerous
strategic benefits, including the following:
. Exclusivity. We are AT&T's exclusive provider of wireless mobility
services using equal emphasis co-branding with AT&T in our covered
markets, subject to AT&T's right to resell services on our network.
. Brand. We have the right to use the AT&T brand name and logo together
with our SunCom brand name and logo in our covered markets, giving equal
emphasis to each. We also benefit from AT&T's nationwide advertising and
marketing campaigns.
. Roaming. We are AT&T's preferred roaming partner in our markets. Our
roaming revenues increased from approximately $1.9 million in the first
quarter of 1999 to approximately $9.5 million in the third quarter. We
believe our AT&T Wireless affiliation will continue to provide us with a
valuable base of recurring roaming revenue.
. Coast-to-Coast Coverage. Outside our markets, our wireless customers can
place and receive calls in AT&T Wireless markets and the markets of AT&T
Wireless' other roaming partners. Our ability to offer coast-to-coast
coverage is a competitive advantage as users increasingly choose
national rate plans. As of September 30, 1999, 19% of our customers have
chosen one of our national SunRate(TM) pricing plans.
Markets
Our PCS licenses include several major population centers and popular
vacation destinations such as:
. San Juan, Puerto Rico and the U.S. Virgin Islands;
. New Orleans and Baton Rouge, Louisiana;
. Memphis, Tennessee;
. Little Rock, Arkansas;
. Manchester, Concord and Nashua, New Hampshire; and
. Worcester, Cape Cod, Martha's Vineyard and Nantucket, Massachusetts.
Our launched networks covered approximately 65% of our licensed population
as of September 30, 1999, and by the end of 1999 we expect our network will
cover approximately 75% of our licensed population.
1
<PAGE>
Competitive Strengths
Our goal is to provide our customers with simple-to-buy, easy-to-use
wireless services, including coverage across the nation, superior call quality,
competitive pricing and personalized customer care. In addition to our
strategic alliance with AT&T, we believe we have several key business,
operational and marketing advantages, including our:
. Attractive Markets. Our markets have favorable demographic
characteristics for personal communications services with an average
population density of approximately 38% above the national average. We
believe our markets are strategically important to AT&T because they are
located near or adjacent to traffic corridors in and around large
markets such as Boston, Houston and St. Louis. Our markets include major
population and business centers and vacation destinations that attract
an estimated 39 million visitors per year. Most of our markets are also
adjacent to the markets of the other SunCom companies, Triton PCS, Inc.
and Tritel Communications, Inc.
. Experienced and Incentivized Management. Our 21 member senior management
team has an average of 11 years of experience in the wireless industry.
Together, they will beneficially own approximately 12% of our class A
common stock on a fully-diluted basis upon completion of this offering.
. Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz
of airwaves in our major urban markets of San Juan and New Orleans and
30 MHz in Little Rock and Memphis. Megahertz, or MHz, represents a
measure of airwave capacity. These amounts are equal to or greater than
those held by each of our principal competitors in each of these
markets. We believe these amounts of airwaves will enable us to
competitively deploy new and enhanced voice and data services. This
capacity will also permit us to provide service to the increasing number
of wireless users and to service increased use by subscribers.
. Strong Capital Base. Upon completion of this offering, we will have
approximately $1.5 billion of funded and committed capital. We believe
our existing capital resources, including the proceeds of this offering,
will be sufficient to fund our current business plan, including capital
expenditures and operating losses, through the end of 2001.
. Advanced Digital Technology. We are building our network using time
division multiple access technology, which makes our network compatible
with AT&T's network and other time division multiple access networks.
This technology allows us to offer enhanced features and services
relative to standard cellular service, including extended battery life,
integrated voicemail, paging, fax and e-mail delivery, enhanced voice
privacy and short-messaging capability.
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 page 6.
------------
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. This prospectus contains trademarks and registered trademarks
of ours and of other companies.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Class A common stock offered by this 7,800,000 shares
prospectus.............................
Class A common stock outstanding after 81,673,889 shares
this offering..........................
Class A common stock and equivalents
outstanding
after this offering (1)(2)............. 98,277,504 shares
Use of proceeds......................... We expect to use the estimated $122.3
million in net proceeds from this
offering
for general corporate purposes,
including capital expenditures in
connection with the expansion of our
personal communications services
network, sales and marketing
activities and working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. TLCP
</TABLE>
(1) Our restated certificate of incorporation provides that, subject to the
rights of specific classes of stock to vote as a class on specified
matters, until ownership restrictions of the Federal Communications
Commission currently applicable to us no longer apply, the holders of our
class A common stock will collectively possess 49.9% of the total voting
power of the outstanding common stock. Our founders, Mr. Vento and Mr.
Sullivan, as the holders of our voting preference common stock,
collectively possess 50.1% of the total voting power of our outstanding
common stock. See, "Business--Governmental Regulation--FCC Designated
Entity and Small Business Regulation," "Principal Stockholders and
Beneficial Ownership of Management" and "Description of Capital Stock."
(2) Includes the following number of shares of class A common stock that are
issuable upon conversion of certain of our other securities that will be
outstanding after this offering:
. 14,912,778 shares issuable to the holders of our series F preferred
stock at their option at any time,
. 1,138,332 shares issuable to the holders of our class C, class D and
voting preference common stock upon the consent of two-thirds of the
class A common stock after the FCC ownership restrictions no longer
apply to us, and
. 552,505 shares issuable upon the exercise of outstanding employee and
director options as of September 30, 1999 at a weighted average
exercise price of $0.0065 per share, including 212,005 shares
issuable within one year of completion of this offering. In addition,
1,261,816 shares of class A common stock are available for awards
under our 1999 Stock Option Plan and 118,390 shares are available for
grant under our 1998 Restricted Stock Plan.
Excluded from equivalents presented above are shares of class A common
stock issuable to holders of our series A preferred stock at their option
at any time after July 17, 2006, at a conversion rate equal to the
liquidation preference on those shares divided by the market price of the
class A common stock at the time of conversion. At the September 30, 1999
liquidation preference of the series A preferred shares of approximately
$107.0 million and a market price equal to an assumed initial public
offering price of this offering of $17.00 per share, the outstanding shares
of series A preferred stock would convert into 6,291,928 shares of class A
common stock. See "Description of Capital Stock." Also excluded are
1,337,322 shares to be issued in connection with pending acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisition History" and "--Recent Developments."
Except where otherwise indicated, the information in this prospectus:
. has been restated to give effect to a 100-for-1 stock split of our
common stock and series F preferred stock effected on August 27, 1999
and a 3.09-for-1 stock split of our common stock and series F preferred
stock effected on November 8, 1999, and
. assumes no exercise of the underwriters' over-allotment option.
3
<PAGE>
Summary Historical Financial Information
The following summary historical statements of operations and balance sheet
data has been derived from our audited and unaudited consolidated financial
statements included elsewhere in this prospectus. You should read this
information together with our financial statements and related notes included
elsewhere in this prospectus and the information under "Use of Proceeds,"
"Selected Historical and Pro Forma Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ -----------------------
July 29, 1996
(inception) to
December 31, 1996 1997 1998
(Predecessor) (Predecessor) 1998 (unaudited) 1999
----------------- ------------- ---------- ----------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Service revenue....... $ -- $ -- $ -- $ -- $ 18,937
Equipment revenue..... -- -- -- -- 10,322
Roaming revenue....... -- -- 29 -- 18,942
------- -------- ---------- ---------- ----------
Total revenue........ -- -- 29 -- 48,201
------- -------- ---------- ---------- ----------
Operating expense:
Cost of revenue....... -- -- -- -- 23,087
Operations and
development.......... -- -- 9,772 3,502 25,925
Selling and
marketing............ 10 304 6,325 2,488 39,720
General and
administrative....... 515 2,637 26,239 15,885 38,942
Depreciation and
amortization......... -- 11 1,584 643 34,799
------- -------- ---------- ---------- ----------
Total operating
expense............. 525 2,952 43,920 22,518 162,473
------- -------- ---------- ---------- ----------
Operating loss....... (525) (2,952) (43,891) (22,518) (114,272)
Interest expense...... -- 396 11,934 5,501 34,448
Interest income....... -- (13) (4,697) (2,631) (4,805)
Other expense......... -- -- 27 23 160
------- -------- ---------- ---------- ----------
Net loss............. (525) (3,335) (51,155) (25,411) (144,075)
Accretion of
mandatorily
redeemable
preferred stock.... (289) (726) (8,567) (4,026) (16,960)
------- -------- ---------- ---------- ----------
Net loss attributable
to common equity.... $ (814) $ (4,061) $ (59,722) $ (29,437) $ (161,035)
======= ======== ========== ========== ==========
Net loss attributable
to common equity per
share--basic and
diluted............... $(44.45) $(111.74) $ (2.19) $ (1.45) $ (2.30)
======= ======== ========== ========== ==========
Weighted average common
equity shares
outstanding--basic and
diluted............... 18,313 36,340 27,233,786 20,367,373 70,089,141
======= ======== ========== ========== ==========
Pro forma net loss
attributable to common
equity per share
(unaudited)--basic and
diluted(a)............ $ (1.28) $ (2.43)
========== ==========
Pro forma weighted
average common equity
shares outstanding
(unaudited)--basic and
diluted(a)............ 58,944,055 71,362,532
========== ==========
Other Operating Data:
Subscribers (end of
period)............... -- -- -- -- 75,723
Covered population (end
of period)............ -- -- -- -- 10,739,000
</TABLE>
- --------
(footnotes on following page)
4
<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------
Pro Forma
Actual As Adjusted(b)
--------- --------------
(Dollars in thousands) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 80,410 $202,734
Working capital................................. 40,726 163,049
Property and equipment, net..................... 347,348 347,348
Personal communications services licenses and
microwave relocation costs, net................ 235,760 252,660
Intangible assets--AT&T agreements, net......... 39,696 37,631
Total assets.................................... 754,783 891,942
Total debt...................................... 629,750 629,750
Mandatorily redeemable preferred stock, net..... 250,004 267,942
Total stockholders' deficit..................... (203,793) (84,572)
</TABLE>
- --------
(a) Pro forma basic and diluted net loss attributable to common equity per
share have been calculated assuming that our pending acquisitions of the
remaining minority interest of Viper Wireless, Inc. that we do not
currently own and of TeleCorp LMDS, Inc. and the completed acquisitions of
Digital PCS, Inc., AT&T Puerto Rico and Wireless 2000, Inc. had been
completed at the beginning of the periods presented. Since we had a net
loss attributable to common equity in each of the periods presented, pro
forma basic and diluted net loss attributable to common equity per share is
the same.
(b) Gives effect to completion of this offering, our pending acquisitions and
adjustments relating to completed acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisition History" and "--Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
5
<PAGE>
RISK FACTORS
Investing in shares of our class A common stock involves a high degree of
risk. You should carefully consider the risks described below as well as all
the other information in this prospectus--including our financial statements
and related notes--before investing in our class A common stock. Our business,
operating results and financial condition could be seriously harmed due to any
of the following risks. The trading price of our class A common stock could
decline due to any of these risks, and you could lose all or part of your
investment.
We may never achieve operating profitability or generate sufficient cash flow
to meet our obligations.
Our operating history is limited, and we have a history of operating losses.
If we do not achieve and maintain positive cash flow from operations on a
timely basis, we may be unable to develop our network or conduct our business
in an effective or competitive manner. As of September 30, 1999, we had
incurred cumulative operating losses of approximately $199.1 million. We expect
to continue to incur operating losses and to generate negative cash flow from
operating activities during the next several years while we develop our
business and expand our network. Additionally, our business has required and
will continue to require substantial capital expenditures. We will have to
dedicate a substantial portion of any cash flow from operations to make
interest and principal payments on our debt, which will reduce funds available
for other purposes.
As a result of the offering, the value of some outstanding stock option and
restricted stock awards will become fixed and a portion of them will be fully
vested. Based on an assumed initial public offering price of $17.00 per share,
we expect to record approximately $24.8 million of additional compensation
expense in the fourth quarter of 1999 in connection with these awards. We
expect to recognize an additional $46.5 million will be recognized over time as
the remaining awards vest. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We depend on our agreements with AT&T for our success, and we would have
difficulty operating without them. In addition, our roaming rates with AT&T
will decline over time.
We have entered into a number of agreements with AT&T, including:
. a license agreement;
. a 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 are not renewed or are
terminated, we would have difficulty operating.
In addition, under the roaming agreement, the roaming rate that AT&T pays to
us when AT&T's customers roam onto our network will decline over each of the
next several years and may be renegotiated. This may affect our roaming
revenue, most of which has historically been derived from AT&T Wireless'
customers traveling through our markets.
We have agreements 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 harm our relationship with our vendors.
Our agreements with AT&T contain stringent development requirements which, if
not met, will result in the loss of some of our rights under those agreements.
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. The construction of the
6
<PAGE>
remainder of our network involves risks of unanticipated costs and delays. 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 access to customers. See "Business--Network Development" and
"Certain Relationships and Related Transactions--AT&T Agreements."
AT&T could terminate its exclusive relationship with us.
If AT&T combines with specified entities with over $5 billion in revenue
from communications activities that have overlapping PCS or cellular licenses
with us, then AT&T may terminate its exclusivity obligations with us in markets
that overlap with markets of those entities. Other providers could then enter
into agreements with AT&T in those markets, exposing us to increased
competition, and we could lose access to customers.
In addition, AT&T can at any time require us to enter into a resale
agreement which would allow AT&T to sell access to, and usage of, our services
in our licensed area on a nonexclusive basis using the AT&T brand. See "Certain
Relationships and Related Transactions--AT&T Agreements."
We rely on the use of the AT&T brand name and logo to market our services, and
a loss of use of this brand and logo or a decrease in the market value of this
brand and logo would hinder our ability to market our products.
The AT&T brand and logo is highly recognizable and AT&T supports its brand
and logo by its marketing. If we lose our rights to use the AT&T brand and logo
under our license agreement, we would lose the advantages associated with
AT&T's marketing efforts. If we lose the rights to use this brand and logo,
customers may not recognize our brand readily and we may have to spend
significantly more money on advertising to create brand recognition. See
"Business--Marketing Strategy," "--Intellectual Property" and "Certain
Relationships and Related Transactions--AT&T Agreements."
In addition, 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 use
AT&T's network. If AT&T encounters problems in developing and operating its
wireless network it could adversely affect the value to us of the AT&T brand
and our agreements with AT&T. In that event, we may need to invest heavily in
obtaining other operating agreements and in marketing our brand to develop our
business, and we may not have funds to do so.
If we fail to maintain certain quality standards, AT&T could terminate its
exclusive relationship with us and our rights to the AT&T brand.
If we fail to meet specified customer care, reception quality and network
reliability standards set forth under the stockholders' agreement, AT&T may
terminate its exclusivity obligations with us and our rights to use the AT&T
brand. If AT&T terminates its exclusivity obligations, other providers could
then enter into agreements with AT&T, exposing us to increased competition, and
we could lose access to customers. If we lose our rights to use the AT&T brand,
we would lose the advantages associated with AT&T's marketing efforts. If we
lose the rights to use this brand, customers may not recognize our brand
readily. We may have to spend significantly more money on advertising to create
a brand recognition. See "Certain Relationships and Related Transactions--AT&T
Agreements."
Our association with the other SunCom companies may harm our reputation if
consumers react unfavorably to them.
We use the SunCom brand name to market our products and services in
conjunction with two other affiliates of AT&T Wireless, Triton PCS and Tritel
Communications, in order to broaden our marketing exposure and share the costs
of advertising. If either of those companies encounters problems in developing
and operating its network, it could harm consumer perception of the SunCom
brand, and in turn harm our own reputation.
7
<PAGE>
We may not be able to manage the construction of our network or the growth of
our business successfully.
We have experienced rapid growth and development in a relatively short
period of time and expect to continue to experience rapid growth in the future.
Our financial performance will depend on our ability to manage such growth and
the successful construction of our network. 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 wireless communications
service industry.
We have substantial existing debt, and may incur substantial additional debt,
that we may be unable to service.
We have a substantial amount of debt and may incur substantial additional
debt in the future, and we may not have sufficient funds to make interest and
principal payments on our debt. As of September 30, 1999, our outstanding debt
was approximately $629.8 million. Our senior credit facilities provide for
total borrowings in the amount of up to $560.0 million. In addition, Lucent has
committed to purchase up to an additional $75.0 million of junior subordinated
notes in connection with our development of new markets.
We expect to incur substantial additional debt under existing commitments in
connection with the construction of our network and operation of our existing
markets. In addition, if we acquire licenses in additional markets we would
expect to incur substantial additional debt as part of the financing of the
acquisition and the construction and operation of PCS systems in those markets.
We may not have sufficient cash flow in the future to service any additional
debt we incur.
Our substantial amount of debt makes us especially susceptible to competition
and market fluctuations, which may affect our ability to grow our business or
service our debt.
Our substantial amount of debt limits our ability to adjust to changing
market conditions. Because we require significant amounts of cash flow to
service our debt, we may not be able to discount our prices to maintain
competitive pricing packages. If our business does not grow, we may not have
funds to service our debt. We need to realize a significant amount of revenue
to pay our debt.
Our debt instruments contain restrictive covenants that may limit our operating
flexibility.
The documents governing our indebtedness, including the credit facility and
senior subordinated note indenture, contain significant covenants that limit
our ability to engage in various transactions and, in the case of the credit
facility, require satisfaction of specified financial performance criteria. In
addition, under each of these documents, the occurrence of specific events, in
some cases after notice and grace periods, would constitute an event of default
permitting acceleration of the respective indebtedness. The limitations imposed
by the documents governing our outstanding indebtedness are substantial, and if
we fail to comply with them, our debts could become immediately payable at a
time when we are unable to pay them.
If we do not pay our debt owed to the U.S. government when due, the FCC may
impose financial penalties on us or terminate or modify our licenses.
If we do not pay the interest and principal on 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;
. not renew any of our other licenses; and
. pursue other enforcement measures.
Any of these FCC actions would slow our growth and our ability to compete in
the wireless communications industry. See "Description of Indebtedness--
Government Debt."
8
<PAGE>
Some of our stockholders are obligated to make equity contributions to us in
the future and we cannot guarantee that they will make those contributions.
We received unconditional and irrevocable equity commitments from some of
our stockholders in connection with the completion of our venture with AT&T and
certain other acquisitions. In return for these commitments, these stockholders
received shares of our common and preferred stock, which they pledged to us and
our senior bank lenders to secure their commitments. These stockholders are
required to fund $37.7 million of these commitments in 2000, $48.6 million in
2001 and the remaining $11.0 in 2002. Under certain circumstances, these
stockholders can transfer their interests in our preferred stock, subject to
the pledge, prior to funding their commitments. In the event any of these
stockholders do not fund the remaining portions of their commitments, we could
foreclose on their pledged shares, but we would likely have to obtain
alternative financing to complete our network. Such financing may not be
available on terms satisfactory to us. If we are unable to secure alternate
financing, we may have to delay, modify or abandon some of our plans to
construct the remainder of our network.
We may not be able to obtain the additional financing we may need to complete
our network and fund operating losses.
We will make significant capital expenditures to finish the construction,
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, or what
the terms of any such additional financing would be 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 communications
industry.
We would have to obtain additional financing if, among other things:
. 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 experience increases in operating costs;
. changes in technology or governmental regulations create unanticipated
costs; or
. we acquire additional licenses.
We have many competitors that have substantial coverage of our licensed areas,
which makes it difficult for us to acquire and maintain a strong competitive
position and to earn profits.
We compete in our markets with three or more major U.S. wireless
communications services companies in each of our markets, such as:
. Bell Atlantic;
. BellSouth;
. GTE;
. SBC Communications; and
. Sprint PCS.
In some markets, we compete with as many as five major competitors. Many of
these competitors have greater financial, marketing and sales and distribution
resources than we do. In addition, some of these
9
<PAGE>
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. In order to
attract customers and otherwise compete effectively, we may have to
significantly discount our prices, which may reduce our revenues and make it
more difficult for us to achieve positive cash flow to meet our obligations.
See "Business--Competition."
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 to attract
customers, which would make it more difficult for us to achieve positive cash
flow to meet our obligations. 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, enhanced specialized mobile radio
and domestic and global mobile satellite service. Specialized mobile radio is a
digital technology system that reuses radio airwaves. 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 may make their services more
attractive to customers. They may attract customers away from us, or prevent us
from attracting customers. In addition, in the future, we expect that providers
of traditional telephone services, energy companies, utility companies and
cable operators who expand their services to offer communications services may
compete with us and other wireless providers. See "Business--Competition."
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
for 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 communications industry or cause us not to
meet development requirements.
Difficulties in obtaining infrastructure equipment may affect our ability to
construct our network and meet our development requirements.
If we do not receive our network equipment in a timely manner, we may be
unable to provide wireless communications services comparable to those of our
competitors. We have purchased a substantial majority of our network equipment
from Lucent. There is high demand for the equipment that we require to
construct our network, and manufacturers of this equipment, including Lucent,
could have substantial backlogs of orders. Accordingly, the lead time for the
delivery 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, such as Lucent. Consequently, they
may receive priority in the delivery of this equipment. 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. See
"Business--Network Development" and "Certain Relationships and Related
Transactions--AT&T Agreements."
10
<PAGE>
Potential acquisitions may require us to incur substantial additional debt and
integrate new technologies, operations and services, which may be costly and
time consuming.
We continually evaluate opportunities for the acquisition of licenses and
properties that will compliment or extend our existing operations. If we
acquire new licenses or facilities, we may encounter difficulties that may be
costly and time-consuming and that may slow our growth, which could lower the
market value of our class A common stock. Examples of such difficulties are
that we may have to:
. incur substantial additional debt to finance the acquisitions;
. assume U.S. government debt related to any licenses we acquire;
. 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.
We may experience a high rate of customer turnover which may negatively impact
our business.
Many providers in the personal communications services industry have
experienced a high rate of customer turnover as compared to cellular industry
averages. Our strategy to address customer turnover may not be successful, or
the rate of customer turnover may be unacceptable. The rate of customer
turnover may be the result of several factors, including network coverage,
reliability issues such as blocked and dropped calls, handset problems,
nonusage of phones, change of employment, affordability, customer care concerns
and other competitive factors. Price competition and other competitive factors
could also cause increased customer turnover.
We depend upon consultants and contractors for our network services, and if any
of them fail to perform its obligations to us, we may not complete our network
development on a timely basis.
We have retained Lucent and other consultants and contractors to help us to
design, construct 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
communications industry.
We may become subject to new health and safety regulations, which may result in
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 have also suggested that hand-held phones may interfere with medical
devices. Subsequent studies that raise public concern could decrease demand for
our services. Governmental authorities may create new regulations concerning
hand-held phones, and our handsets may not comply with rules adopted in the
future. Noncompliance would decrease demand for our services. In addition, some
state and local legislatures have passed or 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."
If the management agreement with TeleCorp Management is terminated, we may not
be able to comply with applicable FCC rules.
Under our management agreement with TeleCorp Management, Mr. Vento and Mr.
Sullivan provide management services to us regarding the design, development
and operation of our network. If the management agreement is terminated, we may
have limited success and less ability to comply with the FCC rules regarding
our licenses. See "Business--Government Regulation" and "Management--Management
Agreement."
11
<PAGE>
If we cannot retain senior management, we may not be able to effectively run
our business.
We depend on Mr. Vento, our Chief Executive Officer, Mr. Sullivan, our
Executive Vice President and Chief Financial Officer, and Ms. Dobson, our Chief
Operating Officer, for management leadership. If we lose the services of any of
these executives, we may not be successful in running our business. We do not
carry life insurance on Mr. Vento, Mr. Sullivan or Ms. Dobson. See
"Management."
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.
As the FCC continues to implement changes to promote competition under the
Communication Act of 1934, as amended by the Telecommunication 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.
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 their
value or use to us or allocate unused airwaves for similar services. The
nonrenewal or loss of any of our licenses would slow our growth and our ability
to compete in the wireless communications industry. See "Business--Government
Regulation."
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 communications
industry.
We and TeleCorp Holding 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, including rules governing our
capital and ownership structure and corporate governance. 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. Among other things, the FCC could:
. fine us;
. revoke our licenses;
. accelerate our installment payment obligations; or
. cause us to lose bidding credits retroactively.
See "Business--Government Regulation."
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 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 on one
radio airwave channel. Other digital
12
<PAGE>
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 include conditions requiring us to upgrade of 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 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 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.
A limited number of stockholders control us, and their interests may be
different from yours.
Mr. Vento and Mr. Sullivan will continue to control at least 50.1% of our
total voting power after the offering through their ownership of the voting
preference stock and have agreed to vote their shares of this stock together on
all matters. In addition, Chase Capital Partners, Equity Linked Investors-II,
Hoak Communications Partners, L.P., Whitney Equity Partners, LP, Media
Communications Partners, AT&T Wireless and TWR Cellular, Inc., will control
approximately 36.4% of our total voting power, in the aggregate, after this
offering. Mr. Vento and Mr. Sullivan together, and collectively with these
stockholders, will have the power to elect all of our directors. They have
agreed in a stockholders agreement to arrangements for the designation of board
nominees and to vote their shares together to elect all of the nominees
designated by them under the stockholders agreement. As a result of their stock
ownership, these stockholders and our management will have the ability to
control our future operations and strategy. They will also be able to effect or
prevent a sale or merger or other change of control of us. In addition, by
virtue of their ownership of voting preference stock, Mr. Vento and Mr.
Sullivan can control the outcome of any matter that requires a vote of a
majority of the common stock and can prevent the approval of any matter that
requires a supermajority vote of the common stock.
Conflicts of interest between these stockholders and management stockholders
and our public stockholders may arise with respect to sales of shares of class
A common stock owned by our initial investors and management stockholders or
other matters. For example, sales of shares by our initial investors and
management stockholders could result in a change of control under our credit
facility, which would constitute an event of default under the credit facility,
and under our senior subordinated discount note indenture, which would require
us to offer to repurchase those notes. In addition, the interests of our
initial investors and other existing stockholders regarding any proposed merger
or sale may differ from the interests of our new public stockholders,
especially if the consideration to be paid for the class A common stock is less
than the price paid by public stockholders in this offering.
Our initial investors, directors and members of our management have interests
in other personal communications services companies, and conflicts of interest
may arise from these investments and from other directorships held by our
directors.
Our initial investors, or their affiliates, currently have significant
investments in personal communications services companies other than us. These
initial investors may in the future invest in other entities that compete with
us. In addition, several of our directors, including Mr. Vento and Mr.
Sullivan, serve as directors of, own, or may acquire interests in other
communications services companies. As a result, these directors may be
13
<PAGE>
subject to conflicts of interest during their tenure as our directors. Also,
Mr. Vento or Mr. Sullivan may allocate a portion of their time to managing
these companies. Our interests may conflict with the interests of these
companies and any conflicts may not be resolved in our favor.
In addition, Mr. Vento and Mr. Sullivan own several companies that have
acquired PCS licenses in markets where we do not currently operate. AT&T has
provided financing for these companies. Mr. Vento and Mr. Sullivan may allocate
a portion of their time to managing these companies. These relationships may
result in conflicts of interest between us and Mr. Vento and Mr. Sullivan and
these conflicts may not be resolved in our favor.
We do not intend to pay dividends in the foreseeable future.
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. Payment of any future dividends on our
common stock will depend on our earnings and capital requirements, the terms of
our debt instruments and preferred stock and other factors our board of
directors considers appropriate.
Our stock price is likely to be very volatile.
Prior to this offering, you could not buy or sell our class A common stock
publicly. The market price of the class A common stock after this offering may
vary from the initial public offering price. The market price of our class A
common stock is likely to be highly volatile and could be subject to wide
fluctuations in response to factors such as the following, some of which are
beyond our control:
. quarterly variations in our operating results;
. operating results that vary from the expectations of securities analysts
and investors;
. changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
. changes in the status of our intellectual property and other proprietary
rights;
. changes in law and regulation;
. announcements by third parties of significant claims or proceedings
against us;
. changes in market valuations of other PCS companies;
. announcements of technological innovations or new services by us or our
competitors;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. additions or departures of key personnel;
. future sales of our class A common stock; and
. stock market price and volume fluctuations.
Additional shares of our class A common stock will be eligible for public sale
in the future and could cause our stock price to drop, even if our business is
doing well.
After this offering, we will have 81,673,889 shares of class A common stock
outstanding, or 82,843,889 shares if the underwriters' over-allotment option is
exercised in full, and we have reserved an additional 1,814,321 shares of class
A common stock for the issuance of stock options available for grant under our
1999 Stock Option Plan, 552,505 of which have been granted as of September 30,
1999, and 118,390 shares are available for grant under our 1998 Restricted
Stock Plan. In addition, we anticipate issuing 1,337,322 shares of class A
common stock in connection with pending acquisitions, an aggregate of
16,051,110 shares of our class A common stock may be issued upon conversion of
our class C and class D and voting preference common
14
<PAGE>
stock and our series F preferred stock, and, based on the September 30, 1999
liquidation preference of the series A preferred stock and an assumed initial
public offering price of $17.00 per share, 6,291,928 shares of class A common
stock are issuable upon conversion of our outstanding series A preferred stock.
The shares sold in this offering, except for any shares purchased by our
affiliates, may be resold in the public market immediately. The remaining
shares of our outstanding class A common stock, representing approximately
90.4% of the total class A common stock outstanding, will be restricted
securities and will become available for resale in the public market as shown
in the chart below.
<TABLE>
<CAPTION>
% of Date of availability for resale into public
Number of shares total outstanding market
---------------- ----------------- -------------------------------------------
<C> <C> <S>
101,459 0.12% After January 11, 2000, due to provisions
of the federal securities laws.
3,783,362 4.63% 180 days after the date of this prospectus
due to an agreement these stockholders have
with the underwriters, subject to vesting
requirements listed in our 1998 Restricted
Stock Plan. However, the underwriters can
waive this restriction and allow these
stockholders to sell their shares at any
time.
69,989,068 85.69% After July 17, 2001, upon lapse of
restrictions on transfer under the
stockholders' agreement, unless the
restrictions are earlier waived by the
parties thereto, in which case those shares
will be subject to resale subject to volume
limitations, and, in the case of non-
affiliates, without restriction after July
17, 2000. In addition the 16,051,110 shares
of our class A common stock issuable upon
conversion of our class C and class D and
voting preference common stock and our
series F preferred stock and shares of
class A common stock issuable upon
conversion of our class A preferred stock
are also subject to the restrictions on
transfer under the stockholders' agreement.
</TABLE>
We also intend to register under the Securities Act of 1933 1,814,321 shares
of our class A common stock reserved for issuance under our 1999 Stock Option
Plan.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them. See "Shares Eligible for Future Sale."
We depend on our third party service providers to become year-2000 compliant
and we can not assure that this will occur.
We are dependent upon the ability of our third party service providers to
make their software and equipment year-2000 compliant. The failure of such
third party service providers to be year-2000 compliant may affect, among other
things, our clearing house services and billing systems and our customers'
ability to receive local access and over the air activation or to roam on other
networks.
We have engaged a nationwide provider of year-2000 services and initiated a
year-2000 readiness program. While we expect our systems will be year-2000
compliant, we can not guarantee that this will be the case.
Anti-takeover provisions affecting us could prevent or delay a change of
control that you may favor.
Provisions of our restated certificate of incorporation that will become
effective upon closing of this offering and our bylaws, provisions of our debt
instruments and other agreements, and provisions of applicable Delaware law and
applicable federal and state regulations may discourage, delay or prevent a
merger or other change of control that stockholders may consider favorable. The
provisions of our restated certificate of incorporation or bylaws, among other
things, will:
. divide our board of directors into three classes, with members of each
class to be elected in staggered three-year terms;
. limit the right of stockholders to remove directors;
15
<PAGE>
. regulate how stockholders may present proposals or nominate directors
for election at annual meetings of stockholders; and
. authorize our board of directors to issue preferred stock on one or more
series, without stockholder approval.
These provisions could:
. have the effect of delaying, deferring or preventing a change in control
of our company;
. discourage bids for our class A common stock at a premium over the
market price;
. lower the market price of, and the voting and other rights of the
holders of, our class A common stock; or
. impede the ability of the holders of our class A common stock to change
our management.
In addition, our stockholders' agreement, credit facility and our senior
subordinated notes indenture contain limitations on our ability to enter into
change of control transactions. See "Certain Relationships and Related
Transactions," "Description of Indebtedness" and "Description of Capital
Stock--Anti-Takeover Provisions."
Our business is subject to regulation by the FCC and state regulatory
commissions or similar state regulatory agencies in the states in which we
operate. This regulation may prevent some investors from owning our securities,
even if that ownership may be favorable to us. The FCC and some states have
statutes or regulations that would require an investor who acquires a specified
percentage of our securities or the securities of one of our subsidiaries to
obtain approval to own those securities from the FCC or the applicable state
commission.
You will experience immediate and substantial dilution.
We expect the initial public offering price will be substantially higher
than the net tangible book value of each outstanding share of common stock.
Purchasers of common stock in this offering will suffer immediate and
substantial dilution. Based on our net tangible book deficit as of September
30, 1999, the dilution in net tangible book deficit will be $21.60 per share of
the class A common stock at an assumed initial public offering price of $17.00
per share, which is the midpoint of the initial public offering price range set
forth on the cover of this prospectus.
This prospectus contains statements that are not statements of fact, and these
statements may prove to be incorrect, which may mean we need more capital than
we anticipate.
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. We base forward-looking statements in
this prospectus 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.
. 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.
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. Do not place undue
reliance on any forward-looking statements.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 7,800,000 shares of
class A common stock in this offering will be approximately $122.3 million at
an assumed initial public offering price of $17.00 per share and after
deducting the estimated underwriting discounts and estimated offering expenses.
If the underwriters exercise their over-allotment option in full, we estimate
that our net proceeds will be approximately $140.9 million.
We expect to use the net proceeds of this offering for general corporate
purposes, including capital expenditures in connection with the expansion of
our personal communications services network, sales and marketing activities
and working capital. We anticipate spending approximately $95 million in the
fourth quarter of 1999 and approximately $185 million in the year 2000 on
capital expenditures to continue our network construction, although actual
amounts expended may vary significantly depending upon the progress of the
construction and other factors. These capital expenditures are expected to be
funded through a combination of the proceeds of this offering, cash on hand,
available bank and vendor credit facilities and committed equity investments.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
A portion of the net proceeds may also be used for approved acquisitions.
Other than the pending acquisitions of TeleCorp LMDS and additional airwaves in
Louisiana, we have no agreements or commitments with respect to any such
acquisition. However, we continually evaluate opportunities and enter into
discussions regarding possible acquisitions of licenses and properties that
will complement or extend our existing operations. We may incur substantial
additional debt to finance any future acquisitions. We do not currently expect
that we would acquire licenses in any new market unless we are able to extend
the AT&T agreements to cover our operations in that market.
Pending such uses, the net proceeds of this offering will be invested in
short term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business. Any future determination to pay
dividends will be at the discretion of our board of directors and will be
dependent upon then existing conditions, including our financial conditions and
results of operations, contractual restrictions, business prospects and other
factors that the board of directors considers relevant. Our ability to pay
dividends is restricted by the terms of our preferred stock, our senior
subordinated notes indenture and our senior credit facilities. See "Description
of Capital Stock" and "Description of Indebtedness."
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis,
. giving pro forma effect to our pending acquisitions of TeleCorp LMDS and
the remaining minority interest of Viper Wireless that we do not
currently own, and adjustments related to completed acquisitions during
the first nine months of 1999, and
. on a pro forma as adjusted basis to give effect to the items described
above and the sale of 7,800,000 shares of class A common stock in this
offering at an assumed initial public offering price of $17.00 per
share.
This information 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," "Unaudited Pro
Forma Condensed Consolidated Financial Statements" and our other financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
-----------------------------------
(In thousands)
Pro Forma
Actual Pro Forma(a) As Adjusted
--------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents.................. $ 80,410 $ 80,410 $ 202,734
========= ========= =========
Long-term debt:
Government license obligations, net of
discounts............................... $ 17,883 $ 17,883 $ 17,883
Senior credit facilities (b)............. 225,000 225,000 225,000
Senior subordinated discount notes....... 344,351 344,351 344,351
Vendor financing (c)..................... 42,516 42,516 42,516
--------- --------- ---------
Total long-term debt................... 629,750 629,750 629,750
--------- --------- ---------
Mandatorily redeemable preferred stock,
net....................................... 250,004 267,942 267,942
--------- --------- ---------
Stockholders' equity (deficit):
Series F preferred stock................. 149 149 149
Common stock............................. 750 763 841
Additional paid-in capital............... 5,379 28,306 150,551
Deferred compensation.................... (801) (3,841) (3,841)
Common stock subscriptions receivable.... (191) (191) (191)
Treasury stock........................... -- -- --
Accumulated deficit...................... (209,079) (232,081) (232,081)
--------- --------- ---------
Total stockholders' equity (deficit)... (203,793) (206,895) (84,572)
--------- --------- ---------
Total capitalization................... $ 675,961 $ 690,797 $ 813,120
========= ========= =========
</TABLE>
- --------
(a) Includes, in addition to the Viper Wireless and TeleCorp LMDS transactions,
adjustments resulting from the amortization of the extension of a network
membership license agreement which increases the accumulated deficit, and
the accretion of mandatorily redeemable preferred stock issued in
connection with asset acquisitions which were completed, or are to be
issued in connection with completed and pending acquisitions, which
increases the mandatorily redeemable preferred stock, net, and the
accumulated deficit.
(b) Our senior credit facilities provide up to $560.0 million of term loan and
revolving credit financing. See "Description of Indebtedness--Senior Credit
Facilities."
(c) Our vendor arrangements with Lucent Technologies have an aggregate
additional commitment of up to $75.0 million. See "Description of
Indebtedness--Vendor Financing."
18
<PAGE>
DILUTION
If you invest in our class A common shares, your interest will be diluted by
an amount equal to the difference between the initial public offering price per
class A common share and the net tangible book value per class A common share
after this offering. We calculate net tangible book value, which is total
assets less intangible assets, total liabilities and net mandatorily redeemable
preferred stock, by the number of outstanding class A common shares.
Our net tangible book deficit as of September 30, 1999, was approximately
$(497,632,810) or approximately $(6.74) per class A common share. After the
sale of the 7,800,000 class A common shares we are offering under this
prospectus, at an assumed initial public offering price per class A common
share of $17.00, and after deducting underwriting discounts and our estimated
expenses in connection with this offering, our net tangible book deficit as of
September 30, 1999, would have been approximately $(375,309,310) or
approximately $(4.60) per class A common share. This represents an immediate
decrease in net tangible book deficit of $2.14 per class A common share to
existing shareholders and an immediate dilution of $(21.60) per class A common
share to new investors. The following table illustrates this dilution on a per
class A common share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per class A common
share.................................................... $ 17.00
Net tangible book deficit per class A common share at
September 30, 1999..................................... $(6.74)
Decrease in net tangible book deficit per class A common
share attributable to new investors.................... $ 2.14
------
Net tangible book deficit per class A common share after
the offering............................................. $ (4.60)
-------
Dilution in net tangible book deficit per class A common
share to new investors................................... $(21.60)
=======
</TABLE>
The following table summarizes on an unaudited pro forma basis as of
November 17, 1999, the differences between the number of class A common shares
purchased from us, the total consideration paid and the average price per share
paid by existing shareholders and by the new investors in the offering before
deducting the underwriting discounts and estimated offering expenses payable by
us, at an assumed public offering price of $17.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders... 73,873,889 90.4% $ 19,280,585 12.7% $ 0.26
New Investors........... 7,800,000 9.6% 132,600,000 87.3% $17.00
---------- ----- ------------ -----
Total................. 81,673,889 100.0% $151,880,585 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and table assumes no exercise of outstanding
options and no conversion of our outstanding preferred or common stock after
September 30, 1999 into class A common stock. An aggregate of 16,051,110 shares
of class A common stock are issuable upon conversion of our outstanding class
C, class D and voting preference common stock and our series F preferred stock,
subject to FCC ownership restrictions no longer being applicable to us, and,
based on the September 30, 1999 liquidation preference of our series A
preferred stock of approximately $107.0 million and an assumed initial public
offering price of $17.00 per share, 6,291,928 shares of our class A common
stock would be issuable upon conversion of our series A preferred stock. As of
September 30, 1999, an aggregate of 552,505 shares of class A common stock were
issuable upon the exercise of options outstanding under our 1999 Stock Option
Plan at a weighted average exercise price of $0.0065 per share. If all such
shares of capital stock were converted to class A common shares and all such
options were exercised, the net tangible book deficit per share immediately
after completion of the offering would be $(2.57). This represents an immediate
dilution in net tangible book deficit of $19.57 per share to purchasers of
class A common shares in the offering.
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The selected historical statements of operations and balance sheet data
presented on the following page for the period from inception on July 29, 1996
to December 31, 1996, for the years ended December 31, 1997 and 1998, and as of
and for the nine months ended September 30, 1999, has been derived from our
audited consolidated financial statements included elsewhere in this
prospectus. "Other Operating Data" is not directly derived from our historical
consolidated financial statements, and has been presented to provide additional
information. The unaudited pro forma balance sheet data as of September 30,
1999 give effect to our pending acquisition of the remaining minority interest
of Viper Wireless that we do not currently own and our pending acquisition of
TeleCorp LMDS as if each of these transactions had occurred on January 1, 1998.
The unaudited pro forma statement of operations data for the year ended
December 31, 1998 and the nine months ended September 30, 1999 give effect to
our Viper Wireless and TeleCorp LMDS transactions as if they had occurred at
the beginning of the periods presented. The unaudited pro forma as adjusted
balance sheet data as of September 30, 1999 give effect to Viper Wireless and
TeleCorp LMDS transactions and the completion of this offering as if each had
occurred on September 30, 1999. We have provided the pro forma information for
informational purposes only and you should not assume that our results would
actually have been as shown as if we had completed the transactions on the
dates indicated.
You should read this information together with our financial statements and
related notes included elsewhere in this prospectus and the information under
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
July 29, 1996 ------------------------------------- ------------------------------------
(inception) to 1998 1999
December 31, ----------------------- -----------------------
1996 1997 Pro Forma 1998 Pro Forma
(Predecessor) (Predecessor) Actual (unaudited) (unaudited) Actual (unaudited)
-------------- ------------- ---------- ----------- ----------- ---------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Service revenue....... $ -- $ -- $ -- $ -- $ -- $ 18,937 $ 18,937
Equipment revenue..... -- -- -- -- -- 10,322 10,322
Roaming revenue....... -- -- 29 29 -- 18,942 18,942
------- -------- ---------- ---------- ---------- ---------- ----------
Total revenue......... -- -- 29 29 -- 48,201 48,201
------- -------- ---------- ---------- ---------- ---------- ----------
Operating expense:
Cost of revenue....... -- -- -- -- -- 23,087 23,087
Operations and
development.......... -- -- 9,772 9,772 3,502 25,925 25,925
Selling and
marketing............ 10 304 6,325 6,325 2,488 39,720 39,720
General and
administrative....... 515 2,637 26,239 31,780 15,885 38,942 44,456
Depreciation and
amortization......... -- 11 1,584 2,764 643 34,799 35,684
------- -------- ---------- ---------- ---------- ---------- ----------
Total operating
expense.............. 525 2,952 43,920 50,641 22,518 162,473 168,872
------- -------- ---------- ---------- ---------- ---------- ----------
Operating loss........ (525) (2,952) (43,891) (50,612) (22,518) (114,272) (120,671)
Other (income) expense:
Interest expense...... -- 396 11,934 11,934 5,501 34,448 34,448
Interest income....... -- (13) (4,697) (4,760) (2,631) (4,805) (4,815)
Other expense......... -- -- 27 27 23 160 160
------- -------- ---------- ---------- ---------- ---------- ----------
Net loss.............. (525) (3,335) (51,155) (57,813) (25,411) (144,075) (150,464)
Accretion of
mandatorily
redeemable preferred
stock................ (289) (726) (8,567) (17,897) (4,026) (16,960) (23,026)
------- -------- ---------- ---------- ---------- ---------- ----------
Net loss attributable
to common equity..... $ (814) $ (4,061) $ (59,722) $ (75,710) $ (29,437) $ (161,035) $ (173,490)
======= ======== ========== ========== ========== ========== ==========
Net loss attributable
to common equity per
share--basic and
diluted............... $(44.45) $(111.74) $ (2.19) $ (1.28)(a) $ (1.45) $ (2.30) $ (2.43)(a)
======= ======== ========== ========== ========== ========== ==========
Weighted average common
equity shares
outstanding--basic and
diluted............... 18,313 36,340 27,233,786 58,944,055(a) 20,367,373 70,089,141 71,362,532(a)
======= ======== ========== ========== ========== ========== ==========
Other Operating Data:
Subscribers (end of
period).............. -- -- -- -- -- 75,723 75,723
Covered population
(end of period)...... -- -- -- -- -- 10,739,000 10,739,000
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
-------------------------------------
Pro Forma
Pro Forma As Adjusted(b)
Actual (unaudited) (unaudited)
--------- ----------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 80,410 $ 80,410 $202,734
Working capital......................... 40,726 40,726 163,049
Property and equipment, net............. 347,348 347,348 347,348
Personal communications services
licenses and microwave relocation
costs, net............................. 235,760 252,660 252,660
Intangible assets--AT&T agreements,
net.................................... 39,696 37,631 37,631
Total assets............................ 754,783 769,618 891,942
Total debt.............................. 629,750 629,750 629,750
Mandatorily redeemable preferred stock,
net.................................... 250,004 267,942 267,942
Total stockholders' deficit............. (203,793) (206,895) (84,572)
</TABLE>
- --------
(a) Pro forma basic and diluted net loss attributable to common equity per
share have been calculated assuming that completion of our pending
acquisitions of the remaining minority interest of Viper Wireless, Inc.
that we do not currently own and of TeleCorp LMDS, Inc. and the completed
acquisitions of Digital PCS, LLC, AT&T Puerto Rico and Wireless 2000, Inc.
had been completed at the beginning of periods presented. Since we had a
net loss attributable to common equity in each of the periods presented,
pro forma basic and diluted net loss attributable to common equity per
share is the same.
(b) Gives effect to completion of this offering, our pending acquisitions and
adjustments relating to completed acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Acquisition History" and "Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Our predecessor, TeleCorp Holding Corp., Inc., 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
the purposes of PCS licensing.
We were incorporated on November 14, 1997 by the controlling stockholders of
TeleCorp Holding, which subsequently became our wholly-owned subsidiary. 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
with AT&T Wireless. We are AT&T's exclusive provider of PCS in our licensed
markets subject to AT&T's right to resell services on our network. We use the
AT&T brand name and logo together with the SunCom name and logo, giving equal
emphasis to each. We have acquired PCS licenses in a total of eight major
trading areas covering approximately 16.5 million people. See "Acquisition
History" below.
For periods prior to 1999 we were a development stage company. 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.
Revenue
We derive our revenue from:
. Service. We sell wireless personal communications services. The various
types of service revenue associated with personal communications
services 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'
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, per minute fees to other
wireless companies whose customers use our network facilities to place
and receive wireless services.
Roaming revenue constituted the largest component of our revenue during the
first six months of this year. We expect 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. Under our reciprocal roaming agreement with
AT&T, our largest roaming partner, the amount we will receive and pay for
roaming minutes declines for each of the next several years.
22
<PAGE>
It appears that the wireless industry is experiencing a general trend
towards offering rate plans containing larger buckets of minutes. This is
expected to result in decreases in 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 service.
We may discount our pricing in order to obtain customers or in response to
downward pricing in the market for wireless communications services.
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. The cost of handsets is, and is expected to remain, higher than the
resale price to the customer. We record as cost of revenue an amount
approximately equal to our revenue on equipment sales. We record the excess
cost of handsets as a sales and marketing operating 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
other than our obligation to purchase at least 15 million roaming minutes from
July 1999 to January 2002 from another wireless provider in Puerto Rico
relating to customers roaming outside our coverage area. We believe we will be
able to meet these minimum 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 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 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 other than an obligation to AT&T Wireless to purchase a minimum
number of minutes of traffic annually over a specified time period and a
specified number of dedicated voice and data leased lines in order for us to
retain preferred pricing rates. We believe we will be able to meet these
minimum requirements.
Operating Expense
Operations and development. Our operations and development expense includes
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 brand
management, external communications, retail distribution, sales training,
direct, indirect, third party and telemarketing support. We also record the
excess cost of handsets over the resale price as a cost of selling and
marketing. Selling and
23
<PAGE>
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
customer support, billing, information technology, finance, accounting and
legal services. Although we expect general and administrative
expense to increase in future periods we expect this expense will decrease
significantly as a percentage of gross revenues.
As a result of the offering, the value of some outstanding stock option and
restricted stock awards will become fixed, although most of the awards will
remain subject to vesting requirements over approximately four years.
Accordingly, we will record approximately $71.3 million on our balance sheet as
deferred compensation and additional paid-in capital, based on an assumed
initial public offering price of $17.00 per share. This amount will be
amortized in the statement of operations as additional compensation expense as
the vesting requirements are met. Because some of these awards will be vested
upon the closing of this offering, we will record a charge of approximately
$24.8 million of the $71.3 million on our statement of operations as
compensation expense for the fourth quarter of 1999.
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 the first
quarter of 1999, when PCS services commenced in some of our basic trading
areas. Microwave relocation entails transferring business and public safety
companies from radio airwaves that overlap with the portion of the airwaves
covered by our business to other portions of the airwaves. 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 of 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 September 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 will
be payable in additional series A and series B notes. Thereafter, interest will
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 nine years.
Results of Operations
Nine Months ended September 30, 1999 Compared to Nine Months ended September
30, 1998
The Company, which launched commercial service in the first quarter of 1999,
grew its customer base to 75,723 at September 30, 1999.
24
<PAGE>
For the nine months ended September 30, 1999, service revenue was $18.9
million, equipment revenue totaled $10.3 million and roaming revenue was $18.9
million. We began offering wireless services in each of our major mainland U.S.
markets in the first quarter of 1999, and in Puerto Rico on June 30, 1999. We
generated no revenue for the nine months ended September 30, 1998.
Cost of revenue, consisting mainly of cost of equipment and roaming fees,
for the nine months ended September 30, 1999 was $23.1 million. We did not
generate any cost of revenue for the nine months ended September 30, 1998.
Operations and development expense for the nine months ended September 30,
1999 was $25.9 million. This expense was primarily related to the engineering
and operating staff required to implement and operate our network. For the nine
months ended September 30, 1998, operations and development expense was $3.5
million as the Company was preparing for commercial launch.
Selling and marketing expense for the nine months ended September 30, 1999
was $39.7 million, as compared to $2.5 million for the nine months ended
September 30, 1998. This increase was due to salary and benefits for a
substantially larger sales and marketing staff, and all other direct sales
costs, including advertising, related to acquiring customers and providing
wireless services. During the nine months ended September 30, 1998 the Company
was preparing for commercial launch.
General and administrative expense for the nine months ended September 30,
1999 was $38.9 million, as compared to $15.9 million for the nine months ended
September 30, 1998. The increase was due to the growth of billing expense
related to our increasing 1999 customer base, as well as the growth of our
infrastructure and staffing related to information technology, customer care,
finance and legal functions incurred in conjunction with the development and
rapid expansion of our markets. During the nine months ended September 30, 1998
the Company was preparing for commercial launch.
Depreciation and amortization expense for the nine months ended September
30, 1999 was $34.8 million, as compared to $0.6 million for the nine months
ended September 30, 1998. This increase was related to the amortization on
personal communications services licenses and AT&T agreements, as well as the
depreciation of our fixed assets subsequent to the commercial launch of our
wireless service markets.
Interest expense, net of interest income, for the nine months ended
September 30, 1999 was $29.6 million, as compared to $2.9 million for the nine
months ended September 30, 1998. This increase in net interest expenses was
related to borrowings under our senior subordinated discount notes of $344.3
million, our senior credit facilities of $225 million and the issuance of $42.5
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 approximately $29,200. This
revenue resulted from servicing AT&T's roaming customers in our Louisiana
markets. We began offering wireless services in most 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. 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.
25
<PAGE>
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.
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
since July 1998 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 our
formation.
Acquisition History
Following approval of our venture with AT&T by the FCC, we completed the
following acquisitions:
On April 20, 1999, we completed the acquisition of PCS licenses covering the
Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading areas 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 $0.6 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 series A and F 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 3.9 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 and $0.4 million in reimbursement of interest paid on government debt
related to their licenses, 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 $1.0 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,
26
<PAGE>
which provide us with opportunities to expand our covered area. We cannot,
without AT&T's consent, develop the markets covered by the Monroe license.
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.
We participated in the FCC's reauction of PCS licenses for additional
licenses through Viper Wireless. On April 15, 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. 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 30,
1999, we solicited the approval of the FCC for the transfer of shares of Viper
Wireless we do not yet own to TeleCorp Holding for 503,022 shares of our class
A common stock and 1,111 shares of our series E preferred stock. Any
consolidation of Viper Wireless into us will be subject to a final FCC order
approving the transaction. In order to finance the acquisition of Viper
Wireless, AT&T and some of our other initial investors paid $32.3 million for
additional shares of our preferred and common stock.
Recent Developments
Since September 30, 1999, we have recently entered into the following
agreements:
On October 18, 1999, we agreed to acquire TeleCorp LMDS, Inc. through an
exchange of all of the outstanding stock of TeleCorp LMDS for 834,300 shares of
our class A common stock and 2,700 shares of our series C preferred stock.
TeleCorp LMDS's stockholders are Mr. Vento, Mr. Sullivan and three of our
initial investors. By acquiring TeleCorp LMDS, we will gain local multipoint
distribution service licenses covering 1100 MHz of airwaves in the Little Rock,
Arkansas basic trading area and 150 MHz of airwaves in each of the Beaumont,
Texas, New Orleans, Louisiana, San Juan and Mayaguez, Puerto Rico, and U.S.
Virgin Islands basic trading areas. These licenses will provide us with
additional airwaves that we can use to carry portions of our PCS network
traffic in these markets.
On October 14, 1999, we agreed to purchase 15 MHz of additional airwaves in
the Lake Charles, Louisiana basic trading area from Gulf Telecomm, LLC. As
consideration for the additional airwaves we will pay Gulf Telecomm $362,844 in
cash, assume approximately $2.3 million in FCC debt related to the license and
reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to
the license from June, 1998 until the date the transaction is completed.
Each of these agreements are subject to governmental approvals and other
customary conditions to closing and they may not close on schedule or at all.
From time to time, we enter into discussions regarding the acquisition of other
licenses, including swapping our licenses for those of other license holders.
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;
27
<PAGE>
. 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 $80.4 million at September 30, 1999, as
compared to $111.7 million at December 31, 1998. This decrease was the result
of incoming cash provided by financing activities of $432.8 million, offset by
$87.6 million of cash used in operating activities and $376.5 million of cash
used in network development and investing activities.
During the nine months ended September 30, 1999, we increased long-term debt
by $386.4 million and received $87.4 million of preferred stock proceeds and
receipt of preferred stock subscriptions receivable net of direct issuance
costs. Cash outlays for capital expenditures required to develop and construct
our network totaled $245.5 million. We spent $72.4 million to purchase PCS
licenses. In addition, we were required to deposit $43.6 million with the FCC
for other licenses during the nine months ended September 30, 1999. Cash used
in operating activities of $87.6 million for the nine months ended September
30, 1999 resulted from a net loss of $144.1 million that was partially offset
by non-cash charges of $56.8 million. Net change in assets and liabilities was
a reduction of $0.3 million.
From inception through September 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. We converted these notes
into 50 shares of our series A preferred stock in April 1997. In December 1997,
we issued various promissory notes totaling $2.8 million to our stockholders.
We converted these notes into mandatorily redeemable preferred stock in July
1998. From January 1 to September 30, 1998, we borrowed approximately $22.5
million in the form of promissory notes to existing and prospective
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 November 15, for aggregate cash payments of $105.7
million and other consideration, we have issued 97,473 shares of series A
preferred stock, 210,608 shares of series C preferred stock, 49,417 shares of
series D preferred stock, 25,041 shares of series E preferred stock, 14,912,778
shares of series F preferred stock, 73,873,889 shares of class A common stock,
283,813 shares of class C common stock, 851,429 shares of class D common stock;
and 3,090 shares of voting preference stock. The class C, class D and voting
preference common stock are convertible into an aggregate of 1,138,332 shares
of class A common 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; Whitney Equity Partners. L.P; Media/Communications Partners;
AT&T Wireless PCS, LLC; TWR Cellular, Inc; as well as Gerald Vento and Thomas
Sullivan and other management. See "Principal Stockholders and Beneficial
Ownership of 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 at a conversion rate equal to the
liquidation preference, which was approximately $107.0 million as of
September 30, 1999, divided by the market price of the class A common
stock at the time of conversion;
. our series F preferred stock is convertible at any time into shares of
our class A or class B common stock on a share for share basis.
28
<PAGE>
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.
Holders of our series A preferred stock are entitled to a quarterly dividend
equal to 10% per annum of that stock's accumulated liquidation preference. The
accumulated liquidation preference of our series A preferred stock was
approximately $107.0 million in aggregate as of September 30, 1999. We may
defer payment of this dividend until December 31, 2008, and we are currently
doing so.
Holders of our series C, D and E preferred stock are not entitled to a
dividend except to the extent declared by our board. Those series of stock,
however, are entitled to an accumulated liquidation preference, which was
approximately $275.8 million in aggregate as of September 30, 1999. The
liquidation preference accretes at a rate of 6% per annum, compounded
quarterly.
See "Description of Capital Stock" for additional information on the
dividends, liquidation preferences, rankings and voting rights of the capital
stock.
Equity Commitments
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 September 30, 1999, approximately $55.5 million of the
equity commitments had been funded. The remaining equity commitments are
required to 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 are required to 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 are required to be funded in December 1999 and $11.0
million are required to be funded on each of March 30, 2001 and March 30, 2002.
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, approximately $11.0
million on July 15, 1999 and approximately $14.8 million on September 29, 1999.
In the aggregate, we have obtained $205.3 million of equity commitments, of
which $102.0 million had been funded as of September 30, 1999.
These equity commitments cannot be amended without our consent and the
consent of AT&T and all of the other initial investors. In addition, the terms
of our senior subordinated discount notes and our bank and vendor credit
facilities restrict us from waiving or amending these commitments. The
foregoing equity commitments are also secured by pledges of the shares of our
capital stock issued to each initial investor, other
29
<PAGE>
than certain shares of preferred stock. Those pledges have been assigned to our
senior lenders as security for our senior credit facilities. Transfers of
shares of our capital stock pledged to secure an equity commitment remain
subject to such pledge until the equity commitment is funded in full.
In addition, pursuant to the stockholders' agreement between our initial
investors, Mr. Vento and Mr. Sullivan and us, the initial investors are
restricted from transferring their shares of common stock prior to July 2001,
except to affiliates. Any transfers by them of class A common stock are subject
to rights of first offer and tag-along and drag-along rights in favor of AT&T
and the other initial investors. In addition to the approval of our senior
lenders, the terms of the stockholders' agreement may be amended only if agreed
to in writing by us and the beneficial holders of a majority of the class A
common stock party to the stockholders' agreement, including AT&T Wireless, 66
2/3% of the class A common stock beneficially owned by our initial investors
other than AT&T, and 66 2/3% of the class A common stock beneficially owned by
Mr. Vento and Mr. Sullivan. Following the offering and the expiration or waiver
of the 180 day restriction on transfers described under "Underwriting," shares
of preferred stock may be transferred, subject, however, to the pledge
described above and to the continuing obligation of the investor to fund its
commitment.
Senior Subordinated Discount Notes
On April 20, 1999, we sold $575.0 million aggregate principal amount at
maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash
interest on these notes will not accrue or be payable prior to April 15, 2004.
From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum
on the principal amount at maturity of the notes through and including the
maturity date and will be payable semi-annually on April 15 and October 15 of
each year. In connection with the sale of these notes, we received net proceeds
of approximately $317 million after deducting initial purchasers' discount and
issuance expenses of approximately $10 million.
Senior Credit Facilities
In July 1998, we entered into senior credit facilities with a group of
lenders for an aggregate amount of $525.0 million. In October 1999 we entered
into amendments to the senior credit facilities under which the amount of
credit available to us was increased to $560.0 million. Our senior credit
facilities currently 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
. a $35.0 million senior secured term loan that matures in May 2009.
We must repay the term loans in quarterly installments, beginning in
September 2002, and the commitments to make loans under the revolving credit
facility automatically and permanently reduce beginning in April 2005. As of
September 30, 1999, $225.0 million had been drawn under the senior credit
facilities and was then accruing interest at an annual rate of 8.29%. See
"Description of Indebtedness--Senior Credit Facilities."
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. We also entered into a note
purchase agreement with Lucent under which 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 and $40.0 million aggregate principal amount of increasing rate
Lucent series B notes. We borrowed $40.0 million under the series B note
facility and repaid
30
<PAGE>
this amount and accrued interest thereon in April 1999 from proceeds of our
sale of senior subordinated discount notes. This amount cannot be reborrowed.
As of September 30, 1999, we had outstanding approximately $42.5 million of our
Lucent series A notes, including $1.6 million of Lucent series A notes issued
as payment of interest in kind, plus $0.9 million of additional accrued
interest and accruing interest at a rate per annum of 8.5% as of September 30,
1999. The amount outstanding under these series A notes and any future series A
note borrowings is subject to mandatory prepayment in an amount equal to 50% of
the excess of $198.0 million in net proceeds we receive from an equity offering
other than the issuance of capital stock used to acquire related business or
assets.
In October 1999 we entered into an amended and restated note purchase
agreement with Lucent under which Lucent has agreed to purchase up to $12.5
million of new series A notes and up to $12.5 of new series B notes under a
vendor expansion facility in connection with our prior acquisition of licenses
in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and
Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to
purchase notes under this vendor expansion facility is subject to a number of
conditions, including that we commit to purchase one wireless call connection
equipment site and 50 network equipment sites for each additional market from
Lucent.
In addition, pursuant to the amended and restated note purchase agreement
Lucent has agreed to make available up to an additional $50.0 million of new
vendor financing not to exceed an amount equal to 30% of the value of
equipment, software and services provided by Lucent in connection with any
additional markets we acquire. This $50.0 million of availability is subject to
a reduction up to $20 million on a dollar for dollar basis of any additional
amounts Lucent otherwise lends to us for such purposes under our senior credit
facilities, exclusive of amounts Lucent lends to us under its existing
commitments under our senior credit facilities. Any notes purchased under this
facility would be divided equally between Lucent series A and series B notes.
The terms of Lucent series A and series B notes issued under these expansion
facilities would be identical to the terms of the original Lucent series A and
series B notes as amended, including a maturity date of October 23, 2009.
Any Lucent series B notes issued under these expansion facilities will
mature 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 any private placement notes issued to finance any
additional market and borrowings under the senior credit facilities or any
replacement facility.
See "Description of Indebtedness--Vendor Financing."
Capital Commitments
Below is a table of capital commitments to us:
<TABLE>
<CAPTION>
Amounts Funded
Capital Commitments Committed Amounts Through September 30, 1999
------------------- ----------------- --------------------------
(in millions) (in millions)
<S> <C> <C>
Senior credit facility........ $ 560.0 $225.0
Senior subordinated discount
notes........................ 327.6 327.6
Vendor financing.............. 115.0 40.0
Redeemable preferred stock:
Issuable for cash........... 205.3 76.2
Issuable for property....... 148.9 148.9
-------- ------
Total....................... $1,356.8 $817.7
</TABLE>
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<PAGE>
The senior subordinated discount notes represent a large portion of our
capital resources that 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.
Capital Expenditures
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 capital commitments will be sufficient
to meet our total capital requirements through December 31, 2001, although if
we acquire additional licenses or properties, we may need to incur substantial
additional debt to meet our capital requirements. 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 September 30, 1999, were approximately
$354.2 million. Capital expenditures were approximately $245.5 for the first
nine months of 1999. We estimate capital expenditures for year ended December
31, 1999, and December 31, 2000, will be approximately $355.0 million and
$185.0 million, respectively.
As of September 30, 1999, we have approximately $20.5 million of debt owed
to the U.S. government related to some of our licenses. This debt is shown on
our balance sheet at $17.9 million net of discounts of $2.6 million reflecting
the below market interest rates on the debt. As of September 30, 1999, we owe
the U.S. government $9.2 million less a discount of $1.2 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%, quarterly interest payments which commenced in July 1998 and
continued for the one year thereafter, then quarterly principal and interest
payments for the remaining nine years. The promissory notes are collateralized
by the underlying PCS licenses. As of September 30, 1999, we have approximately
$7.7 million of liabilities for microwave relocation obligations. Approximately
$5.3 million is required to be paid within the next year, and the remaining
$2.4 million is required to be paid in the following year. We do not expect to
incur significant additional microwave relocation costs for our existing
markets.
Other
During the nine months ended September 30, 1999, we completed the
acquisition of additional PCS licenses from Digital PCS, LLC and Wireless 2000,
Inc. As part of these acquisitions, we assumed additional U.S. government
financing with the FCC amounting to $11.3 million, less a discount of $1.4
million. The terms of the notes include an interest rate of 6.125% for notes
assumed from Digital PCS, LLC. 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.
In May 1998, we entered into a vendor procurement contract with Lucent under
which we are permitted to purchase up to $285.0 million of radio, call
connecting and related equipment and services for the development of our
wireless communications network. Through September 30, 1999, we have purchased
approximately $140.0 million of equipment and services from Lucent.
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<PAGE>
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 September
30, 1999, the aggregate minimum rental commitments under non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
October to December 1999....................................... $ 3,794,049
For the year ending December 31:
2000......................................................... 18,786,811
2001......................................................... 18,587,171
2002......................................................... 18,311,199
2003......................................................... 5,976,624
2004......................................................... 8,982,627
Thereafter..................................................... 24,347,399
------------
Total...................................................... $108,785,880
============
</TABLE>
Rental expense, which is recorded ratably over the lease terms, was
approximately $2,000, $157,000, $3.2 million and $9.7 million for the period
ended December 31, 1996 and for the years ended December 31, 1997, 1998, and
for the nine months ended September 30, 1999 respectively.
We own more than 163 communications towers situated on leased sites in all
of our markets. We are considering entering into sale/leaseback transactions
and may do so if we can obtain terms acceptable to us.
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 $4.0 million as of
September 30, 1999.
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 $1.5 million at September 30, 1999. The
outstanding letters of credit reduce the amount available to be drawn under our
senior credit facility.
We believe that the net proceeds of this offering, the capital we have
raised to date and the other capital resources currently available to us, which
includes the funding of the irrevocable equity commitments from our initial
investors, will be sufficient to meet our projected capital requirements
through December 31, 2001. If we acquire additional licenses or properties, we
may need to incur substantial additional debt to complete the acquisitions and
construct and operate the acquired properties. 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. 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." The development of our network may not be completed
as projected and we may not 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.
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 the impact of a 10% increase or decline in interest rates would not be
material to our investment income.
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<PAGE>
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 September 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 nine month period ended September 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. 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 recently engaged Cayenta.com, a nation-wide provider of year-2000
services. We and Cayenta.com formed a year-2000 committee, and initiated a
year-2000 readiness program that:
. is developing an enterprise plan for addressing the year-2000 situation;
. is providing an inventory of all hardware, software, and network assets;
. has reviewed vendor contracts to determine if year-2000 language is
included;
. is conducting an assessment of year-2000 readiness of TeleCorp
technology assets; and
. will recommend further testing and remediation, if applicable.
The scope of this effort includes our Virginia headquarters as well as our
locations in Arkansas, Louisiana, New England, Tennessee, and Puerto Rico. The
Cayenta.com engagement will address wireless network infrastructure, internally
developed and third party vender-developed applications, information technology
networks, and issues at our data centers, call centers, and call connection
sites.
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.
Our costs with respect to year-2000 compliance have been approximately $0.4
million through September 30, 1999, and we anticipate that our total costs in
evaluating our information technology system will not exceed $1.5 million,
including costs to build the necessary redundancy into our systems.
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<PAGE>
Although we expect our systems will be year-2000 compliant on a timely
basis, they may not be, and the systems of other parties may not be year-2000
compliant on a timely basis or be compatible with our systems. We believe that
the greatest risk to our ability to provide communications services is the
failure of our service providers to be year-2000 compliant, especially those
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 vendors is not year-2000 compliant and their noncompliance affects us, we
believe that this effect will cause only a temporary disruption of our service,
if at all. 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>
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 personal communications services, or PCS, cellular
telephone and other technologies. Each application is licensed and operates in
a distinct radio airwave block.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers in the United States has increased from an estimated 340,000 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 estimated 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 $ 19.1 $ 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....... 45.9% 45.1% 50.8% 40.0% 30.4% 25.6% 25.1%
Average monthly wireless
bill................... $68.68 $61.49 $56.21 $51.00 $47.70 $42.78 $39.43
Ending penetration...... 4.4% 6.2% 9.4 13.0% 16.3% 20.7% 25.7%
Digital subscribers (in
millions).............. -- -- -- -- -- -- 18.3
</TABLE>
- --------
Sources: Cellular Telecommunications Industry Association and Paul Kagan
Associates.
(1) Reflects domestic commercially operational cellular, enhanced special
mobile radio and 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 "Business--Government
Regulation" for a discussion of the FCC auction process and allocation of
wireless licenses.
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 controls the connection of calls and the connection of the
wireless
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<PAGE>
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 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 and the networks are properly configured to
transfer calls from one system to the next.
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 uses 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 customer to place the call again using the
adjacent system.
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BUSINESS
We are the largest AT&T Wireless affiliate in the United States, with
licenses covering approximately 16.5 million people. We provide wireless PCS in
selected markets in the south-central and northeast United States and in Puerto
Rico, encompassing eight of the 100 largest metropolitan areas in the United
States. Commencing with the launch of our New Orleans market in February 1999,
we have successfully launched our services in 20 markets, including all of our
major markets, and currently have more than 100,000 subscribers. Our senior
management team has substantial experience in the wireless communications
industry with companies such as AT&T, Bell Atlantic and Sprint PCS.
We entered into a venture with AT&T in July 1998 under which AT&T
contributed PCS licenses to us in exchange for ownership in our company. We are
AT&T's exclusive provider of wireless mobility services using equal emphasis
co-branding with AT&T in our covered markets, subject to AT&T's right to resell
services on our network. We have the right to use the AT&T brand name and logo
together with our SunCom brand name and logo, giving equal emphasis to each. We
are AT&T's preferred roaming partner for digital subscribers in our markets.
Additionally, our relationship with AT&T allows us to provide coast-to-coast
coverage to our customers.
Our PCS licenses include several major population centers and popular
vacation destinations such as:
. San Juan, Puerto Rico and the U.S. Virgin Islands;
. New Orleans and Baton Rouge, Louisiana;
. Memphis, Tennessee;
. Little Rock, Arkansas;
. Manchester, Concord and Nashua, New Hampshire; and
. Worcester, Cape Cod and Martha's Vineyard, Massachusetts.
Our launched networks covered approximately 65% of our licensed population
as of September 30, 1999, and by the end of 1999 we expect our network will
cover approximately 75% of our licensed population.
Our goal is to provide our customers with simple-to-buy, easy-to-use
wireless services, including coverage across the nation, superior call quality,
competitive pricing and personalized customer care.
We market our services through company stores, retail outlets, through our
direct corporate and telemarketing sales forces, and on the Internet through
our website. We have a strong distribution presence in our markets with 35
company-owned stores and more than 500 retail outlets where consumers can
purchase our services, including Best Buy, Circuit City, Office Depot, Office
Max, Staples and Radio Shack. As of September 30, 1999, we employed
approximately 340 sales employees, 84 of whom were dedicated to business-to-
business sales activities. Our affiliation with AT&T enables us to leverage its
marketing and sales efforts in our markets.
Strategic Alliance with AT&T
One of our most important competitive advantages is our strategic alliance
with AT&T. In order to rapidly develop some of its wireless communications
markets, AT&T Wireless has focused on constructing its own network in selected
cities and has entered into agreements with independent wireless operators,
such as us, to construct and operate wireless networks in other markets. Our
strategic alliance with AT&T Wireless provides us with many business,
operational and marketing advantages, including:
. Exclusivity. We are AT&T's exclusive provider of wireless mobility
services using equal emphasis co-branding with AT&T in our covered
markets, subject to AT&T's right to resell services on our network.
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. Brand. We have the right to use the AT&T brand name and logo together
with our SunCom brand name and logo in our markets, giving equal
emphasis to each.
. Roaming. We are AT&T's preferred roaming partner for digital subscribers
in our markets. Our roaming revenues increased from approximately $1.9
million in the first quarter of 1999 to approximately $9.5 million in
the third quarter. We believe our AT&T affiliation will continue to
provide us with a valuable base of recurring roaming revenue.
. Coast-to-Coast Coverage. Outside our markets, our wireless customers can
place and receive calls in AT&T Wireless' markets and the markets of
AT&T Wireless' other roaming partners. We believe our ability to offer
coast-to-coast coverage is a competitive advantage as users increasingly
choose national rate plans. As of September 30, 1999, 19% of our
customers have chosen one of our national SunRate pricing plans.
. 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 the AT&T Digital One Rate SM 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.
Competitive Strengths
In addition to the advantages provided by our strategic alliance with AT&T,
we have the following competitive strengths:
. Attractive Markets. Our markets have favorable demographic
characteristics for personal communications services. According to
industry analysts, the average population density of our markets is
approximately 38% above the national average. We believe our markets are
strategically important to AT&T because they are located near or
adjacent to traffic corridors in and around large markets such as
Boston, Houston and St. Louis. Our markets include major population and
business centers and vacation destinations that attract an estimated 39
million visitors per year. Most of our markets are also adjacent to the
markets of the other SunCom companies.
. Experienced and Incentivized Management. Our 21 member senior management
team has an average of 11 years of experience with companies such as
AT&T, Bell Atlantic, BellSouth, SBC Communications, ALLTEL and Sprint
PCS. Together, they will beneficially own approximately 12% of our class
A common stock on a fully-diluted basis upon completion of this
offering. Our top three executives are:
. Gerald Vento, our co-founder and Chief Executive Officer, who has 20
years of experience in communications and previously served as Chief
Executive Officer of Sprint Spectrum/American PCS, L.P., leading the
development of the first PCS network launched in North America.
. Thomas Sullivan, our co-founder, Executive Vice President and Chief
Financial Officer, who formerly served as President of TeleCorp
Holding, our predecessor company, and co-head of the
telecommunications law practice at McDermott, Will & Emery.
. Julie Dobson, our Chief Operating Officer, who has extensive
operating experience in the telecommunications industry, including
18 years at Bell Atlantic, most recently as President of the New
York region of Bell Atlantic Mobile Systems.
. Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz
of airwaves in our major urban markets of San Juan and New Orleans and
30 MHz in Little Rock and Memphis. These
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amounts are equal to or greater than those held by each of our principal
competitors in each of these markets. We believe these amounts of
airwaves will enable us to competitively deploy new and enhanced voice
and data services. This capacity will also permit us to provide service
to the increasing number of wireless users and to service increased use
by subscribers.
. Strong Capital Base. Upon completion of this offering we will have
approximately $1.5 billion of funded and committed capital. We believe
our capital resources, including the proceeds of this offering, will be
sufficient to fund our current business plan, including capital
expenditures and operating losses, through December 31, 2001. Our
initial investors included AT&T, Chase Capital, Desai Associates, Hoak
Capital Corporation, J.H. Whitney & Co., M/C Partners, One Liberty Fund,
Toronto Dominion Investments, and Northwood Capital Partners.
. Advanced Digital Technology. We are building our network using TDMA
technology, which makes our network compatible with AT&T's network and
other TDMA networks. TDMA technology allows enhanced features and
services relative to analog cellular service, including extended battery
life, integrated voicemail, paging, fax and e-mail delivery, enhanced
voice privacy and short-messaging capability. Investment in TDMA product
development has led to the development of an advanced generation of
handsets capable of delivering stand-by battery life of up to 14 days.
We believe that wireless users place great value on the convenience and
reliability afforded by this technological advance. TDMA provides high
network call clarity and in-building penetration. TDMA provides network
capacity at least three times greater than existing analog cellular
networks, which results in operating cost advantages. The increased
volume of TDMA users has driven down handset prices and has increased
the importance of TDMA as an industry standard.
Business Strategy
Our goal is to become the leading provider of wireless personal
communications services in each of our markets, by providing our customers
with simple-to-buy and easy-to-use wireless services, including coverage
across the nation, superior call quality, competitive pricing and personalized
customer care. The elements of our strategy to achieve these objectives are:
. Leverage AT&T Relationship. We receive numerous benefits from AT&T,
including market exclusivity, co-branding, roaming and coast-to-coast
coverage, and preferred terms on selected products and services. Also,
we benefit from AT&T's nationwide marketing and advertising campaigns,
including those for the AT&T Digital One Rate SM plans, in the marketing
of our 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.
. Provide Coast-to-Coast Coverage. Our market research indicates that
scope and quality of coverage are extremely important to customers in
their choice of a wireless service provider. We have designed extensive
local calling areas, and we offer coast-to-coast coverage through our
arrangements with AT&T Wireless and its roaming partners. Our network
covers those areas where people are most likely to take advantage of
wireless coverage, such as suburbs, metropolitan areas and vacation
locations: the places where they live, work and play.
. Offer Superior Call Quality. We are committed to making the capital
investment required to develop a superior network. We intend to invest
approximately $55 per covered person in our licensed markets for the
construction of our currently planned 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 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.
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. Provide Enhanced Value at Low Cost. We offer our customers advanced
services and features at competitive prices. Our pricing plans are
designed to promote the use of wireless services by enhancing the value
of our services to our customers. We include usage enhancing features
such as call waiting, three-way conference calling, and short message
service in our basic packages. We market our service with a simple, all-
in-one focus: digital phone, pager and voice mail. We offer our
customers affordable, simple calling plans, and we take advantage of the
coast-to-coast reach of AT&T and its roaming partners. Our national
SunRate plans are similar to AT&T Digital One Rate SM plans in which
minutes can generally be used throughout the United States without
paying additional roaming fees or long distance charges. We believe we
can offer competitive services because of the cost advantages provided
by our agreements with AT&T and the other SunCom companies, the cost-
effective characteristics of TDMA and our centralized administrative
functions and efficient distribution.
. Deliver Quality Customer Care. 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, for our Spanish speaking customers, bilingual customer
service from two facilities in Florida. We have implemented a "one call
resolution" approach to customer care through the use of customer
support tools such as an advanced diagnostic mechanism and access to
online reference information. In addition, we emphasize proactive and
timely customer service, including welcome packages and anniversary
calls. Finally, we support our customer care initiatives through
employee compensation plans based on subscriber satisfaction and
retention.
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Market Overview
We have basic trading area licenses within the following eight major trading
areas:
<TABLE>
<CAPTION>
Amount of
Markets 1998 Population* Launch Date Airwaves
- ------- ---------------- ----------- ---------
(in thousands) (in MHz)
<S> <C> <C> <C>
San Juan, Puerto Rico
Puerto Rico/San Juan........... 2,719 June 1999 35
Mayaguez Aguadilla............. 1,089 First Quarter 2000 20
Virgin Islands................. 106 Second Quarter 2000 20
------
Total......................... 3,914
New Orleans, Louisiana
New Orleans.................... 1,402 February 1999 35
Baton Rouge.................... 676 February 1999 20
Lafayette...................... 531 June 1999 20
Lake Charles................... 279 Second Quarter 2000 30(a)
Houma.......................... 272 First Quarter 2000 25
Alexandria..................... 265 Third Quarter 2000 30
Hammond........................ 107 September 1999 10
------
Total......................... 3,532
Little Rock, Arkansas
Little Rock.................... 926 March 1999 30
Fort Smith..................... 312 Second Quarter 2000 20
Fayetteville................... 291 April 1999 20
Jonesboro...................... 174 November 1999 20
Pine Bluff..................... 148 Third Quarter 2000 20
Hot Springs.................... 133 March 1999 20
El Dorado...................... 103 Fourth Quarter 2002 20
Russellville................... 95 Second Quarter 2000 20
Harrison....................... 88 Fourth Quarter 2001 20
------
Total......................... 2,270
Memphis, Tennessee
Memphis........................ 1,493 March 1999 30
Jackson........................ 276 September 1999 35
Dyersburg...................... 116 Third Quarter 2000 20
Blytheville, AR................ 70 Third Quarter 2000 20
------
Total......................... 1,955
Boston, Massachusetts
Worcester, MA.................. 727 April 1999 20
Manchester, NH................. 584 April 1999 20
Boston, MA (b)................. 383 April 1999 20
Hyannis, MA.................... 231 April 1999 20
------
Total......................... 1,925
St. Louis, Missouri
Springfield (c)................ 283 Fourth Quarter 2001 20
Carbondale, IL................. 216 Fourth Quarter 2000 20
Columbia....................... 209 Third Quarter 2000 20
Cape Giradeau.................. 189 Fourth Quarter 2000 20
Quincy......................... 181 Fourth Quarter 2001 20
Jefferson City................. 156 Third Quarter 2000 20
Poplar Bluff................... 155 Fourth Quarter 2002 20
Mt. Vernon, IL................. 121 Fourth Quarter 2000 20
Rolla.......................... 98 Fourth Quarter 2002 20
West Plains.................... 76 Fourth Quarter 2002 20
Kirksville..................... 56 Fourth Quarter 2002 20
------
Total......................... 1,740
Houston, Texas
Beaumont....................... 459 Fourth Quarter 2000 40
------
Total......................... 459
Louisville, Kentucky
Evansville, Indiana............ 518 Fourth Quarter 2000 20
Paducah, Kentucky.............. 231 Fourth Quarter 2000 20
------
Total......................... 749
======
Population Total................ 16,544
======
</TABLE>
- --------
* Sources: The 1998 PCS Atlas & Databook, Paul Kagan Associates, Inc.; 1990
U.S. Census.
(a) Includes 15 MHz to be acquired under pending agreement.
(b) Rockingham and Strafford counties only.
(c) Camden, Cedar, Dallas, Douglas, Hickory, Laclede, Polk, Stone, Taney,
Texas, Webster and Wright counties only.
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Marketing Strategy
We believe that our affiliation with the AT&T brand name and the distinctive
advantages of our TDMA network, combined with our simple-to-buy and easy-to-use
philosophy, will allow us to expand our customer base by capturing significant
market share from existing providers of wireless services in our markets.
Additionally, we expect to attract new users to wireless. We developed our
marketing strategy on the basis of extensive market research in each of our
markets. This research indicates that limited coverage of existing wireless
systems, relatively high costs, inconsistent performance and overall confusion
about wireless services drive subscriber dissatisfaction and reduce the
attractiveness of wireless services for potential new subscribers.
We are focusing our marketing efforts on four primary market segments:
. corporate accounts;
. current wireless users;
. individuals with the intent to purchase a wireless product within six
months; and
. prepaid subscribers.
For each segment, we are creating a specific marketing program, including a
service package, pricing plan and promotional strategy. We believe that
targeted service offerings will increase customer loyalty and satisfaction,
reducing customer turnover.
The following are key components of our marketing strategy:
Branding
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. We believe that consumers
associate the AT&T brand with reliability and quality.
We have entered into agreements with Triton PCS and Tritel Communications,
other companies similarly affiliated with AT&T, to adopt a common regional
brand, SunCom. 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.
Advertising/Promotion
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
efforts at the community level by advertising in local publications and
sponsoring local and regional events. We combine these local efforts with mass
market media, including television, radio, newspaper, magazine, outdoor and
Internet advertisements, to promote the SunCom and AT&T brands in the markets
we serve. Outside advertising agencies support our brand campaigns, and also
develop newspaper, radio and web page advertisements to promote specific
product offerings and direct marketing programs for targeted audiences. All of
our advertising materials use the SunCom and AT&T names and the tagline
"SunCom, Member of the AT&T Wireless Network."
Pricing
Our pricing plans are designed to be competitive and straightforward,
offering large buckets of minutes, large local calling areas and usage
enhancing features. We offer pricing plans tailored for our market segments,
including local, regional and national pricing plans. We also offer shared
minute pools that are available for businesses and families who have multiple
wireless users who want to share the bucket of minutes. Through September 30,
1999 our average usage per subscriber was approximately 420 minutes per month.
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We believe the pre-paid subscriber segment represents a large market
opportunity, and we offer pricing plans that will drive growth in these
categories. 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 also structure our plans to be attractive to
the youth market, who we believe want to pay as they use the service. We
believe we differentiate ourselves from existing wireless competitors by
providing our pre-paid subscribers the same digital services and features
available to other customer segments. Our customers can use pre-pay service
virtually anywhere in the United States on our network, on AT&T's network or
through AT&T's extensive network of roaming agreements. Additionally, our pre-
pay customers hear a "whispered" announcement of time remaining in their
account before each call they place, which allows them to control usage and
reduce balance inquiries to customer service. By contrast, typical pre-pay
plans of our competitors limit service to their networks and usually provide
fewer features and a narrow selection of handsets. As of September 30, 1999,
prepay customers represented 25% of our total subscribers.
AT&T introduced AT&T Digital One Rate SM in May 1998, a suite of rate plans
that allows customers to purchase a large bucket of minutes per month that can
be used locally, or across the U.S., on AT&T's wireless network and its
extensive network of roaming partners for a fixed price with no additional
roaming or long distance charges. We believe AT&T Digital One Rate SM and other
competing flat rate plans are causing shifts in calling patterns in the
wireless industry. As of June 30, 1999, AT&T has reported over 1.5 million
subscribers on the AT&T Digital One Rate SM plans, and reported they were
adding an additional 100,000 subscribers a month. We believe growth in this
category will provide us a valuable roaming revenue stream as AT&T Digital One
Rate SM subscribers use their minutes while visiting our networks.
We are able to offer a similar national SunRate plan by virtue of our
relationship with AT&T. Competing flat rate plans often limit flat rate usage
to the competitor's own networks. We are able to offer a differentiated
national rate plan by virtue of our roaming arrangements with AT&T and its
roaming partners. Through September 30, 1999, 19% of our subscribers had chosen
a national SunRate price plan.
We believe our pricing policies differentiate us from our competition
through simplicity and design. We offer 12 price plans per region, on average,
and we design our plans to encourage customers to enter into long-term
agreements. As of September 30, 1999, approximately 50% of our total
subscribers, and approximately 75% of our total subscribers other than pre-pay
customers, were on annual contracts.
Handsets
We sell our service exclusively with 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. Through the use of technologically advanced Nokia,
Ericsson and Motorola handsets, our customers can use their phones across a
variety of wireless networks.
Service and Features
Wireless Calling
Our primary service is wireless calling, which features advanced handsets,
enhanced voice clarity, improved protection from eavesdropping and a broad
feature set. Our basic wireless service offering includes caller
identification, 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 e-mail and
other Internet services.
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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, 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 and enhanced fraud protection for our
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 network equipment sites to offer corporate users full coverage
inside buildings of outside calls. We also provide intra-office wireless
communications capabilities letting the user dial 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 network equipment sites within a
building that circumvent 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 applications providing weather reports, sports summaries,
stock quotes, monitoring of alarm systems and Internet access.
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, cable television, Internet access or alarm
monitoring services in conjunction with local information services. 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.
Sales and Distribution
Our sales strategy is to use a balanced mix of distribution channels to
maximize penetration within our licensed service area while minimizing customer
acquisition costs. Our channels include a network of company stores, nationally
recognized retailers, a direct sales force for corporate and business
customers, regional and local mass merchandisers, telesales, direct mail and
on-line sales. We also work with AT&T's sales channels to cooperatively
exchange leads and develop new business.
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We invest in training to ensure that knowledgeable staff is communicating
with customers and potential customers. We also take advantage of over-the-air
activation features available through our digital technology. Our goal is to
let customers use their phone within ten minutes of deciding to purchase the
handset. We provide point of sale materials and tools to educate customers on
their coverage areas and how to use the handset. We differentiate ourselves
from our competition by letting customers participate in the selection of their
phone number, and we offer a variety of custom faceplates to make a customer's
phone unique. We believe these tools, along with educating the customer, will
lead to reduced customer turnover.
Company Stores
We have opened 35 company stores for the distribution and sale of our
handsets and services. We believe that company stores offer a considerable
competitive advantage by providing a strong local presence. 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. We believe this process distinguishes us from our
competitors and will increase subscribership within our markets. Our stores
range in size from small kiosks to 3600 square foot stores in the principal
retail district in each market. We expect to have a total of 45 SunCom stores
open by the end of 1999.
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 and Radio Shack. We currently have over 500
retail outlet locations where customers can purchase our services. We chose
these distributors based upon their ability to reach our target customers in
our service area. 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.
Direct Sales
We focus our direct sales distribution channel on high-revenue, high-profit
corporate users. Our direct corporate sales force consists of approximately 85
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. We expect our direct sales force to grow to
approximately 135 business account executives by year end 1999.
Direct Marketing
We use direct marketing efforts such as direct mail and telemarketing. These
efforts are used to generate leads and stimulate prospects. Direct marketing
allows us to maintain low selling costs and to offer our customers additional
features or customized services. We employ 21 telesales representatives in our
Memphis call center, and we contract for 11 Spanish speaking telesales
representatives in Convergys' Fort Lauderdale operation.
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E-Commerce
Our web page provides current information about us, our markets and our
product offerings. We are establishing an online store on our website, located
at www.suncom1.com. The web page conveys our marketing message and we expect it
will generate customers through online purchasing. All information that is
required to make a purchasing decision is available through our website.
Customers are able to choose any of our 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. We expect to add electronic bill viewing and online bill
payment capabilities to our website by year end 1999. Information on our
website is not part of this prospectus.
Customer Care
We are committed to building strong customer relationships by providing
customers with prompt and helpful service. We serve our customers from our
state of the art facility in Memphis, Tennessee. Convergys, a leading provider
of outsourced call center services, provides back up call center support and
bilingual customer service, for our Spanish speaking customers, from two
facilities in Florida. As of September 30, 1999, the three centers employed 193
customer care representatives including 65 of our employees. The three center
structure allows us to distribute customer service calls between the centers to
promote cost effective 24 hour/seven days a week customer service.
We have strict quality standards in our care operation, including a
commitment to handling at least 80% of calls within twenty seconds. All of our
centers have sophisticated infrastructure and information systems including
Lucent automated call distributors, Vantive Software, and diagnostic tools for
one call trouble resolution.
We emphasize proactive and responsive customer service, including welcome
packages and first bill, three months and one year anniversary calls. We also
are expanding web-based services to include online account information to allow
customers to check billing, modify service or otherwise manage their accounts.
We use a highly selective recruiting process, train our consultants for four
weeks before they take live customer calls, and provide a sophisticated set of
on-line tools for our representatives. Our experience with call forecasting and
our three center design provide us with the resources to serve our customer
base. We believe these initiatives will result in higher levels of customer
satisfaction and reduce customer turnover.
Network Development
We launched commercial operations in February 1999 and have commenced 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, 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 65% 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.
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Construction of our network is scheduled for multiple phases. In the first
half of 1999, we completed the first phase and successfully launched service in
the following 15 markets:
. Baton Rouge . Lafayette
. Cape Cod . Little Rock . Nantucket
. Nashua
. Concord . Martha's Vineyard . New Orleans
. Fayetteville . Manchester . San Juan
. Hot Springs . Memphis . Worcester
Our network currently covers a population of 10.7 million. Our subscriber base
and the number of minutes generated on our network have grown rapidly since we
commenced service. Since February 1999, our subscriber base has grown to more
than 100,000 customers.
We are in the process of completing the second phase, covering ten
additional markets and 1.6 million additional potential customers. To date, we
have launched five of these ten markets, Jackson, Tennessee, Hammond,
Louisiana, Jonesboro, Arkansas, and Ponce and Arecibo, Puerto Rico. We expect
to complete the second phase by the end of the second quarter 2000. Our network
includes five call connection sites and 613 network equipment sites. We expect
that by the end of the second quarter 2000 our network will cover a total of 25
markets and a population of 12.3 million, and will include approximately 780
network equipment sites and five connection sites.
The third and fourth phases of the plan will focus on expanding our coverage
to a total of 46 markets including a population of 3.3 million, and entail
launching service in Beaumont, Alexandria, Evansville, Paducah, Columbia,
Jefferson City, Pine Bluff, Fort Smith, and the Virgin Islands. Upon completion
of the fourth phase, which we expect by the end of 2001, we expect our network
will be available to a population of 15.6 million, and our network will include
8 call connection sites and 1,215 network equipment sites. Additional network
construction will further expand our coverage to all of our markets, except
Monroe.
In the event we acquire additional licenses, we may modify our network
development plan, and we may need to incur substantial additional debt.
We are committed to making the capital investment required to develop a
superior network. We intend to invest approximately $55 per covered person for
the construction of our network through 2001, 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.
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 on
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 Wireless 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 "Description
of Indebtedness--Vendor Financing."
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
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raised to date as well as the other capital resources currently available to us
under our senior credit facilities, our committed cash equity and the proceeds
of this offering will be sufficient to meet our projected capital requirements
through December 31, 2001. If we acquire additional licenses or properties, we
may need to incur substantial additional debt to complete the acquisition and
construct and operate the acquired properties.
Network Construction
As of September 30, 1999, we had leased approximately 735 network equipment
sites and we had built and now operate five sites containing network call
connection sites in four locations. We develop the network design, including
frequency planning for our network equipment sites. 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. We use two
experienced vendors, WFI and Divine, to perform property acquisition,
construction and installation of our sites.
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 network
equipment 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.
Connection
Our network is connected to the public telephone network 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 and Memphis;
. SBC Communications in Little Rock;
. Bell Atlantic in New England; and
. Puerto Rico Telephone in Puerto Rico.
These agreements are standard agreements entered 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 and AT&T's
customers have roaming capability on our 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 as a result of
the success of the AT&T Digital One Rate SM plan.
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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. 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
. 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; and
. 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 support our
established billing system, and we have engaged a variety of industry leaders
such as Lucent and Lightbridge to provide activation, fraud management and
support systems.
Technology
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
. network equipment sites that are small and that improve network coverage
with low incremental investment.
TDMA technology is the digital technology choice of two of the largest
wireless communications companies in the United States, AT&T and SBC
Communications. This technology served an estimated 19 million subscribers
worldwide and nine million subscribers in North America as of December 31,
1998, according to the Universal Wireless Communications Consortium, an
association of TDMA providers and manufacturers. We believe that the increased
volume of TDMA has increased the probability that this technology will remain
an industry standard. TDMA equipment is available from leading
telecommunication vendors such as Lucent, Ericsson and Northern Telecom, Inc.
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Future Technology Development
Our advanced TDMA technology provides us the ability to offer new services,
including information services, wireless service applications inside buildings,
two-way text messaging, voice-activated dialing, audio e-mail retrieval and web
browsing. In addition, TDMA technology provides us with a strong foundation for
the introduction of high-speed wireless data.
The mobile data market is projected to grow at 30% annually over the next
seven years, leading to a vast array of new services. Today, we participate in
the data market through our short message service, one-way paging broadcasts,
and Internet e-mails sent to our mobile phones. These applications are provided
through the signaling capabilities of TDMA. We expect to introduce a suite of
information services, including news, sports, stock quotes and weather, in
January 2000. Our next series of offerings are scheduled for the second quarter
of 2000, using two-way short message service and handsets capable of accessing
the Internet.
Our planned evolution to higher speed data applications, including video
conferencing, is through the implementation of enhanced data rates for global
evolution, which is expected to be available in 2001. With our TDMA
architecture, we expect to be able to support faster transmission speeds with
limited software and hardware upgrades. We are working with AT&T to plan for an
evolution to these third generation services in 2002, and with Lucent to
understand the implications on our network development.
Competition
We believe subscribers choose a wireless communications service provider
principally based upon network coverage, pricing, quality of service and
customer care.
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 and New
Orleans where there is no GSM system 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 enhanced special mobile radio;
. in Memphis, we compete primarily against GTE and BellSouth for cellular
services, Powertel and Sprint PCS for PCS and Nextel for enhanced
special mobile radio;
. in Little Rock, we compete primarily against ALLTEL and SBC
Communications for cellular services and Sprint PCS for PCS;
. in New England, we compete primarily against SBC Communications and Bell
Atlantic for cellular services and Sprint PCS, Omnipoint Technologies
for PCS and Nextel for enhanced special mobile radio;
. in Puerto Rico, we compete primarily against Puerto Rico Telephone
Company and Cellular One for cellular services and Centennial Cellular
and NewCom Wireless Services, Inc. for PCS.
We also compete with 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 resell 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 in our market to less than a majority of the minutes they sell in our
market. If we allow AT&T to resell more than a majority of our minutes, the FCC
may question our compliance with FCC license requirements.
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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. 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 have and may continue to 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.
We expect that once deployed, our extensive digital network will provide cost-
effective means to react appropriately to any price competition. Additionally,
we believe we have invested in network and information technology which
provides us scaleable cost effective capabilities to combat competition.
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, among other things, we are:
. required to offer service upon reasonable request;
. prohibited from imposing unjust or unreasonable rates, terms or
conditions of service;
. 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
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. 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
PCS, cellular or special mobile radio licenses with more than 45MHz of
airwaves in the same metropolitan area, and more than 55 MHz in rural
markets;
. 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.
While we believe we comply with these regulations, 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.
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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 believe we 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 period and an additional one-
year mandatory negotiation period following the issuance of the PCS license.
These periods are longer for public 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 acquire and operate antenna sites for use in our network, we are
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
Each of TeleCorp Holding, TeleCorp LMDS and Viper Wireless was the winning
bidder of licenses in the auction of PCS licenses. Viper Wireless also acquired
six licenses in the recent designated entity PCS reauction.
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With respect to those licenses granted by the FCC, and additional designated
entity licenses acquired and to be acquired through auctions and later
transactions, we:
(1) believe we qualify as a very small business and as an 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 entrepreneur 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 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
entrepreneur 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, although normal
business growth as a result of holding the licenses will not disqualify a
licensee.
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 has ceased to provide installment
payment financing.
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
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continue to meet the requirements for five years following the date that a
license is granted, although normal business growth is permitted. 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 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 service
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;
. 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
56
<PAGE>
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 adopted 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. In
addition, some gas stations have banned the use of mobile phones on their
premises. 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.
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 "Certain 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."
Employees
As of September 30, 1999, we employed approximately 793 people. None of our
employees currently are represented by a union. We believe that our relations
with our employees are good.
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<PAGE>
Properties
We lease space for our call connection equipment in New Orleans, Boston and
Puerto Rico and for our network operations center, our call connection
equipment, our customer care and our data center in Memphis. Further, we have
operating leases primarily related to our headquarters, regional offices,
retail store locations, distribution outlets, office space and network
equipment sites.
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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<PAGE>
MANAGEMENT
The table below sets forth our directors and executive officers and their
ages as of September 30, 1999.
<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 A. Dobson......... 43 Vice President and Chief Operating Officer
Scott Anderson.......... 41 Director
Rohit M. Desai.......... 60 Director
Michael R. Hannon....... 39 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........ 35 Director
James F. Wade........... 43 Director
Mr. Wade, Mr. Laverack, Mr. Fuqua and Mr. O'Donnell have agreed to resign
as directors upon completion of the offering.
The table below sets forth our five regional general managers and their
ages as of September 30, 1999:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Raul Burgos............. 35 Vice President/General Manager, Puerto Rico
Steven Chandler......... 46 Vice President/General Manager, South Central Region
Andrew Hearn............ 36 Vice President/General Manager, New Orleans
Mitchell Johnson........ 37 Vice President/General Manager, New England
Randall Johnson......... 39 Vice President/General Manager, Little Rock
</TABLE>
Executive Officers and Directors
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 the
inception. He has been Chairman of our board since June 1999. From December
1993 to March 1995, Mr. Vento was Vice Chairman and Chief Executive Officer of
Sprint Spectrum/American PCS, L.P. Under Mr. Vento's leadership, that
partnership developed the first PCS network in the United States. From April
1995 to March 1998, Mr. Vento was Chairman of Entel Technologies, Inc., a
wireless site acquisition and construction management company. From April 1996
to October 1996, Mr. Vento also served as the Chief Executive Officer of
National Fiber Networks, Inc. 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 Puerto Rico.
Thomas H. Sullivan is our co-founder and the co-founder of our predecessor
company and 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 1999, Mr. Sullivan was a partner of and
counsel to McDermott, Will & Emery, where he served as co-head of its
telecommunications practice and co-chairman of its Boston corporate
department. In 11 years at McDermott, Will & Emery, he counseled several of
the country's largest cellular and PCS operators including Sprint
Spectrum/American PCS, L.P., Aerial Communications, NorthCoast Communications
and Bell Atlantic Mobile.
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<PAGE>
Julie A. Dobson has served as our Chief Operating Officer since July 1998.
Prior to joining us, Ms. Dobson was President of Bell Atlantic Mobile Systems
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 served in a variety of positions in sales, marketing
and operations over two decades.
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. 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 July 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. Mr. Desai
currently sits on the board of The Rouse Company, Sunglass Hut International,
Finlay Fine Jewelry Holdings and Independence Community Bankcorp.
Michael R. Hannon has been one of our directors since July 1998. Mr. Hannon
has been a General Partner of Chase Capital Partners, a subsidiary of Chase
Manhattan Corporation, since January 1988. Mr. Hannon is currently a director
of Formus Communications, Entertainment Communications and Financial Equity
Partners.
Gary Fuqua has served as one of our directors since July 1998. Mr. Fuqua is
the President and Chief Executive Officer of Utility Engineering, an
architecture and engineering firm, since August 1999. From July 1998 to July
1999, Mr. Fuqua managed corporate development activities at Entergy and oversaw
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 from January 1998 to July 1998. He also founded and
managed his own company prior to joining Enron in 1988. 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
has been Senior Vice President of Partnership Operations for AT&T Wireless
since July 1998. Ms. Hawkins-Key joined AT&T's Messaging Division in April
1995, and subsequently became Chief Operating Officer for the 1100 employee
division until its sale in late 1998. 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.
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<PAGE>
William Kussell has served as one of our directors since July 1998. Mr.
Kussell has served as President of Dunkin' Donuts marketing office since 1994,
as well as Retail Concept Officer for Allied Domecq Retailing USA since 1997.
He was Vice President of worldwide marketing for Reebok from November 1991 to
March 1994.
William Laverack, Jr. has served as one of our directors since July 1998. He
has been a General Partner of J. H. Whitney & Co., an investment firm focused
on private equity and mezzanine capital investments, since May 1993. Prior to
May 1993, he was with Gleacher & Co., Morgan Stanley and J.P. Morgan. He is
currently a director of Steel Dynamics, and several private companies.
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. Since leaving the advertising business in 1991, Mr. O'Donnell has
founded several marketing and 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.
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 law
practice in the Seattle office of Graham & James.
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.
Regional General Managers
Raul Burgos joined us in May 1999 as the Vice President/General Manager of
the Puerto Rico Region. Prior to joining us, Mr. Burgos served as General
Manager/VP of Operations for Nextel International in Sao Paulo, Brazil from May
1998 to April 1999. Mr. Burgos also served as Director of Marketing and New
Business Development for Nextel Communications in Orlando, Florida from October
1996 to May 1998. From August 1995 to September 1996, Mr. Burgos was a
Marketing Analyst with Motorola Network Ventures and from March 1993 to August
1995, he was a Senior Marketing Analyst with Cellular One.
Steven Chandler joined us in October 1997 as the Vice President/General
Manager of the Southcentral Region. Prior to joining us, Mr. Chandler was the
General Manager of Bell South Mobility PCS in Greenville, South Carolina from
January 1996 to October 1997. Mr. Chandler also worked in Memphis, Tennessee
and Louisville, Kentucky as General Manager for Bell South Mobility from 1988
through 1995.
Andrew Hearn joined us in December 1998 as the Vice President/General
Manager for the New Orleans Region. Prior to joining us, Mr. Hearn was the Vice
President/General Manager for ALLTEL Communications in South Carolina from
September 1996 to December 1998. Mr. Hearn also served as Retail Operations
Manager for ALLTEL Communications in Charlotte, North Carolina from October
1994 to September 1996.
Mitchell Johnson joined us in June 1999 as the Vice President/General
Manager of the New England Region. Prior to joining us, Mr. Johnson was Vice
President/General Manager for ALLTEL Communications throughout the Las Vegas,
Nevada Region from August 1998 to June 1999. Mr. Johnson also served as Vice
President/General Manager for the Western Arkansas and Eastern Oklahoma market
from October 1996 to October 1998. From April 1994 to October 1996, Mr. Johnson
was the Regional Customer Service Manager with ALLTEL Communications.
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<PAGE>
Randall Johnson joined us in November 1997 as the Vice President/General
Manager of the Little Rock Region. Prior to joining us, Mr. Johnson was Vice
President/General Manager for ALLTEL Communications in Little Rock from April
1997 to October 1997. Mr. Johnson also served as Director of Marketing for
ALLTEL Communications Cellular Operations throughout the Southeastern US from
January 1995 to March 1997. From September 1989 to January 1995, Mr. Johnson
served as Vice President/General manager with ALLTEL Communications for the
Missouri Region.
Selection of Directors
Upon completion of this offering, our board will consist of nine 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. Upon
completion of this offering, the parties to the stockholders' agreement have
agreed to vote all of the shares of class A voting common stock and voting
preference stock to cause the election of the following nine individuals to our
board:
. 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 holders of a majority in interest of the
common stock beneficially owned by our initial investors other than
AT&T;
. two additional individuals selected by Mr. Vento and Mr. Sullivan, so
long as they remain officers, who must be acceptable to the holders of a
majority in interest of the common stock beneficially owned by our
initial investors other than AT&T on the one hand, and AT&T Wireless on
the other hand;
. one individual nominated by AT&T Wireless in its capacity as the holder
of series A preferred stock so long as AT&T has the right to nominate
one director in accordance with our restated certificate of
incorporation;
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers, who must be acceptable to AT&T Wireless; and
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers, who must be acceptable to the holders of a majority in
interest of the class A voting common stock beneficially owned by our
initial investors other than AT&T.
The stockholders agreement provides that when FCC ownership restrictions no
longer apply to us, our board will have seven members and the right of Mr.
Vento and Mr. Sullivan to appoint the individuals set forth in the last two
items above will expire.
Effective upon completion of the offering, the board of directors will be
divided into three classes, as nearly equal in number as possible. Each
director will serve a three-year term, and one class will be elected at each
year's annual meeting of stockholders. Messrs. Vento, Sullivan and Kussell will
be in the class of directors whose term will expire at our 2000 annual meeting
of stockholders. Ms. Hawkins-Key and Messrs. Hannon and Desai will be in the
class of directors whose term will expire at our 2001 annual meeting of
stockholders. Messrs. Anderson, Hoak and Schwartz will be in the class of
directors whose term will expire at our 2002 annual meeting of stockholders. At
each annual meeting of stockholders, successors to the class of directors whose
terms expire at the meeting will be elected to serve for three-year terms and
until their successors are elected and qualified.
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<PAGE>
Compensation of Directors
Representatives of our initial investors who serve on our board or any
committee of our board, do not receive cash compensation for their service on
our board. Other non-management members of our board or its committees receive
a quarterly stipend of $1,875, $1,000 for attending each board or committee
meeting and $500 for participating in each teleconference. The directors are
also eligible to receive stock options. All members of our board or any
committee of our board, including our management members, will be reimbursed
for out-of-pocket expenses in connection with attendance at meetings.
Committees of the Board of Directors
Our bylaws provide that our board may establish committees to exercise
powers delegated by our board. Under that authority, our board has established
an audit committee and a compensation committee.
Upon completion of the offering, the audit committee will be comprised of
Mr. Hoak, Mr. Kussell and Mr. Schwartz.
Upon completion of the offering, the compensation committee will be
comprised of Mr. Anderson, Mr. Desai, Mr. Hannon and Mr. Schwartz.
Executive Compensation
The following table contains information about the cash and other
compensation that we paid in the 1998 fiscal year to Mr. Vento, our Chief
Executive Officer, and the four other most highly paid executive officers. In
addition to salary, our employees are eligible for annual cash bonuses. These
bonuses are generally earned in the year prior to which they are paid based
upon achievement of corporate and individual performance objectives; however
some bonuses are specified in employment agreements. The bonuses earned in 1997
were paid in 1998 and are not included in this table. The bonuses in the table
were earned in 1998 and were paid in 1999. Other annual compensation consists
of amounts reimbursed for relocation expenses and any taxes that we paid on
behalf of the executive for the reimbursement.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------- --------------------
Other Annual
Name and Principal Compensation Restricted Stock
Position Salary($) Bonus($) ($) Awards($)
- ------------------ --------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Gerald T. Vento......... $213,461(a) $157,500 $ 4,664(b) $ 0
Chief Executive Officer
and Chairman
Thomas H. Sullivan...... 206,931(c) 125,000 106,637(d) 0
Executive Vice
President and Chief
Financial Officer
Julie A. Dobson......... 114,423(e) 155,000 66,134(f) 4,746(g)
Vice President and
Chief Operating
Officer
Robert Dowski(h)........ 181,196(i) 101,251 5,005(j) 2,170(k)
Chief Financial Officer
Steven Chandler......... 118,808(l) 45,000 114,109(m) 776(n)
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) Represents an amount paid on behalf of Mr. Vento into our 401(k) plan.
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<PAGE>
(c) 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 Mr. Sullivan.
(d) 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.
(e) This amount consists of $114,423 that TeleCorp Communications paid to Ms.
Dobson.
(f) This amount consists of $66,134 in relocation expenses that TeleCorp
Communications paid to Ms. Dobson.
(g) Consists of 2,287 shares of series E preferred stock, valued at $1.00 per
share, and 1,068,971 shares of class A common stock, valued at $.003 per
share, issued under our restricted stock grant plan on July 17, 1998.
(h) Mr. Dowski ceased to be employed with us as of March 8, 1999, except for
transition support.
(i) This amount consists of $72,692 that TeleCorp Holding paid to Mr. Dowski
and $108,504 that TeleCorp Communications paid to Mr. Dowski.
(j) Represents an amount paid on behalf of Mr. Dowski into our 401(k) plan.
(k) Consists of 714 shares of series E preferred stock, valued at $1.00 per
share, and 449,877 shares of class A common stock, valued at $.003 per
share, issued under our restricted stock grant plan on July 17, 1998. On
March 8, 1999, we repurchased 577 of Mr. Dowski's shares of series E
preferred stock and 406,786 of Mr. Dowski's shares of class A common stock
for a total of approximately $19, which is not reflected in the table.
(l) This amount consists of $54,519 that TeleCorp Holding paid to Mr. Chandler
and $64,288 that TeleCorp Communications paid to Mr. Chandler.
(m) This amount consists of $111,995 in relocation expenses that TeleCorp
Communications paid to Mr. Chandler and $2,114 that we paid on behalf of
Mr. Chandler into our 401(k) plan.
(n) Consists of 255 shares of series E preferred stock, valued at $1.00 per
share, and 160,965 shares of class A common stock, valued at $.003 per
share, issued under our restricted stock grant plan on July 17, 1998.
1998 Restricted Stock Plan
In July 1998 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 $.003 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 our other initial investors. See "Description of
Capital Stock." As of September 30, 1999, 6,687 shares of series E preferred
stock and 3,799,832 shares of class A common stock are outstanding under this
plan. We repurchased an additional 1,155 shares of series E preferred stock and
813,712 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.
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 A
common stock. Our board has the discretion to determine the terms of any
options granted under this plan. We have reserved 1,814,321 shares of our class
A common stock for issuance under this plan. On July 22, 1999, our board
approved the grant of options to virtually all our employees and three of our
directors to purchase 552,505 shares of class A common stock under our plan at
an exercise price of $.0065 per share, the estimated fair value of the class A
common stock on the date of grant. We effected these grants on August 31, 1999.
These options vest ratably over a three to four year period. Upon the closing
of the offering, the option holders will be able to exercise any vested
options.
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<PAGE>
Management Agreement
Under a management agreement dated July 17, 1998, as amended, 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 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 management agreement has a five-year term. We may terminate the
management agreement immediately in certain 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; 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
immediately 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 the two preceeding
reasons 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;
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<PAGE>
. 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
conditioned upon TeleCorp Management having nominated a successor person or
persons, who are acceptable to our board, and:
. who would not cause a significant and 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; and
. to whom our voting preference common stock and class C common stock will
be transferred by Mr. Vento and Mr. Sullivan.
The management agreement protects us if TeleCorp Management does not
nominate an acceptable person or persons to provide 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.
We are obligated to repurchase from Mr. Vento and Mr. Sullivan, and they are
required to sell to us, following the termination of the management agreement
for any reason, the amount of our class A common stock, up to 5,764,704 shares,
and our series E preferred stock, up to 18,219 shares, that have not yet
vested.
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 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 Agreement
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 a potential annual bonus based upon the
achievement of objectives established by the compensation committee of our
board.
Ms. Dobson's employee agreement provides that she is an employee-at-will. We
will reimburse the reasonable expenses that she incurs while performing her
services under her employee agreement and she may participate in our employee
benefit plans available to employees of comparable status and position.
66
<PAGE>
If Ms. Dobson should die, we will pay any amounts that we owe her under her
employee agreement accrued prior to her death to her estate, heirs and
beneficiaries. All family medical benefits under the employee agreement for the
benefit of Ms. Dobson 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 Ms. Dobson for cause, or she voluntarily quits, we will pay
her any amounts that we owe her accrued prior to the cessation of employment.
If we terminate her other than for cause, we will pay Ms. Dobson an amount
equal to her then annual base salary, at normal payroll intervals, as well as
continue to cover her under our employee benefit plans for 12 months.
Under her employee agreement, Ms. Dobson is subject to confidentiality
provisions, and has 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 which we agreed to pay Mr. Dowski:
. $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.
In addition, we repurchased 577 shares of Mr. Dowski's series E preferred
stock and 406,786 of Mr. Dowski's shares of class A common stock for an
aggregate amount of 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
each 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.
67
<PAGE>
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table describes, as of September 30, 1999, the number of
shares of each class of our voting stock beneficially owned by:
. each of our directors;
. executive officers named in the summary compensation table above,
. 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, and
. all of our current directors and executive officers, as a group.
Except as otherwise indicated, the address for each director and executive
officer is c/o TeleCorp, 1010 N. Glebe Road, Suite 800, Arlington, Virginia
22201.
The following table shows the beneficial ownership of our class A common
stock on the assumption that FCC restrictions on the conversion of some classes
of our capital stock into class A common stock no longer apply to us and any
required stockholder approvals have been obtained.
Under the terms of our restated certificate of incorporation that will
become effective upon completion of this offering, until the occurrence of
defined events, and subject to specific rights granted to holders of other
classes of our capital stock, Mr. Vento and Mr. Sullivan, as 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 capital stock have been granted
voting rights regarding matters specifically affecting those classes. Finally,
so long as AT&T continues to own not less than two-thirds of the shares of
series A preferred stock it owned on July 17, 1998, it will have the right to
nominate one member of our board.
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
Class A
Class A Common Stock Percentage of
Common Beneficially Total Voting
Stock Owned(a) Power
---------- ----------------- Beneficially
Number of Before After Owned After
Stockholder Shares Offering Offering Offering(b)
- ----------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C>
Chase Capital Partners.......... 15,370,014(c) 20.7% 18.8% 7.8%
Equity-Linked Investors-II...... 14,591,225(d) 19.7 17.8 7.4
Hoak Communications Partners,
L.P............................ 10,943,188(e) 14.8 13.4 5.6
Whitney Equity Partners, L.P.... 9,119,127(f) 12.3 11.1 4.6
Media/Communications Partners... 5,861,555(g) 7.9 7.2 3.0
AT&T Wireless PCS, LLC.......... 15,838,417(h) 17.8 16.4 8.0
TWR Cellular, Inc............... 15,838,417(h) 17.8 16.4 8.0
Gerald T. Vento................. 5,094,396(i) 6.9 6.2 52.7
Thomas H. Sullivan.............. 3,298,393(j) 4.5 4.0 51.8
Michael R. Hannon............... 15,370,014(k) 20.7 18.8 7.8
Rohit M. Desai.................. 14,591,225(l) 19.7 17.8 7.4
James M. Hoak................... 10,943,188(m) 14.6 13.4 5.6
William Laverack, Jr............ 9,119,127(n) 12.3 11.2 4.6
Gary Fuqua...................... -- -- -- --
James F. Wade................... 5,861,555(o) 7.9 7.2 3.0
Scott Anderson.................. 511,155(p) * * *
William Kussell................. 7,725(q) * * *
Joseph O'Donnell................ 7,725(r) * * *
Michael Schwartz................ 15,838,417(h) 17.8 16.4 8.0
Mary Hawkins-Key................ 15,838,417(h) 17.8 16.4 8.0
Julie A. Dobson................. 1,601,278 2.2 2.0 *
Robert Dowski................... 43,090 * * *
Steven Chandler................. 177,187(s) * * *
All directors and executive
officers, as a group,
14 persons..................... 81,237,341(t) 90.4 83.2 91.4
</TABLE>
- --------
* Less than one percent.
(a) Pursuant to SEC rules, percentages of beneficial ownership of the class A
common stock are calculated assuming that shares of class A common stock
issuable upon conversion of securities convertible into class A common
stock are outstanding for purposes of each respective stockholder or
group, but not outstanding for purposes of computing the percentage of any
other person. Included in the calculation of beneficial ownership are
shares of class A common stock issuable upon conversion of securities
within 60 days of September 30, 1999 and conversion of our class C, class
D and voting preference common stock upon lapse of FCC ownership
restrictions.
(b) Mr. Vento and Mr. Sullivan each own 1,545 shares of class A voting
preference stock. Together, the voting preference stock possesses 50.1% of
the voting power of all shares of our capital stock. Mr. Vento and Mr.
Sullivan are required to vote their shares of voting preference stock
together on all matters. The total voting power assumes conversion of all
of our outstanding series F preferred stock, class C and class D common
stock and the issuance of 552,505 shares issuable under outstanding
options, subject in some cases to vesting. Percentage of total voting
power is calculated on a fully-diluted basis assuming in all cases for all
persons exercise of outstanding options and conversion of series F
preferred stock and class C and class D common stock into shares of class
A common stock.
(c) Consists of 352,956 shares of class A common stock, 575 shares of class C
common stock and 3,780 shares of class D common stock held by TeleCorp
Investment Corp., LLC. and 14,785,692 shares of class A common stock,
27,489 shares of class C common stock and 199,522 shares of class D common
stock held by Chase Capital Partners. The shares of class C and D common
stock under some circumstances are convertible into shares of class A
common stock on a one for one basis. These shares may also be deemed to be
beneficially owned by Mr. Hannon, who disclaims beneficial ownership of all
of these shares. The address of the stockholders is 380 Madison Avenue,
12th Floor, New York, New York 10017.
(d) Consists of 8,615,818 shares of class A common stock, 13,457 shares of
class C common stock and 105,947 shares of class D common stock held by
Private Equity Investors III, L.P. and 5,754,205 shares of class A common
stock, 13,457 shares of class C common stock and 88,341 shares of class D
common
69
<PAGE>
stock held by Equity-Linked Investors-II. The shares of class C and D
common stock under some circumstances are convertible into shares of class
A common stock on a one for one basis. 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 these stockholders is 540
Madison Avenue, 36th Floor, New York, New York 10022.
(e) Consists of 903,331 shares of class A common stock, 1,691 shares of class
C common stock and 12,212 shares of class D common stock held by HCP
Capital Fund, L.P. and 9,873,950 shares of class A common stock, 18,494
shares of class C common stock and 133,510 shares of class D common stock
held by Hoak Communications Partners, L.P. The shares of class C and D
common stock under some circumstances are convertible into shares of class
A common stock on a one for one basis. 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.
(f) Consists of 6,138,683 shares of class A common stock, 11,498 shares of
class C common stock and 83,004 shares of class D common stock held by J.
H. Whitney III, L.P.; 147,922 shares of class A common stock, 279 shares
of class C common stock and 2,003 shares of class D common stock held by
Whitney Strategic Partners III, L.P.; and 2,694,260 shares of class A
common stock, 5,046 shares of class C common stock and 36,432 shares of
class D common stock held by Whitney Equity Partners, L.P. The shares of
class C and D common stock under some circumstances are convertible into
shares of class A common stock on a one for one basis. 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.
(g) Consists of 5,513,726 shares of class A common stock, 10,241 shares of
class C common stock and 73,604 shares of class D common stock held by
Media/Communications Partners III Limited Partnership and 259,793 shares
of class A common stock, 427 shares of class C common stock and 3,764
shares of Class D common stock held by Media/Communications Investors
Limited Partnership. The shares of class C and D common stock under some
circumstances are convertible into shares of class A common stock on a one
for one basis. 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.
(h) Consists of 904,737 shares of class A common stock, 20,902 shares of class
D common stock and 9,339,511 shares of series F preferred stock held by
AT&T Wireless PCS, LLC and 5,573,267 shares of series F preferred stock
held by TWR Cellular. The shares of series F preferred stock and class D
common stock under some circumstances are convertible into shares of class
A common stock on a one for one basis. 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. The address of the stockholders is c/o AT&T Wireless PCS, LLC 7277
164th Avenue, N.E., Redmond, Washington 98052.
(i) Consists of 492,064 shares of class A common stock and 11,366 shares of
class D common stock held by TeleCorp Investment Corp. II, L.L.C. and
4,482,385 shares of class A common stock, 105,444 shares of class C common
stock and 3,137 shares of class D common stock held by Mr. Vento. The
shares of class C and D common stock under some circumstances are
convertible into shares of class A common stock on a one for one basis.
Mr. Vento serves as a manager and is a stockholder of this entity.
(j) Consists of 492,064 shares of class A common stock and 11,366 shares of
class D common stock held by TeleCorp Investment Corp. II, L.L.C. and
2,728,891 shares of class A common stock, 65,373 shares of class C common
stock and 699 shares of class D common stock held by Mr. Sullivan. The
shares of class C and D common stock under some circumstances are
convertible into shares of class A common stock on a one for one basis.
Mr. Sullivan serves as a manager and is a stockholder of this entity.
(k) Consists of 352,956 shares of class A common stock, 575 shares of class C
common stock and 3,780 shares of class D common stock held by TeleCorp
Investment Corp., LLC. and 14,785,692 shares of class A common stock,
27,489 shares of class C common stock and 199,522 shares of class D common
stock held by Chase Capital Partners. Mr. Hannon serves as Vice President
of CB Capital Investors, L.P. The shares of class C and D common stock
under some circumstances are convertible into shares of class A common
stock on a one for one basis. Mr. Hannon disclaims beneficial ownership of
all of these shares.
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<PAGE>
The address of the stockholder is c/o CB Capital Investors, L.P., 380
Madison Avenue, 12th Floor, New York, New York 10017.
(l) Consists of 8,615,818 shares of class A common stock, 13,457 shares of
class C common stock and 105,947 shares of class D common stock held by
Private Equity Investors III, L.P. and 5,754,205 shares of class A common
stock, 13,457 shares of class C common stock and 88,341 shares of class D
common stock held by Equity-Linked Investors-II. Mr. Desai serves as
managing general partner of each of these stockholders. The shares of
class C and D common stock under some circumstances are convertible into
shares of class A common stock on a one for one basis. 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.
(m) Consists of 903,331 shares of class A common stock, 1,691 shares of class
C common stock and 12,212 shares of class D common stock held by HCP
Capital Fund, L.P. and 9,873,950 shares of class A common stock, 18,494
shares of class C common stock and 133,510 shares of class D common stock
held by Hoak Communications Partners, 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. The shares of class C and D common stock under some
circumstances are convertible into shares of class A common stock on a one
for one basis. The address of these stockholders is c/o Hoak
Communications Partners, L.P., One Galleria Tower, 13355 Noel Road, Suite
1050, Dallas, Texas 75240.
(n) Consists of 6,138,683 shares of class A common stock, 11,498 shares of
class C common stock and 83,004 shares of class D common stock held by
J.H. Whitney III, L.P., 147,922 shares of class A common stock, 279 shares
of class C common stock and 2,003 shares of Class D common stock held by
Whitney Strategic Partners III, L.P.; and 2,694,260 shares of class A
common stock, 5,046 shares of class C common stock and 36,432 shares of
class D common stock held by Whitney Equity Partners, 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. The class
C and class D shares, under some circumstances, are convertible into
shares of class A common stock on a one for one basis. The address of
these stockholders is c/o Whitney Equity Partners, L.P., 177 Broad Street,
15th Floor, Stamford, Connecticut 06901.
(o) Consists of 5,513,726 shares of class A common stock, 10,241 shares of
class C common stock and 73,604 shares of class D common stock held by
Media/Communications Partners III Limited Partnership and 259,793 shares
of class A common stock, 427 shares of class C common stock and 3,764
shares of class D common stock held by Media/Communications Investors
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.
The shares of class C and D common stock under some circumstances are
convertible into shares of class A common stock on a one for one basis.
The address of these stockholders is c/o Media/Communications Partners, 75
State Street, Suite 2500, Boston, Massachusetts 02109.
(p) Consists of 492,064 shares of class A common stock and 11,366 shares of
class D common stock owned by TeleCorp Investment Corp. II, L.L.C., of
which Cedar Grove Partners, LLC owns 4.49%, and vested options to purchase
7,725 shares of class A common stock held by Mr. Anderson. Mr. Anderson is
a principal of Cedar Grove Partners, LLC. The shares of class D common
stock under some circumstances are convertible into shares of class A
common stock on a one for one basis.
(q) Consists of vested options to purchase 7,725 shares of class A common
stock held by Mr. Kussell.
(r) Consists of vested options to purchase 7,725 shares of class A common
stock held by Mr. O'Donnell.
(s) Includes vested options to purchase 773 shares of class A common stock
held by Mr. Chandler.
(t) Consists of shares held by members of management and our initial investors
that may be deemed to be beneficially owned by members of our board. These
members of our board disclaim beneficial ownership. 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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<PAGE>
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, we believe
that the terms of these agreements were no more favorable to any of the parties
than could have been obtained from third parties negotiated at arms' 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,
summaries of which are set forth below. These summaries are qualified by
reference to the agreements, which are exhibits to the registration statement
that we filed with the SEC, including this prospectus.
Securities Purchase Agreement
Under a securities purchase agreement, dated as of January 23, 1998, as
amended, among our initial investors, the former stockholders of TeleCorp
Holding, Mr. Vento and Mr. Sullivan and us, we received PCS licenses from AT&T
Wireless and TWR Cellular, Inc. in exchange for shares of our series A
preferred stock, series D preferred stock and series F preferred stock and
$21.0 million in cash. Our initial investors include AT&T Wireless, TWR
Cellular, Chase Capital Partners, Desai Associates, Hoak Capital Corporation,
J. H. Whitney & Co., M/C Partners, One Liberty Fund III, L.P., Toronto Dominion
Investments, Inc. and Northwood Capital Partners. Under the securities purchase
agreement, the initial investors other than AT&T agreed to contribute $128.0
million to us in exchange for shares of our series C preferred stock, class A
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,
our initial investors other than AT&T 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. This obligation was satisfied in connection with our
purchase of the Digital PCS licenses. Approximately $39.0 million of the
contributions to be made by our initial investors other than AT&T 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 such
initial 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
. secured by a pledge of the shares of our capital stock issued to each
such initial 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 1,545 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 each of the parties to the securities purchase agreement, their
contribution and the consideration received:
72
<PAGE>
<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
<S> <C> <C>
. AT&T Wireless PCS, LLC . PCS licenses covering some of the . 30,650 shares of our series A
basic trading areas or other areas preferred stock
within the St. Louis major trading . 15,741 shares of our series D
area, the Louisville-Lexington- preferred stock
Evansville major trading area, and . 4,735,410 shares of our series F
the Boston-Providence major preferred stock
trading area
- ----------------------------------------------------------------------------------------------------
. TWR Cellular, Inc. . PCS licenses covering the Little . 36,073 shares of our series A
Rock, Arkansas major trading area preferred stock
and covering some of the basic . 18,526 shares of our series D
trading areas or other areas within preferred stock
the Memphis-Jackson major . 5,573,267 shares of our series F
trading area preferred stock
- ----------------------------------------------------------------------------------------------------
. Chase Capital Partners . $27,782,016 . 28,942 shares of our series C
. 363 class A shares of TeleCorp preferred stock
Holding . 8,500,982 shares of our class A
. 2,296 class C shares of TeleCorp common stock
Holding . 27,489 shares of our class C
. 58 series A preferred shares of common stock
TeleCorp Holding . 180,459 shares of our class D
common stock
- ----------------------------------------------------------------------------------------------------
. Desai Associates . $27,782,016 . 27,782 shares of our series C
preferred stock
. 8,148,027 shares of our class A
common stock
. 26,914 shares of our class C
common stock
. 176,680 shares of our class D
common stock
- ----------------------------------------------------------------------------------------------------
. Hoak Capital . $20,836,512 . 20,837 shares of our series C
Corporation
preferred stock
. 6,111,022 shares of our class A
common stock
. 20,184 shares of our class C
common stock
. 132,512 shares of our class D
common stock
- ----------------------------------------------------------------------------------------------------
. J.H. Whitney & Co. . $17,363,760 . 17,364 shares of our series C
preferred stock
. 5,092,518 shares of our class A
common stock
. 16,822 shares of our class C
common stock
. 110,427 shares of our class D
common stock
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
<S> <C> <C>
. Entergy Technology Holding . $13,891,008 . 15,051 shares of our series C
Company, who has since . 1,974 class B shares of TeleCorp preferred stock
transferred all of our Holding . 4,426,969 shares of our class A
capital
stock it owned to others . 685 class C shares of TeleCorp common stock
of our initial investors Holding . 106,151 shares of our class D
. 58 series A preferred shares of common stock
TeleCorp Holding
- -------------------------------------------------------------------------------------------------------------
. M/C Partners and M/C . $10,418,256 . 11,578 shares of our series C
Investors
. 363 class A shares of TeleCorp preferred stock
Holding . 3,408,462 shares of our class A
. 2,296 class C shares of TeleCorp common stock
Holding . 10,667 shares of our class C
. 58 series A preferred shares of common stock
TeleCorp Holding . 70,035 shares of our class D
common stock
- -------------------------------------------------------------------------------------------------------------
. One Liberty Fund III, L.P. . $3,472,752 . 5,004 shares of our series C
. 837 class A shares of TeleCorp preferred stock
Holding . 1,431,461 shares of our class A
. 2,273 class C shares of TeleCorp common stock
Holding . 4,039 shares of our class C
. 77 series A preferred shares of TeleCorp common stock
Holding . 26,506 shares of our class D
common stock
- -------------------------------------------------------------------------------------------------------------
. Toronto Dominion . $3,472,752 . 3,473 shares of our series C
Investments,
Inc. preferred stock
. 1,018,504 shares of our class A
common stock
. 3,365 shares of our class C
common stock
. 22,084 shares of our class D
common stock
- -------------------------------------------------------------------------------------------------------------
. Northwood Capital Partners .$2,430,928 .3,591 shares of our series C
and
Northwood Ventures .363 class A shares of TeleCorp preferred stock
Holding .1,065,908 shares of our class A
.2,296 class C shares of TeleCorp common stock
Holding .2,929 shares of our class C
.58 series A preferred shares of common stock
TeleCorp Holding .19,241 shares of our class D
common stock
- -------------------------------------------------------------------------------------------------------------
. Gilde Investment Fund B.V. .8 class A shares of TeleCorp .15 shares of our series C
Holding preferred stock
.23 class C shares of TeleCorp .4,168 shares of our class A
Holding common stock
.1 series A preferred share of TeleCorp .6 shares of our class C
Holding common stock
.43 shares of our class D
common stock
- -------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Stockholder Contribution Consideration Received
<S> <C> <C>
. TeleCorp Investment Corp., .2,659 class C shares of TeleCorp .352,956 shares of our class A
L.L.C. Holding common stock
.58 series A preferred shares of TeleCorp .575 shares of our class C
Holding common stock
.3,780 shares of our class D
common stock
.1,160 shares of our series C
preferred stock
- --------------------------------------------------------------------------------------------------------------
. Gerald T. Vento .$450,000 .1545 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
.3,462,725 shares of our class A
common stock
.105,443 shares of our class C
common stock
.2,861 shares of our class D
common stock
- --------------------------------------------------------------------------------------------------------------
. Thomas H. Sullivan .$100,000 .1545 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
.2,099,927 shares of our class A
common stock
.65,372 shares of our class C
common stock
.637 shares of our class D
common stock
</TABLE>
Our initial investors other than AT&T 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 such stockholder with us is terminated
within six years after the closing of the securities purchase agreement.
Stockholders' Agreement
General. The stockholders' agreement, as amended, among our initial
investors, Messrs. Vento and 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. 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, upon closing of
this offering, our board will consist of nine directors.
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The parties to the stockholders' agreement have agreed to vote all of the
shares of class A voting common stock and voting preference stock to cause the
election of the following nine individuals to our board:
. 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 holders of a majority in interest of the
common stock beneficially owned by our initial investors other than
AT&T;
. two additional individuals selected by Mr. Vento and Mr. Sullivan, so
long as they remain officers, who must be acceptable to the holders of a
majority in interest of the common stock beneficially owned by our
initial investors other than AT&T on the one hand, and AT&T Wireless on
the other hand;
. one individual nominated by AT&T Wireless in its capacity as the holder
of series A preferred stock so long as AT&T has the right to nominate
one director in accordance with our restated certificate of
incorporation;
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers, who must be acceptable to AT&T Wireless; and
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers, who must be acceptable to the holders of a majority in
interest of the class A voting common stock beneficially owned by our
initial investors other than AT&T.
The stockholders agreement provides that when FCC ownership restrictions no
longer apply to us, our board will have seven members and the right of Mr.
Vento and Mr. Sullivan to appoint the individuals set forth in the last two
items above will expire.
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:
. resell or act as agent for us in connection with mobile wireless
communications services;
. provide or resell wireless communications services only to or from
specific locations, provided that any equipment sold in connection with
the service must be capable of providing our wireless communications
services; and
. resell mobile wireless communications services from 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 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.
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AT&T Wireless has retained some 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, AT&T Wireless may terminate
its exclusivity obligations under the stockholders' agreement and may terminate
our rights to the AT&T brand and logo under the license agreement if a default
continues after the applicable cure periods lapse. These material breaches
include:
. AT&T Wireless 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;
. each portion of our network does not, within one year after being placed
into service, meet or exceed technical standards that AT&T has developed
regarding voice quality and performance of network and call completion
equipment. Each portion of our network must, within one year after being
placed into service, perform on a level, as measured by these standards
manuals, that meets or exceeds the levels achieved by the average of all
comparable wireless communications networks owned and operated by AT&T;
. we fail to satisfy specific percentages that our entire network,
measured as a single system, must meet, including as to percentage of
calls completed, percentage of established calls that are dropped,
percentages of calls that are not successfully transferred from one
network equipment site to another as a handset moves, as well as
technical standards regarding the functioning of network and call
connection equipment; or
. we fail to meet specified customer care, reception quality and network
reliability standards.
In all of our launched markets, we believe we currently meet all of the
standards that we are required to satisfy by the first anniversary of each
launch date.
The exclusivity provisions in the stockholders' agreement do not apply to
approximately 100,000 people 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 people for licenses
covering other people. 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 1995 population of the area covered by our licenses in
the mainland United States by July 17, 1999, focusing on designated
areas of Memphis and New Orleans;
. 30% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2000, focusing on the
core urban and suburban cities of the San Juan metropolitan area;
. 40% of the total 1995 population of the area covered by our licenses in
Puerto Rico and U.S. Virgin Islands by May 25, 2001, and also focusing
on secondary cities throughout Puerto Rico;
. 40% of the total 1995 population of the area covered by our licenses by
July 17, 2000, and also focusing on designated areas of New England,
Little Rock and Missouri and enhancing coverage in all markets;
. 55% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2001 and also focusing on
secondary cities and the important associated connecting highways;
. 55% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2002, and continuing
to expand the secondary cities of Puerto Rico and key cities to the U.S.
Virgin Islands and the important associated connected highways;
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. 70% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2002, and continuing to expand
the secondary cities and enhancing coverage of the core areas;
. 70% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2003, and continuing
to expand secondary cities and enhancing coverage and capacity of core
areas;
. 75% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2003, and also focusing on adding
capacity sites and filling in the remaining suburban areas; and
. 75% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2004, and also
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:
. 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 mobile 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 its exclusivity
obligations where the territory covered by our licenses overlaps with
commercial mobile radio service licenses of the business combination partner.
Upon such 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 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. If
we decide to convert their shares into shares of series B preferred stock AT&T
may terminate its exclusivity obligations in all of our markets.
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.
Under some circumstances, if AT&T proposes to sell, transfer or assign to
any person that is not an affiliate of AT&T Wireless, any PCS system owned and
operated by AT&T Wireless 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 our network for sale jointly with
AT&T for a 90-day period.
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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 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 or any
affiliate to be in breach of any law or contract.
Vendor Discounts; Roaming Agreements. AT&T Wireless has agreed in the
stockholders' agreement that, if we so request, and if such request shall not
result in any adverse impact to AT&T Wireless PCS, it will use all commercially
reasonable efforts:
. to assist us in obtaining discounts from any AT&T Wireless 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 and its affiliates and operators of other cellular and PCS
systems.
Resale Agreements. We, upon the request of AT&T Wireless, will enter into
resale agreements relating to the areas covered by our licenses under which
AT&T may 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, 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, 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.
If one of our stockholders who is a party to the stockholders' agreement
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 stockholder is one of our initial investors other than
AT&T or any other stockholder who is a party to the stockholders'
agreement, to AT&T Wireless; and
. if the selling stockholder is AT&T Wireless or TWR Cellular, to every
other initial 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 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 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.
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A stockholder subject to the stockholders' agreement 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;
. 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 our initial investors and Mr.
Vento and Mr. Sullivan to join in the transfer. Class C common stock and class
D common stock will 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.
In addition to the foregoing restrictions, the initial investors have agreed
not to transfer any shares of their common stock until July 17, 2001 except to
affiliates, and Mr. Vento and Mr. Sullivan have agreed not to transfer any
shares of common stock prior to July 17, 2003, subject to limited exceptions,
including that 25% of their common stock may be transferred after July 17,
2001. In addition, some of our stockholders, including our initial investors,
Mr. Vento and Mr. Sullivan, are subject to restrictions imposed by the
underwriters prohibiting them from transferring any shares of their capital
stock for 180 days.
Our stockholders who are subject to the stockholders' agreement also have
demand and piggyback registration rights. In some circumstances, stockholders
may demand that we register some or all of their securities with the SEC under
the Securities Act. See "Shares Eligible for Resale." 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 registration their shares of
class A voting stock or securities convertible into or exchangeable for class A
voting common stock.
Amendments. In addition to the approval of our senior lenders, the terms of
the stockholders' agreement may be amended only if agreed to in writing by us
and the beneficial holders of a majority of the class A common stock party to
the stockholders' agreement, including AT&T Wireless, 66 2/3% of the class A
common stock beneficially owned by our initial investors other than AT&T, and
66 2/3% 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 specified circumstances, the date on which a single stockholder
beneficially owns all of the outstanding shares of class A common stock.
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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 in our
markets, 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,
The licensed marks may only be used in connection with licensed activities.
These licensed activities include:
. providing to our customers and resellers of our wireless services,
solely within the areas covered by our licenses, mobile wireless
communications services; 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,
mobile wireless communications services under the licensed marks in our
licensed markets. AT&T retains all rights of ownership in the licensed marks,
subject to its exclusivity obligations to us, in both the areas 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, to determine what is comparable service. We must also provide
sufficiently high quality services to provide maximum enhancement to and
protect licensed marks, such as attaining specified levels of network quality,
audio quality, system performance and meeting customer care standards. 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
license agreement and neither party gives 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;
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. 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 of control, which is defined as a transaction, other than a
transfer by AT&T, that results in any person other than our initial
stockholders or our senior lenders acquiring beneficial ownership of
more than 50% of our voting stock, or 33.3% of our voting stock if the
person acquiring our stock acquires more than our initial stockholders
hold at that time. Also included is a transaction that results in any of
the three largest telecommunications carriers, excluding AT&T and any
wireless carrier using TDMA technology, or any regional bell operating
company, or Microsoft acquiring more than 15% of our voting stock,
excluding acquisitions through open market transactions or a majority of
our directors are removed in a proxy contest.
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 Alexandria and Lake Charles, Louisiana basic trading areas and
certain 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.
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 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:
. material breach of any material term of the intercarrier roamer service
agreement by a party that 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-
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breaching party. While the suspension is in effect, either in whole or in part,
the parties will 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 will 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.
Roaming Administrative Service Agreement. 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. 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.
Resale Agreement
The stockholders' agreement provides that, from time to time, at AT&T
Wireless' request, we are required to enter into a resale agreement with AT&T
Wireless PCS or other of its affiliates. The resale agreement would 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 must pay charges for any services that are resold,
including usage, roaming, directory assistance and long distance charges, and
taxes and tariffs. Any resale agreement would have an initial term of ten years
that would be automatically renewed on a year-to-year basis unless terminated
by either party upon 90 days prior written notice. In addition, AT&T Wireless
would be able to terminate any resale agreement for any reason at any time upon
180 days prior written notice.
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
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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 on May 25, 1999.
The following transactions took place ultimately to effect the acquisition of
the license and related assets from AT&T Wireless:
. 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 3,090,000 shares of our series F preferred stock under a preferred
stock purchase agreement;
. on May 25, 1999, we sold to our initial investors other than AT&T 39,997
shares of our series C preferred stock and 12,358,950 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 trading
area and related assets, which included 27 constructed network equipment
sites, call connection equipment and leases for additional network
equipment 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 5,244 and 2,334,186 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 an
entity wholly-owned by Mr. Vento and Mr. Sullivan that was created for the
special purpose of acquiring the license and related assets of the San Juan
major trading area. 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 stockholders' agreement sets forth network development requirements for
the Puerto Rico license. See "Certain Relationships and Related Transactions--
Stockholders Agreement--Construction."
The San Juan major trading area covers a population of approximately 3.9
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 trading area
under the scope of those agreements.
1999 Stock Option Plan
On July 22, 1999, we implemented a 1999 Stock Option Plan to award employees
and members of the board options to acquire shares of our class A common stock.
Our board granted options to purchase 552,505 shares of class A common stock
under the plan with an exercise price equal to the fair market value of the
underlying stock at the date of the grant. For information regarding grants
under the plan, see "Management--1999 Stock Option Plan."
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Management Agreement
As of July 17, 1998, we entered into a management agreement with TeleCorp
Management, a company owned by Mr. Vento and Mr. Sullivan under which TeleCorp
Management provides to us administrative, operational, marketing, regulatory
and general business services. For information regarding compensation payable
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 Entel Technologies and other Site Acquisition Service
Providers
We receive site acquisition, construction management, program management,
microwave relocation and engineering services under a master services agreement
with Wireless Facilities, Inc. 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 Entel Technologies. In February 1998,
they sold their interests in Entel Technologies to Wireless Facilities, Inc.
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 under a master site lease agreement. Chase Capital Partners, one of
our 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 Senior Subordinated Discount
Notes
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
our senior subordinated discount 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 initial investors and owns shares of our common and preferred
stock. For further information concerning these relationships, see
"Management," "Principal Stockholders and Beneficial Ownership of Management"
and "Underwriting." 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 Tritel Communications and Triton PCS
We have formed Affiliate License Co. with Triton PCS and Tritel
Communications to adopt a common brand, 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.
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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, 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, our director nominated by AT&T Wireless, and Mr.
Anderson 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 Tritel
Communications. 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 area licenses 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. 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:
. 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.
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Mr. Sullivan and Mr. Vento 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 352,956 shares of our class A common stock, 575 shares of
our class C common stock, 3,780 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:
. Chase Capital Partners, one of our initial investors, owns an 80% equity
interest;
. Mr. Sullivan and Mr. Vento each own a 2.4% equity interest;
. Mr. Chandler owns a 2.0% equity interest; and
. Mr. Dowski owns a 1.6% equity interest.
In addition, TeleCorp Investment Corp. II was formed to purchase from
Entergy Technology Holding Corporation 492,064 shares of class A common stock
and 11,366 shares of class D common stock. The purchase of shares was concluded
on July 15, 1999. Mr. Vento, Mr. Sullivan and Ms. Dobson each own 5.99% 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 30, 1999, we solicited the approval of the FCC for the
transfer of the shares of Viper Wireless we do not yet own to TeleCorp Holding.
AT&T and some of our other initial investors have funded 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 received
one share each of our series D preferred stock and our series F preferred
stock, and each of the other participating initial investors received one share
each of our class A common stock and our series C 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. Additionally, upon
approval of the FCC, some of our employees, Mr. Vento and Mr. Sullivan will
receive a total of 1,111 shares of series E preferred stock and 503,022 shares
of class A common stock. Our employees will receive their shares as restricted
stock that will vest ratably over 5 years. Mr. Vento and Mr. Sullivan will
receive their shares in exchange for shares they hold in Viper Wireless, and
their shares will vest immediately. The estimated value of the series E
preferred stock is $57,772, and of the class A common stock is $3,907. 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 initial 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 additional portions 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 a total of approximately $32.3 million to satisfy
Viper Wireless' payment to the FCC.
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TeleCorp LMDS
On October 18, 1999, we agreed to acquire TeleCorp LMDS, Inc. through an
exchange of all of the outstanding stock of TeleCorp LMDS for 834,300 shares of
our class A common stock and 2,700 shares of our series C preferred stock.
TeleCorp LMDS's stockholders are Mr. Vento, Mr. Sullivan and three of our
initial investors. By acquiring TeleCorp LMDS, we will gain LMDS licenses
covering airwaves in Little Rock, Arkansas, Beaumont, Texas, New Orleans,
Louisiana, San Juan and Mayaguez, Puerto Rico, and the U.S. Virgin Islands. See
"Principal Stockholders and Beneficial Ownership of Management."
Relationship with Toronto Dominion
Toronto Dominion Investments, one of our initial investors, and TD
Securities (USA), an affiliate of Toronto Dominion Investments, which is a
lender under our senior credit facilities, 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 some of our initial investors. In July 1996, we issued $0.5 million
of subordinated promissory notes to such investors. 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 some of our initial investors. 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 investors 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, was counsel until October 1999 and a
partner prior to July 1998. The terms of these arrangements were no more
favorable to McDermott, Will & Emery than could have been obtained from third
parties negotiated at arms' length.
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DESCRIPTION OF INDEBTEDNESS
Senior Credit Facilities
Our credit agreement, as amended, provides for senior credit facilities for
$560.0 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
. a $35.0 million senior secured term loan, the tranche C term loan,
established under an expansion facility, which matures in May 2009.
The tranche A term loan is required to 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 approximately $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 approximately $0.6 million.
The amount of each of the last four installments is approximately $54.0
million. The tranche C term loan is required to be repaid in May 2009. The
commitments to make loans under the revolving credit facility automatically and
permanently reduce, beginning in April 2005, in 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 a reserve-adjusted London Interbank
Offering Rate, with a margin equal to:
. 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
. 3.0% per annum, with respect to the tranche B term loan.
Alternatively, we may choose an alternative rate loan, which accrues at the
higher of (a) the administrative agent's prime rate and (b) the federal funds
rate plus 0.50% plus, in each case,
. 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
. 2.0% per annum, with respect to the tranche B term loan.
. 2.0% per annum, with respect to the tranche C term loan.
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 a commitment fee
accruing at an annual rate of between 0.50% and 1.25% on the unused portion of
the revolving credit and tranche A term loan facilities, depending on the
percentage of undrawn tranche A and revolving credit commitments. The
commitment fees 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 that bears interest at a fixed rate. As of December 31, 1998 and
September 30, 1999, we hedged 100% of our outstanding indebtedness under our
senior credit facilities of $225,000,000 to take advantage of favorable
interest rate swaps. The six outstanding interest rate swap contracts fix LIBOR
at annual interest rates from 5.20% to 5.26%. The contracts mature in September
of 2003.
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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) 50% of the net cash proceeds of issuances of equity securities, other
than in connection with our equity investments and other than the
proceeds of this offering, and, provided that, this clause (4) shall
not apply at any time we have a class of equity securities publicly
held;
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.
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. Under the
senior credit facilities, no action may be taken against our licenses unless
and until the requisite approval is obtained from the FCC.
The senior credit agreement contains financial and other covenants customary
for senior credit agreements. 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.
Senior Subordinated Discount Notes
On April 20, 1999, we sold $575,000,000 aggregate principal amount at
maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash
interest on these notes will not accrue or be payable prior to April 15, 2004.
From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum
on the principal amount at maturity of the notes through and including the
maturity date and will be payable semi-annually on April 15 and October 15 of
each year. In connection with the sale of these notes, we received net proceeds
of approximately $317 million after deducting initial purchasers' discount and
issuance expenses of approximately $10 million.
These notes are general senior unsecured obligations subordinate to all of
our existing and future senior debt and will rank equally in right of payment
with all our existing and future unsecured and unsubordinated indebtedness and
senior in right of payment to any of our subordinated indebtedness. The notes
are guaranteed by our subsidiary, Telecorp Communications, Inc., and may be
guaranteed by future subsidiaries. The notes are redeemable at any time and
from time to time at our option, in whole or in part on or after April 15,
2004, plus
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accrued and unpaid interest. The redemption prices for the senior subordinated
discount notes, if redeemed during the 12-month period beginning on April 15
of the years described below are as follows:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2004........................................................... 105.813%
2005........................................................... 103.875%
2006........................................................... 101.938%
2007 and thereafter............................................ 100.000%
</TABLE>
In addition, on or prior to April 15, 2002, we may redeem, at our option,
up to 35% of the aggregate principal amount at maturity of the notes with the
net proceeds of one or more equity offerings, at 111.625% of the accreted
value thereof, as long as notes representing at least 65% of the aggregate
initial accreted value of the notes originally issued remain outstanding after
each redemption and that the redemption occurs within 60 days of the closing
of any equity offering.
If we experience a change of control, each holder of senior subordinated
discount 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.
A change of control would occur under the indenture if any of the following
occurs:
. any person or group, as the terms are used in the applicable provisions
of the Securities Exchange Act of 1934, other than some permitted
holders, becomes the beneficial owners, 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.
The indenture under which the notes were issued restricts, among other
things, our ability 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;
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. engage in transactions with affiliates;
. engage in particular business activities; and
. engage in mergers, consolidations and particular sales of assets.
The indenture provides for acceleration of payments under the senior
subordinated discount notes upon customary events of default, including cross
defaults, judgment defaults and events of bankruptcy.
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. We also entered into a note
purchase agreement with Lucent under which 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 and $40.0 million aggregate principal amount of increasing rate
Lucent series B notes.
We borrowed $40.0 million under the series B note facility and repaid this
amount and accrued interest of $227,778 in April 1999 from proceeds of our sale
of senior subordinated discount notes. This amount cannot be reborrowed. As of
September 30, 1999, we had outstanding approximately $42.5 million of our
Lucent series A notes, including $1.6 million of Lucent series A notes issued
as payment of interest in kind, plus $0.9 million of additional accrued
interest and accruing interest at a rate per annum of 8.5% as of September 30,
1999. Proceeds from the sale of these notes have been used to develop our
network in designated areas. The Lucent series A notes as amended mature in
October 2009 and amounts outstanding under these series A notes and any future
series A note borrowings are subject to mandatory prepayment in an amount equal
to 50% of the excess of $198.0 million in net proceeds we receive from an
equity offering other than the issuance of capital stock used to acquire
related businesses or assets.
In October 1999 we entered into an amended and restated note purchase
agreement with Lucent under which Lucent has agreed to purchase up to $12.5
million of new series A notes and up to $12.5 of new series B notes under a
vendor expansion facility in connection with our prior acquisition of licenses
in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and
Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to
purchase notes under this vendor expansion facility is subject to a number of
conditions, including that we commit to purchase one wireless call connection
equipment site and 50 network equipment sites for each additional market from
Lucent.
In addition, pursuant to the amended and restated note purchase agreement
Lucent has agreed to make available up to an additional $50.0 million of new
vendor financing not to exceed an amount equal to 30% of the value of
equipment, software and services provided by Lucent in connection with any
additional markets we acquire. This $50.0 million of availability is subject to
a reduction up to $20 million on a dollar for dollar basis of any additional
amounts Lucent otherwise lends to us for such purposes under our senior credit
facilities. Any notes purchased under this facility would be divided equally
between Lucent series A and series B notes.
The terms of Lucent series A and series B notes issued under these expansion
facilities would be identical to the terms of the original Lucent series A and
series B notes as amended, including a maturity date of October 23, 2009.
In addition, any Lucent series B notes issued under the vendor expansion
facility will mature 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 any private placement of
notes issued to finance any additional markets and borrowings under the senior
credit facilities or any replacement facility.
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Lucent series A notes, including any Lucent series A notes issued under the
vendor expansion facility, 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, 2001, provided that the maximum interest rate
will not exceed 12 1/8%. 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, 2000,
provided that the maximum interest rate will not exceed 12 1/8%. 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 offer to repay the Lucent series A and
series B notes at their principal amount plus a premium, unless prohibited by
our senior credit facilities or the senior subordinated notes indenture. 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
Company may elect to prepay all of the Lucent series A or series B notes in
accordance with the optional prepayment provisions, but that such time
restrictions do not apply to any notes held by Lucent or its affiliates. The
Lucent Series A and Series B notes may not be prepaid, however, if prohibited
by the terms of the senior credit facilities, the senior subordinated notes
indenture or other indebtedness that ranks senior to the Lucent series A and
series B notes.
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. We cannot redeem the series A Notes that Lucent has assigned or
participated to a third party from May 1, 2002 through April 30, 2007 and any
redemption thereafter will require the payment of a premium. We cannot redeem
the series B Notes that Lucent has assigned or participated to a third party
from May 1, 2000 through April 30, 2005 and any redemption thereafter will
require the payment of a premium. The premiums decrease in each year after the
first year in 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 our
senior credit facilities, the senior subordinated notes indenture or other
indebtedness that ranks senior to the Lucent series A and series B Notes.
If Lucent has not completed specified resales 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 resales of series A and
series B notes.
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 million
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
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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 $6.1
million 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 set forth in our restated certificate of
incorporation that will become effective upon closing of this offering, will
consist of:
. 918,339,090 shares of common stock, par value $0.01 per share,
consisting of:
. 608,550,000 shares of class A common stock
. 308,550,000 shares of class B common stock
. 309,000 shares of class C common stock
. 927,000 shares of class D common stock
. 3,090 shares of voting preference common stock
. 17,045,000 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
. 15,450,000 shares of series F preferred stock
. 1,000,000 undesignated shares
As of September 30, 1999 our outstanding capital stock consisted of:
. 73,835,264 shares of class A common stock
. 283,813 shares of class C common stock
. 851,429 shares of class D common stock
. 3,090 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
. 24,980 shares of series E preferred stock
. 14,912,778 shares of series F preferred stock
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 determines.
Voting Rights
Subject to the rights of specific classes of stock to vote as a class on
some matters, regardless of the number of shares outstanding, the holders of
the class A common stock are entitled to an aggregate 4,990,000 votes and the
holders of voting preference common stock are entitled to an aggregate
5,010,000 votes of all outstanding capital stock. Each holder of class A common
stock shall have the number of votes equal to 4,990,000 divided by the number
of outstanding shares of class A common stock multiplied by the number of
shares of class A common stock held by such stockholder. 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 one of our directors.
95
<PAGE>
Our restated certificate of incorporation that will become effective upon
closing of this offering provides that, except where a class of capital stock
has the right to vote as a class, a quorum will 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. Any further 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, unless any amendment,
alteration or repeal is proposed and declared advisable by our board, in which
case only the affirmative vote of a majority of these shares is required.
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 determines that it is not 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 among our initial 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.
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 with one vote per share, then, unless our board determines 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 upon the affirmative vote of the holders of 66 2/3% or
more of the class A common stock. We expect that in 2004, the FCC ownership
restrictions will no longer apply to us, allowing regulatory counsel to deliver
this opinion.
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<PAGE>
At any time, holders of series F preferred stock may convert each share into
one share of class A or class B common stock; provided, that, until the class C
common stock and class D common stock is convertible into class A common stock
as set forth in the preceding paragraph, the first 195,063 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.
All conversions are subject to obtaining any required FCC approvals. Holders
of preferred or common stock may elect to convert any or all of their shares by
giving written notice to us prior to the requisite FCC approvals. This
conversion will not become effective until the final receipt of all necessary
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
. 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."
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<PAGE>
Ranking
With respect to the payment of dividends and distributions upon our
liquidation, dissolution or winding up, classes of our preferred stock rank as
follows:
<TABLE>
<CAPTION>
Class of Stock Parity with Junior to Senior to
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
series A series B preferred none series C preferred
preferred series D preferred
series E preferred
series F preferred
common stock
- --------------------------------------------------------------------------------------------
series B series A preferred none series C preferred
preferred series D preferred
series E preferred
series F preferred
common stock
- --------------------------------------------------------------------------------------------
series C series D preferred-- series A preferred and series E preferred
preferred except when a statutory series B preferred series F preferred
liquidation series D preferred-- common stock--
common stock-- only upon a statutory only with respect to
only with respect to liquidation dissolution, liquidation
dividends and winding up
- --------------------------------------------------------------------------------------------
series D series C preferred-- series A preferred series C preferred--
preferred except when a statutory series B preferred only upon a statutory
liquidation liquidation
common stock-- series E preferred
only with respect to series F preferred
dividends common stock--
only with respect to
dissolution, liquidation
and winding up
- --------------------------------------------------------------------------------------------
series E series A preferred series F preferred
preferred series B preferred common stock
series C preferred
series D preferred
- --------------------------------------------------------------------------------------------
series F common stock-- series A preferred common stock--
preferred except when a statutory series B preferred only upon a statutory
liquidation series C preferred liquidation
series D preferred
series E preferred
</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.
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<PAGE>
The holders of series C preferred stock, series D preferred stock, series E
preferred stock and series F preferred stock are entitled to dividends as
declared by our board.
The dividend rights of our outstanding preferred stock are summarized below:
<TABLE>
<CAPTION>
Series of Aggregate
Preferred Liquidation Preference
Stock Amount of Dividend Payment Dates as of June 30, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
series A 10% of liquidation preference Quarterly commencing $104,303,999
annually, accruing daily from September 30, 1998; may
July 17, 1998 be deferred until December 31,
2008 on which date all past
unpaid dividends become due
- ----------------------------------------------------------------------------------------------------
series C As declared by our board, up to When and if declared by $197,099,048, accreting
the liquidation preference our board at 6% per annum,
compounded quarterly.
- ----------------------------------------------------------------------------------------------------
series D As declared by our board, up to When and if declared by our $47,564,935, accreting
the liquidation preference board 6% per annum,
compounded quarterly.
- ----------------------------------------------------------------------------------------------------
series E As declared by our board, up to When and if declared by our $1,186,066, accreting
the liquidation preference board at 6% per annum,
compounded quarterly.
- ----------------------------------------------------------------------------------------------------
series F As declared by our board When and if declared by our $443
board
</TABLE>
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.
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<PAGE>
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;
. 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; and
. holders of series F preferred stock are entitled to a preference equal
to $.000032 plus accrued and unpaid dividends on the shares.
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 will 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 will 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 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."
Anti-Takeover Effects of Certain Provisions of Delaware Law and our Amended and
Restated Certificate of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Generally, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained that status with the approval of the board of directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. This
statute could prohibit or delay the accomplishment of mergers or other
takeovers or changes in control with respect to us and, accordingly, may
discourage attempts to acquire us.
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<PAGE>
In addition, provisions of our restated certificate of incorporation and
bylaws, which provisions will be in effect upon the closing of the offering and
are summarized in the following paragraphs, may be deemed to have an anti-
takeover effect. These provisions may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Nomination and Election of Directors. Our restated certificate of
incorporation provides that following completion of this offering, our nine
member board of directors will be divided into three classes of directors. Each
class will serve a staggered three-year term where one-third of the board of
directors will be elected each year. In general, this means that a director
will stand for election only once every three years. The classified board
provision could have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of us, even though the
attempt might be beneficial to us and our stockholders. In addition, the
classified board provision could delay the stockholders who do not agree with
the policies of the board from removing a majority of the board for two years.
Board of Directors Removal and Vacancies. Our restated certificate of
incorporation provides that directors may be removed only for cause and only by
the affirmative vote of the holders of a majority of the outstanding shares of
voting stock cast, at an annual or special meeting, except that any director
nominated by any holder of our preferred stock having the right to nominate
such director may be removed and replaced by such holder with or without cause.
In addition, our bylaws authorize the board of directors to fill vacant
directorships or increase the size of the board of directors except that any
vacancy that was left by a nominee of a stockholder entitled to nominate the
nominee will be filled by a new director selected by the holder, subject to any
required approvals. This may prevent a stockholder from removing incumbent
directors and simultaneously gaining control of the board of directors by
filling the resulting vacancies created by such removal with its own nominees.
Special Meetings of Stockholders. Our bylaws provide that special meetings
of our stockholders may be called only by the Chairman, the President or a
majority of the board of directors or stockholders holding 35% of our
outstanding voting shares.
Authorized But Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to the limitations imposed by the Nasdaq National Market.
These additional shares may be used for a variety of corporate purposes,
including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized but
unissued and unreserved common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
Amendment to Our Certificate of Incorporation. Amendments to our restated
certificate of incorporation which are not proposed by our board must be
approved by the affirmative vote of at least two-thirds of our outstanding
shares of capital stock entitled to vote in the election of directors. Any
amendment proposed by the board requires only the minimum vote required by law
or any applicable terms of our capital stock. Our bylaws may be amended in the
same manner as our restated certificate of incorporation or, alternatively, by
a majority vote of our board of directors.
Stockholder Proposals. The bylaws require that stockholders wishing to bring
any business, including the nomination of directors, before an annual meeting
of stockholders, deliver written notice to us not less than 90 days prior to
the date of the annual meeting of stockholders. If, however, the date of the
meeting is scheduled to occur more than 30 days before or more than 90 days
after the anniversary of the prior year's annual meeting, notice by the
stockholder must be delivered to us not later than the close of business on the
tenth day following the day on which we publicly announce the date of our
annual meeting. The foregoing provisions regarding director nomination
procedures do not apply to holders of our capital stock who have the right to
nominate directors under our stockholders' agreement or restated certificate of
incorporation. These provisions may discourage or make more difficult the
acquisition of control of us by means of a tender offer, open market purchase,
proxy contest or otherwise.
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<PAGE>
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation, or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage.
Indemnification of Directors and Executive Officers and Limitation of
Liability
Our restated certificate of incorporation includes a provision that
eliminates the personal liability of our directors and executive officers for
monetary damages for breach of fiduciary duty as a director or executive
officer, except:
. for any breach of the director's or executive officer's duty of loyalty
to us or our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for unlawful dividends and stock purchases under the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
. we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our amended and restated certificate of incorporation, our bylaws
or agreements; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with any legal proceeding to the fullest extent
permitted by Delaware law, subject to limited exceptions.
We have entered into indemnity agreements with each of our directors and
executive officers to give them additional contractual assurances regarding
the scope of the indemnification described above and to provide additional
procedural protections. In addition, we have obtained directors' and officers'
insurance providing indemnification for our directors, officers and key
employees for various liabilities. We believe that these indemnification
provisions and agreements are necessary to attract and retain qualified
directors and officers.
The limitation of liability and indemnification provisions in our restated
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of stockholder
derivative litigation against directors and officers, even though a derivative
action, if successful, might otherwise benefit us and our stockholders.
Furthermore, a stockholder's investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against directors and
officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, nor
are we aware of any threatened litigation that my result in claims for
indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our class A common stock is State
Street Bank and Trust Company.
Listing
We have applied for quotation of our class A common stock on the Nasdaq
National Market under the trading symbol "TLCP."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our class A
common stock. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale. Sales of substantial amounts of our class A common
stock in the public market after the restrictions lapse or are waived could
cause the market price of our class A common stock to drop significantly.
Upon completion of this offering, we will have outstanding an aggregate of
81,673,889 shares of class A common stock assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering, other than shares held
by our "affiliates" and certain of our other key employees other than 390,000
shares sold pursuant to the directed share program, will be freely tradable
without restriction or further registration under the Securities Act. The
remaining class A common shares held by existing shareholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act. These
shares are eligible for public sale only if registered under the Securities Act
or sold under an exemption to registration under the Securities Act. There are
also contractual restrictions on some of the holders of these shares which
restrict their ability to sell the shares.
The following table summarizes approximately when the 73,873,889 shares of
class A common stock that are not being sold in this offering, but which will
be outstanding at the time this offering is complete, will be eligible for sale
into the public market:
<TABLE>
<CAPTION>
Date of availability for resale into
Number of shares % of total outstanding public market
---------------- ---------------------- ------------------------------------
<C> <C> <S>
101,459 0.12% After January 11, 2000, due to
provisions of the federal securities
laws.
3,783,362 4.63% 180 days after the date of this
prospectus due to an agreement these
stockholders have with the
underwriters, subject to vesting
requirements listed in our 1998
Restricted Stock Plan. However, the
underwriters can waive this
restriction and allow these
stockholders to sell their shares at
any time.
69,989,068 85.69% After July 17, 2001 upon lapse of
restrictions on transfer under the
stockholders' agreement, unless such
restrictions are earlier waived by the
parties thereto, in which case all
such shares will be subject to resale
subject to volume limitations and, in
the case of non-affiliates, without
restriction after July 17, 2000. In
addition the 16,051,110 shares of our
class A common stock issuable upon
conversion of our class C and class D
and voting preference common stock and
our series F preferred stock and
shares of class A common stock
issuable upon conversion of our class
A preferred stock are also subject to
the restrictions on transfer under the
Stockholders' agreement.
</TABLE>
These rules and contractual restrictions governing the shares' eligibility
for public sale are as follows:
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned class A common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of class A common shares then outstanding, which will
equal approximately816,739 class A common shares immediately after this
offering; or
. the average weekly trading volume of the class A common shares on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice of Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
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<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Unless
otherwise restricted, these shares may be sold immediately upon the completion
of this offering.
Rule 701
As of October 18, 1999, we have granted to our employees and certain
directors and officers options to purchase an aggregate of 552,505 shares of
class A common stock, of which options to purchase 75,844 of class A common
stock had vested.
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase class A common shares from us in
connection with a compensatory stock or option plan or other written agreement
before the effective date of this offering is entitled to resell these shares
90 days after the effective date of this offering in reliance on Rule 144,
without having to comply with certain restrictions, including the holding
period contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described below, may be sold:
. beginning 90 days after the date of this prospectus;
. by persons other than affiliates subject only to the manner of sale
provisions of Rule 144; and
. by affiliates under Rule 144 without compliance with its one year
minimum holding period requirement.
Lock-up Agreements
Our executive officers, directors, other key employees and our initial
investors have signed lock-up agreements under which they agreed not to dispose
of or hedge any capital stock or any securities convertible into or
exchangeable for capital stock for a period of 180 days from the date of this
prospectus.
Stock Options
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of class A
common shares reserved for issuance under our stock option plan and other
options issued to our employees, directors and officers. We expect the
registration statement to be filed soon after the date of this prospectus and
automatically to become effective upon filing. Accordingly, class A common
stock registered under the registration statement will, subject to vesting
provisions and volume limitations under the Securities Act applicable to our
affiliates, be available for sale in the open market immediately, or, in the
case of certain directors and other key employees, immediately after the 180-
day lock-up agreements expire.
Registration Rights
Commencing on the first anniversary of the completion of this offering,
stockholders beneficially holding 86,037,088 shares of class A common stock
prior to completion of this offering are entitled to request that we register
their shares of class A common stock under the Securities Act. After these
shares are registered, they will become freely tradable without restriction
under the Securities Act. However, under the stockholders' agreement, these
stockholders have agreed not to transfer their shares until at least July 17,
2001.
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<PAGE>
MATERIAL U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
Following is a general discussion of material U.S. federal income and estate
tax consequences of the ownership and disposition of the class A common stock
applicable to non-U.S. holders of class A common stock. For purposes of this
discussion, a non-U.S. holder is any holder of class A common stock that, for
U.S. federal income tax purposes, is not a U.S. person. This discussion does
not address all aspects of U.S. federal income and estate taxation that may be
relevant in light of a non-U.S. holder's particular facts and circumstances,
such as being a U.S. expatriate, and does not address any tax consequences
arising under the laws of any state, local or non-U.S. taxing jurisdiction.
Furthermore, the following discussion is based on current provisions of the
Internal Revenue Code of 1986, as amended, and administrative and judicial
interpretations thereof, all as in effect on the date hereof, and all of which
are subject to change, possibly with retroactive effect. We have not and will
not seek a ruling from the Internal Revenue Service with respect to the U.S.
federal income and estate tax consequences described below, and as a result,
there can be no assurance that the Internal Revenue Service may disagree with
or challenge any of the conclusions set forth in this discussion.
For purposes of this discussion, the term U.S. person means:
. a citizen or resident of the United States;
. a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or any political
subdivision thereof;
. an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
Dividends
A dividend paid to a non-U.S. holder generally will be subject to U.S.
withholding tax either at a rate of 30% of the gross amount of the dividend or
such lower rate as may be specified by an applicable income tax treaty.
Dividends received by a non-U.S. holder that are effectively connected with a
U.S. trade or business conducted by the non-U.S. holder are exempt from that
withholding tax. However, those effectively connected dividends, net of certain
deductions and credits, are taxed at the same graduated rates applicable to
U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. holder that are effectively connected with a U.S. trade or
business of the corporate non-U.S. holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable income tax treaty.
A non-U.S. holder that is eligible for a reduced rate of withholding tax
pursuant to an applicable income tax treaty may be required to submit
documentation to avail itself of that treaty and may be able to obtain a refund
of any excess amounts withheld by us by filing an appropriate claim for refund
with the Internal Revenue Service.
Gain on Disposition of Class A Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of class A common stock
unless:
. the gain is effectively connected with a U.S. trade or business of the
non-U.S. holder, which gain, in the case of a corporate non-U.S. holder,
must also be taken into account for branch profits tax purposes;
105
<PAGE>
. the non-U.S. holder is an individual who holds his or her class A common
stock as a capital asset, which generally means as an asset held for
investment purposes, and who is present in the United States for a
period or periods aggregating 183 days or more during the calendar year
in which the sale or disposition occurs and certain other conditions are
met; or
. We are or we have been a United States real property holding corporation
for U.S. federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or the holder's holding
period for its class A common stock. We believe that we are not and will
not become a United States real property holding corporation for U.S.
federal income tax purposes.
Backup Withholding and Information Reporting
Generally, we would be required to report annually to the Internal Revenue
Service the amount of dividends, if any, paid on the class A common stock, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report would be sent to the recipient. Pursuant to applicable income
tax treaties or other agreements, the Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.
Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the non-U.S. holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and other information to the payer. Backup
withholding will generally not apply to dividends paid to non-U.S. holders at
an address outside the United States on or prior to December 31, 2000 unless
the payer has knowledge that the payee is a U.S. person. Under the recently
finalized Treasury Regulations regarding withholding and information
reporting, payment of dividends to non-U.S. holders at an address outside the
United States after December 31, 2000 may be subject to backup withholding at
a rate of 31% unless such non-U.S. Holder satisfies various certification
requirements.
Under current treasury regulations, the payment of the proceeds of the
disposition of class A common stock to or through the U.S. office of a broker
is subject to information reporting and backup withholding at a rate of 31%
unless the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of the proceeds of
the disposition by a non-U.S. holder of class A common stock outside the
United States to or through a foreign office of a broker will not be subject
to backup withholding but will be subject to information reporting
requirements if the broker is:
. a U.S. person;
. a controlled foreign corporation for U.S. federal income tax purposes;
or
. a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a U.S. trade or business
unless the broker has documentary evidence in its files of the holders' non-
U.S. status and certain other conditions are met, or the non-U.S. holder
otherwise establishes an exemption. Neither backup withholding nor information
reporting generally will apply to a payment of the proceeds of a disposition
of class A common stock by or through a foreign office of a foreign broker not
subject to the preceding sentence.
In general, the recently finalized treasury regulations, described above,
do not significantly alter substantive withholding and information reporting
requirements but would alter procedures for claiming benefits of an income tax
treaty and change the certifications procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of
class A common stock. Non-U.S. holders should consult their tax advisors
regarding the effect, if any, of those final treasury regulations on an
investment in the class A common stock. Those final treasury regulations are
generally effective for payments made after December 31, 2000.
106
<PAGE>
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
Estate Tax
An individual non-U.S. holder who owns class A common stock at the time of
his or her death or had made certain lifetime transfers of an interest in class
A common stock will be required to include the value of that class A common
stock in his or her gross estate for U.S. federal estate tax purposes, unless
an applicable estate tax treaty provides otherwise.
The foregoing discussion is a summary of the principal U.S. federal income
and estate tax consequences of the ownership, sale or other disposition of
class A common stock by non-U.S. holders. Accordingly, investors are urged to
consult their own tax advisors with respect to the income and estate tax
consequences of the ownership and disposition of class A common stock,
including the application and effect of the laws of any state, local, foreign
or other taxing jurisdiction.
107
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase and we have agreed to sell to each underwriter, the number
of shares set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Salomon Smith Barney Inc. .........................................
Lehman Brothers Inc. ..............................................
Deutsche Bank Securities Inc. .....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
---------
Total............................................................ 7,800,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of various legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Lehman Brothers Inc.,
Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, propose to offer some of the shares
directly to the public at the public offering price listed on the cover page of
this prospectus and some of the shares to various dealers at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and these dealers may reallow, a concession not in
excess of $ per share on sales to other dealers. If all of the shares are
not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 1,170,000 additional shares of
class A common stock at the public offering price less the underwriting
discount. The underwriters may exercise their option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent this option is exercised, each underwriter will be obligated, subject to
various conditions, to purchase a number of additional shares approximately
proportionate to its initial purchase commitment.
At our request, the underwriters will reserve up to approximately 390,000
shares of class A common stock to be sold, at the initial public offering
price, to our directors, officers and employees and their friends and family
members. This directed share program will be administered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
individuals purchase reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
Our executive officers, directors, other key employees and initial investors
have agreed that, for a period of 180 days from the date of this prospectus,
they will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of any of our capital stock, or any securities convertible into or
exchangeable for our capital stock, except for shares of our class A common
stock acquired in the public market following the offering by persons other
than our officers and directors.
Prior to this offering, there has been no public market for the class A
common stock. Consequently, the initial public offering price for the shares
was determined by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering price were our
record of operations, our
108
<PAGE>
current financial condition, our future prospects, our markets, the economic
conditions in and future prospects for the industry in which we compete, our
management, and currently prevailing general conditions in the equity
securities markets, including current market valuations of publicly traded
companies considered comparable to us. We cannot assure you, however, that the
prices at which the shares will sell in the public market after this offering
will not be lower than the price at which they are sold by the underwriters or
that an active trading market in the class A common stock will develop and
continue after this offering.
The following table shows the underwriting discounts and commissions we must
pay to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares of class A common stock to cover over-allotments.
<TABLE>
<CAPTION>
Paid by TeleCorp
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share.................................................. $ $
Total...................................................... $ $
</TABLE>
We have agreed to indemnify the underwriters against various liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of class A common stock in excess of the number of shares to be purchased
by the underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the class A common stock
made for the purpose of preventing or retarding a decline in the market price
of the class A common stock while the offering is in progress. Penalty bids
permit the underwriters to reclaim a selling concession from a syndicate member
when Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member. These activities may cause the price of the class A common stock to be
higher than the price that would otherwise would exist in the open market in
the absence of these transactions. These transactions may be effected on the
Nasdaq national market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
Deutsche Bank Securities Inc. and Lehman Brothers Inc. have performed
investment banking and advisory services for us from time to time for which
they have received customary compensation and reimbursement of expenses. Among
other services, they have acted as underwriters and arrangers for our senior
subordinated discount notes offering and as agents and lenders under our senior
credit facilities.
LEGAL MATTERS
Certain legal matters in connection with the common stock we are offering
under this prospectus are being passed upon for us by McDermott, Will & Emery.
The underwriters have been represented by Cravath, Swaine & Moore. Wiley, Rein
& Fielding are also advising us on regulatory matters under the Federal
communications laws.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998 and
September 30, 1999, 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, for the years ended December 31,
1997 and 1998 and for the nine months ended September 30, 1999, included in
this prospectus, 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.
109
<PAGE>
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the class A common shares. 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 class A common shares, 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. We are 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.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELECORP PCS, INC. AND SUBSIDIARIES
AND PREDECESSOR COMPANY
<TABLE>
<CAPTION>
Page
----
<S> <C>
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 CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Description of Unaudited Pro Forma Condensed Consolidated Financial
Statements.............................................................. F-43
Unaudited Pro forma Condensed Consolidated Balance Sheet as of September
30, 1999................................................................ F-44
Unaudited Pro forma Condensed Consolidated Statement of Operations for
the Nine Months Ended September 30, 1999................................ F-45
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1998........................................ F-46
Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements.............................................................. F-47
</TABLE>
F-1
<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 September 30, 1999 and
the consolidated results of their operations and their cash flows for the
period July 29, 1996 (date of inception) to December 31, 1996, for the years
ended December 31, 1997 and 1998 and for the nine month period ended September
30, 1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
November 16, 1999
F-2
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
------------------------- September 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 2,566,685 $111,732,841 $ 80,410,108
Accounts receivable, net............ -- -- 17,852,412
Inventory........................... -- 778,235 12,125,650
Prepaid expenses.................... -- 2,185,444 2,268,836
Other current assets................ 73,468 1,218,263 231,747
----------- ------------ -------------
Total current assets............... 2,640,153 115,914,783 112,888,753
Property and equipment, net......... 3,609,274 197,468,622 347,348,394
PCS licenses and microwave
relocation costs, net.............. 10,018,375 118,107,256 235,759,502
Intangible assets -- AT&T
agreements, net.................... -- 26,285,612 39,696,161
Deferred financing costs, net....... -- 8,584,753 18,384,404
Other assets........................ 26,673 283,006 705,964
----------- ------------ -------------
Total assets....................... $16,294,475 $466,644,032 $ 754,783,178
=========== ============ =============
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................... $ 3,202,295 $ 14,591,922 $ 21,962,774
Accrued expenses.................... 824,164 94,872,262 38,794,385
Microwave relocation obligation,
current portion.................... -- 6,636,369 5,297,484
Long-term debt, current portion..... 4,881,073 -- 1,340,378
Accrued interest.................... 389,079 4,490,553 3,635,106
Deferred revenue.................... -- -- 1,133,018
----------- ------------ -------------
Total current liabilities.......... 9,296,611 120,591,106 72,163,145
Long-term debt....................... 7,727,322 243,385,066 628,409,693
Microwave relocation obligation...... -- 2,481,059 2,364,544
Accrued expenses..................... -- -- 5,028,943
Deferred rent........................ -- 196,063 605,496
----------- ------------ -------------
Total liabilities.................. 17,023,933 366,653,294 708,571,821
----------- ------------ -------------
Mandatorily redeemable preferred
stock, issued 367, 255,999 and
382,478 shares, respectively; and
outstanding, 367, 255,215 and
382,478 shares, respectively,
(liquidation preference $382,802,874
as of September 30, 1999)........... 4,144,340 240,408,879 353,014,125
Deferred compensation................ -- (4,111) (9,482)
Treasury stock, none, 784 shares, and
none, respectively, at cost......... -- (8) --
Preferred stock subscriptions
receivable.......................... -- (75,914,054) (103,000,543)
----------- ------------ -------------
Total mandatorily redeemable
preferred stock, net.............. 4,144,340 164,490,706 250,004,100
----------- ------------ -------------
Commitments and contingencies........
Stockholders' equity (deficit):
Series F preferred stock, par value
$.01 per share, none, 10,308,676
and 14,912,778 shares issued and
outstanding, respectively
(liquidation preference; $443 as of
September 30, 1999)................ -- 103,087 149,128
Common stock, par value none, for
December 31, 1997, $.01 per share
for December 31, 1998 and September
30, 1999, issued 19,335, 49,357,658
and 74,973,596 shares,
respectively; and outstanding
19,335, 48,805,184 and 74,973,596
shares, respectively............... 856 493,576 749,704
Additional paid-in capital.......... -- -- 5,379,062
Deferred compensation............... -- (7,177) (801,083)
Common stock subscriptions
receivable......................... -- (86,221) (190,991)
Treasury stock, none, 552,474 shares
and none, respectively, at cost.... -- (18) --
Accumulated deficit................. (4,874,654) (65,003,215) (209,078,563)
----------- ------------ -------------
Total stockholders' equity
(deficit)......................... (4,873,798) (64,499,968) (203,792,743)
----------- ------------ -------------
Total liabilities, mandatorily
redeemable preferred stock and
stockholders' equity (deficit).... $16,294,475 $466,644,032 $ 754,783,178
=========== ============ =============
</TABLE>
The accompanying notes are an 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 ended For the nine months ended
inception) to December 31, September 30,
December 31, ------------------------- ---------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue....... $ -- $ -- $ -- $ -- $ 18,937,031
Equipment revenue..... -- -- -- -- 10,321,594
Roaming revenue....... -- -- 29,231 -- 18,942,080
--------- ----------- ------------ ------------ -------------
Total revenue....... -- -- 29,231 -- 48,200,705
--------- ----------- ------------ ------------ -------------
Operating expenses:
Cost of revenue....... -- -- -- -- 23,086,816
Operations and
development.......... -- -- 9,772,485 3,501,647 25,925,009
Selling and
marketing............ 9,747 304,062 6,324,666 2,488,497 39,719,864
General and
administrative....... 515,146 2,637,035 26,239,119 15,884,861 38,942,446
Depreciation and
amortization......... 75 10,625 1,583,864 643,026 34,799,411
--------- ----------- ------------ ------------ -------------
Total operating
expenses........... 524,968 2,951,722 43,920,134 22,518,031 162,473,546
--------- ----------- ------------ ------------ -------------
Operating loss...... (524,968) (2,951,722) (43,890,903) (22,518,031) (114,272,841)
Other (income) expense:
Interest expense...... -- 396,362 11,934,263 5,500,733 34,447,452
Interest income....... -- (12,914) (4,697,233) (2,630,576) (4,805,133)
Other expense......... -- -- 27,347 23,193 160,188
--------- ----------- ------------ ------------ -------------
Net loss............ (524,968) (3,335,170) (51,155,280) (25,411,381) (144,075,348)
Accretion of mandatorily
redeemable preferred
stock.................. (288,959) (725,557) (8,566,922) (4,026,459) (16,959,618)
--------- ----------- ------------ ------------ -------------
Net loss
attributable to
common equity...... $(813,927) $(4,060,727) $(59,722,202) $(29,437,840) $(161,034,966)
========= =========== ============ ============ =============
Net loss attributable to
common equity per
share--Basic and
Diluted................ $ (44.45) $ (111.74) $ (2.19) $ (1.45) $ (2.30)
========= =========== ============ ============ =============
Weighted average common
equity shares
outstanding--Basic and
Diluted................ 18,313 36,340 27,233,786 20,367,373 70,089,141
========= =========== ============ ============ =============
Pro forma net loss
attributable to common
equity (unaudited)..... $(75,710,500) $(173,489,966)
============ =============
Pro forma net loss
attributable to common
equity per share
(unaudited)--Basic and
Diluted................ $ (1.28) $ (2.43)
============ =============
Pro forma weighted
average common equity
shares outstanding
(unaudited)--Basic and
Diluted................ 58,944,055 71,362,532
============ =============
</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
preferred stock Common stock Additional Common stock Treasury stock
------------------- -------------------- paid-in Deferred subscriptions ----------------
Shares Amount Shares Amount capital compensation receivable Shares Amount
---------- -------- ---------- -------- ----------- ------------ ------------- -------- ------
<S> <C> <C> <C> <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...... 10,308,676 103,087 46,262,185 462,622 -- -- (86,221) -- --
Accretion of
mandatorily
redeemable
preferred
stock........... -- -- -- -- -- -- -- -- --
Noncash issuance
of restricted
stock to
employees....... -- -- 3,095,473 30,954 -- (10,018) -- -- --
Repurchase of
common stock for
cash............ -- -- -- -- -- 1,787 -- (552,473) (18)
Amortization of
deferred
compensation.... -- -- -- -- -- 1,054 -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- --------- --------- -------- ----
Balance,
December 31,
1998............ 10,308,676 103,087 49,357,658 493,576 -- (7,177) (86,221) (552,473) (18)
Issuance of
preferred stock
and common stock
for cash and
licenses........ 4,604,102 46,041 23,231,330 232,313 21,550,730 -- (104,770) -- --
Accretion of
mandatorily
redeemable
preferred
stock........... -- -- -- -- (16,959,618) -- -- -- --
Noncash issuance
of restricted
stock to
employees....... -- -- 2,384,607 23,815 787,950 (800,792) -- 959,259 31
Amortization of
deferred
compensation.... -- -- -- -- -- 5,582 -- -- --
Repurchase of
common stock for
cash............ -- -- -- -- -- 1,304 -- (406,786) (13)
Net loss........ -- -- -- -- -- -- -- -- --
---------- -------- ---------- -------- ----------- --------- --------- -------- ----
Balance,
September 30,
1999 ........... 14,912,778 $149,128 74,973,595 $749,704 $ 5,379,062 $(801,083) $(190,991) -- $--
========== ======== ========== ======== =========== ========= ========= ======== ====
<CAPTION>
Accumulated
deficit Total
-------------- --------------
<S> <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...... (383,636) 95,852
Accretion of
mandatorily
redeemable
preferred
stock........... (8,566,922) (8,566,922)
Noncash issuance
of restricted
stock to
employees....... (20,936) --
Repurchase of
common stock for
cash............ (1,787) (18)
Amortization of
deferred
compensation.... -- 1,054
Net loss........ (51,155,280) (51,155,280)
-------------- --------------
Balance,
December 31,
1998............ (65,003,215) (64,499,968)
Issuance of
preferred stock
and common stock
for cash and
licenses........ -- 21,724,314
Accretion of
mandatorily
redeemable
preferred
stock........... -- (16,959,618)
Noncash issuance
of restricted
stock to
employees....... -- 11,004
Amortization of
deferred
compensation.... -- 5,582
Repurchase of
common stock for
cash............ 1,291
Net loss........ (144,075,348) (144,075,348)
-------------- --------------
Balance,
September 30,
1999 ........... $(209,078,563) $(203,792,743)
============== ==============
</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 For the year
(date of ended For the nine months ended
inception) to December 31 September 30,
December 31, --------------------------- -----------------------------
1996 1997 1998 1998 1999
-------------- ------------ ------------- ------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (524,968) $ (3,335,170) $ (51,155,280) $ (25,411,381) $ (144,075,348)
Adjustment to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization.......... 75 10,625 1,583,864 643,026 34,799,411
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 and
senior subordinated
discount notes........ -- -- 460,400 247,900 19,533,603
Allowance for bad debt
expense............... -- -- -- -- 1,022,267
Noncash general and
administrative expense
charge by affiliates.. -- -- 196,622 -- --
Amortization of
deferred financing
costs................. -- -- 524,924 232,398 1,199,642
Amortization of
discount on notes
payable............... -- 134,040 197,344 142,696 261,796
Changes in cash flow
from operations
resulting from changes
in assets and
liabilities:
Accounts receivable.... -- -- -- -- (17,923,554)
Inventory.............. -- -- (778,235) -- (11,347,415)
Prepaid expenses....... -- -- (2,185,444) (885,463) (83,392)
Other current assets... (21,877) (51,591) (1,144,795) (135,573) 997,337
Other assets........... -- (26,673) (256,333) (210,413) 715,246
Accounts payable....... 98,570 618,889 11,389,627 7,831,768 11,137,988
Accrued expenses....... -- -- 9,145,111 7,636,992 15,591,173
Deferred rent.......... -- -- 196,063 105,388 409,433
Accrued interest....... -- 257,682 2,046,432 569,409 (946,588)
Deferred revenue....... -- -- -- -- 1,133,018
---------- ------------ ------------- ------------- --------------
Net cash used in
operating
activities........... (448,200) (2,392,198) (29,778,036) (9,233,253) (87,575,383)
---------- ------------ ------------- ------------- --------------
Cash flows from
investing activities:
Expenditures for
network under
development, wireless
network and property
and equipment......... (904) (1,134,234) (107,542,189) (38,502,943) (245,528,171)
Capitalized interest on
network under
development and
wireless network...... -- -- (227,000) -- (4,478,356)
Expenditures for
microwave relocation.. -- -- (3,339,410) (1,966,669) (5,678,837)
Purchase of PCS
licenses.............. -- -- (21,000,000) (21,000,000) (72,390,417)
Deposit on PCS
licenses.............. (7,500,000) -- -- -- (43,647,343)
Partial refund of
deposit on PCS
licenses.............. -- 1,561,702 -- -- 11,361,351
Purchase of
intangibles--AT&T
agreements............ -- -- -- -- (16,144,725)
---------- ------------ ------------- ------------- --------------
Net cash (used in)
provided by investing
activities........... (7,500,904) 427,468 (132,108,599) (61,469,612) (376,506,498)
---------- ------------ ------------- ------------- --------------
Cash flows from
financing activities:
Proceeds from sale of
mandatorily redeemable
preferred stock....... 7,500,000 1,500,000 26,661,420 14,036,700 64,520,902
Receipt of preferred
stock subscription
receivable............ -- -- -- -- 3,740,068
Direct issuance costs
from sale of
mandatorily redeemable
preferred stock....... -- -- (1,027,694) (1,027,694) (2,500,000)
Proceeds from sale of
common stock.......... 2,000 -- 38,305 38,305 21,724,314
Proceeds from long-term
debt.................. 498,750 2,808,500 257,491,500 255,390,954 397,635,000
Purchases of treasury
shares................ -- -- (26) (7) (19)
Payments on notes
payable............... -- -- (2,072,573) (2,072,573) (40,223,611)
Payments of deferred
financing costs....... -- -- (9,109,677) (9,109,677) (10,999,293)
Net increase (decrease)
in amounts due to
affiliates............ -- 171,269 (928,464) (824,164) (1,138,213)
---------- ------------ ------------- ------------- --------------
Net cash provided by
financing
activities........... 8,000,750 4,479,769 271,052,791 256,431,844 432,759,148
---------- ------------ ------------- ------------- --------------
Net increase (decrease)
in cash and cash
equivalents............ 51,646 2,515,039 109,166,156 185,728,979 (31,322,733)
Cash and cash
equivalents at the
beginning of period.... -- 51,646 2,566,685 2,566,685 111,732,841
---------- ------------ ------------- ------------- --------------
Cash and cash
equivalents at the end
of period.............. $ 51,646 $ 2,566,685 $ 111,732,841 $ 188,295,664 $ 80,410,108
========== ============ ============= ============= ==============
</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 For the nine months
(date of For the year ended ended
inception) to December 31, September 30,
December 31, ----------------------- -----------------------
1996 1997 1998 1998 1999
-------------- ---------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid for income
taxes................ $ -- $ -- $ -- $ -- $ --
Cash paid for
interest............. $ -- $ -- $ 9,785,829 $ -- $14,569,654
Supplemental disclosure
of non-cash investing
and financing
activities:
Network under
development and
microwave relocation
costs included in
accounts payable and
accrued expenses..... $ -- $2,484,836 $ 98,091,667 $27,000,000 $14,857,198
Issuance of
mandatorily
redeemable preferred
stock and preferred
stock in exchange for
PCS licenses and AT&T
agreements........... $ -- $ -- $100,900,000 $ -- $ 2,674,130
Issuance of
mandatorily
redeemable preferred
stock and common
stock in exchange for
stock subscriptions
receivable.......... $ -- $ -- $ 76,000,275 $ -- $27,191,259
U.S. Government
financing of PCS
licenses............. $ -- $9,192,938 $ -- $ -- $11,550,645
Discount on U.S.
Government
financing............ $ -- $1,599,656 $ -- $ -- $ 1,630,562
Conversion of notes
payable to
stockholders into
preferred stock...... $ -- $ 498,750 $ 25,300,000 $ -- $ --
Accretion of preferred
stock dividends...... $288,959 $ 725,557 $ 8,566,922 $ 4,026,459 $16,959,618
Elimination of equity
interests in Holding
for equity interests
in TeleCorp.......... $ -- $ -- $ 4,369,680 $ -- $21,886,073
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 $ -- $ 4,542,033
</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
------------
The consolidated financial statements and the Notes have been adjusted to
give effect to the stock split as described in Note 16.
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 14).
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 14).
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
F-8
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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
TeleCorp. Collectively, TeleCorp and Holding are referred to as the Company in
the accompanying consolidated financial statements.
Unaudited Interim Financial Information
The unaudited consolidated statements of operations and cash flows for the
nine months ended September 30, 1998, 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, the interim data includes
all adjustments (consisting of only normal recurring adjustments) necessary for
a fair statement of the results for the interim period.
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 nine months ended September 30, 1999,
the Company has consolidated the results of Viper Wireless, Inc. since the
Company's absence of voting control is considered temporary (see Notes 7 and
17).
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 quarter ended March 31, 1999.
The Company incurred cumulative losses through September 30, 1999 of
approximately $199,000,000. 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
F-9
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
positive cash flow or achieve or sustain profitability which would materially
adversely affect its business, operations and financial results as well as its
ability to make payments on its debt obligations.
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 consists 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 is 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
F-10
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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.
PCS licenses, microwave relocation costs, and capitalized interest consist
of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
PCS licenses......................... $ 9,886,978 $104,736,978 $220,873,613
Microwave relocation costs........... -- 12,456,838 15,597,399
Capitalized interest................. 131,397 913,440 1,004,581
----------- ------------ ------------
10,018,375 118,107,256 $237,475,593
Accumulated amortization............. -- -- (1,716,091)
----------- ------------ ------------
$10,018,375 $118,107,256 $235,759,502
=========== ============ ============
</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 BTAs. Amortization is calculated using the straight-line
method over 40 years. Amortization expense for the nine months ended September
30, 1999 was $1,716,091.
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. 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.
F-11
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
Intangible assets--AT&T Agreements
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).
Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
September
30,
1997 1998 1999
---- -------- -----------
<S> <C> <C> <C>
Handsets.............................................. $-- $778,235 $11,355,389
Accessories........................................... -- -- 770,261
---- -------- -----------
Total inventory..................................... $-- $778,235 $12,125,650
==== ======== ===========
</TABLE>
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 September 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
$20,108,970, as of December 31, 1998 and September 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
nine months ended September 30, 1999, the Company recorded interest expense
related to the amortization of the deferred financing costs of $524,924 and
$1,199,642, 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 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
F-12
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 $9,331,592 for the nine months ended September 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 six outstanding interest rate swap
contracts fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts
mature in September of 2003. 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 nine months ended September 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 MTAs
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--(Continued)
------------
Net Loss Attributable to Common Equity Per Share and Pro Forma Net Loss
Attributable to Common Equity Per Share
The Company computes net loss attributable to common equity per share in
accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting
Bulletin No. 98 (SAB 98). Under the provisions of SFAS No. 128 and SAB 98,
basic net loss attributable to common equity per share is computed by dividing
the net loss attributable to common equity for the period by the weighted
average number of common equity shares outstanding during the period, which
includes Series F Preferred Stock and all classes of Common Stock. Diluted net
loss attributable to common equity per share is computed by dividing the net
loss attributable to common equity for the period by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. As the Company had a net loss attributable to common equity in each of
the periods presented, basic and diluted net loss attributable to common
equity per share are the same. Pro forma basic and diluted net loss
attributable to common equity per share has been calculated assuming the
completion of our pending acquisitions of Telecorp LMDS, Inc., the
finalization of the share issuance of Viper Wireless, Inc. (see Note 17) and
the completed acquisitions (see Note 7) as if these acquisitions were in
effect in the periods presented. As the Company had a net loss attributable to
common equity in each of the periods presented, pro forma basic and diluted
net loss attributable to common equity per share is the same.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
September
30,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Wireless network................... $ -- $ -- $306,052,853
Network under development.......... 3,269,793 170,885,628 17,736,768
Computer equipment................. 328,875 10,115,063 14,999,193
Internal use software.............. -- 11,161,142 19,421,145
Leasehold improvements............. -- 3,204,623 10,516,173
Furniture, fixtures and office
equipment......................... 21,306 2,924,233 8,574,678
Land............................... -- -- 48,800
---------- ------------ ------------
3,619,974 198,290,689 377,349,610
Accumulated depreciation........... (10,700) (822,067) (30,001,216)
---------- ------------ ------------
$3,609,274 $197,468,622 $347,348,394
========== ============ ============
</TABLE>
F-14
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
September
30,
1997 1998 1999
-------- ----------- -----------
<S> <C> <C> <C>
Property and equipment..................... $ -- $85,634,829 $14,947,063
Sales taxes................................ -- -- 9,759,041
Consulting services........................ -- 4,237,411 3,279,878
Bonuses and vacation....................... -- 2,386,317 4,425,633
Engineering................................ -- 676,893 1,079,395
Selling and marketing...................... -- 346,552 2,009,731
Inventory.................................. -- -- 3,381,724
Legal fees................................. -- 402,893 809,956
Other...................................... 824,164 1,187,367 4,130,907
-------- ----------- -----------
824,164 94,872,262 43,823,328
Less: non-current portion.................. -- -- 5,028,943
-------- ----------- -----------
$824,164 $94,872,262 $38,794,385
======== =========== ===========
</TABLE>
5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
September
30,
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Senior subordinated discount
notes............................. $ -- $ -- $344,351,212
Senior credit facilities........... -- 225,000,000 225,000,000
Lucent notes payable............... -- 10,460,400 42,515,924
U.S. Government financing.......... 7,727,322 7,924,666 17,882,935
Notes payable to stockholders...... 2,808,500 -- --
Notes payable to affiliates........ 2,072,573 -- --
----------- ------------ ------------
12,608,395 243,385,066 629,750,071
Less: current portion.............. (4,881,073) -- 1,340,378
----------- ------------ ------------
$ 7,727,322 $243,385,066 $628,409,693
=========== ============ ============
</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 $10,999,293. 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
F-15
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 16). As of September 30, 1999 accrued interest added to the
principal was $16,716,212.
Senior Credit Facilities
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 September 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, $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 September 30, 1999,
the interest rate applicable to the Tranche B Term Loan was 8.48%, and for the
nine months ended September 30, 1999 interest incurred on the Tranche B Term
Loan was $14,093,750 of which $9,615,395 was expensed and $4,478,355 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 $2,863,252, for the year ended December 31, 1998 and
for the nine months ended September 30, 1999, respectively, 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
F-16
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
50% of the total amount of the outstanding indebtedness of the Company. As of
December 31, 1998 and September 30, 1999, the Company hedged 100% of its
outstanding indebtedness of $225,000,000 to take advantage of favorable
interest rate swaps. The six outstanding interest rate swap contracts fix LIBOR
at annual interest rates from 5.20% to 5.26%. The contracts mature in September
of 2003.
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 September 30, 1999,
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 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 September 30, 1999, the Company had
$42,515,924 outstanding under the Series A Notes. During the nine months ended
September 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 nine months ended September 30, 1999 was
$460,000 and $2,283,302, 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 and September 30, 1999, interest accrued under
the Series A Notes of $460,400 and $2,515,924, respectively has been included
in long-term debt.
F-17
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 September 30, 1999 are held by Lucent.
The Company must comply with certain operating covenants. As of December 31,
1998 and September 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
As of December 31, 1998 and September 30, 1999, the Company owes the U.S.
Government $9,192,938 and $20,519,972, less a discount of $1,268,272 and
$2,637,037, 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 nine months ended September 30, 1999, the Company completed the
acquisition of additional PCS licenses from Digital PCS, LLC 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 $11,550,645,
less a discount of $1,630,562. The terms of the notes include an interest rate
of 6.125% for notes assumed from Digital PCS, LLC 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.
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.
F-18
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 11) in connection with the AT&T Transaction.
As of September 30, 1999, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were as
follows:
<TABLE>
<S> <C>
October-December 1999.......................................... $ 327,389
For the year ending December 31:
2000......................................................... 1,361,193
2001......................................................... 1,447,737
2002......................................................... 2,102,284
2003......................................................... 5,560,835
2004......................................................... 5,785,195
Thereafter................................................... 843,935,332
------------
$860,519,965
============
</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 11) 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 BTAs 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
F-19
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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.
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 at commercially reasonable rates to the extent
commercially and technologically feasible. 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.
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
BTA's from Digital PCS, LLC. The total purchase price of $6,113,889 was
comprised 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 $608,941, and $286,556 in cash as
reimbursement to Digital PCS, LLC, 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-20
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
As a result of completing the transaction with Digital PCS, LLC, 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 September 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 MTA, 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 plus legal fees of $252,340. The
purchase price has been allocated to the assets acquired, 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 September 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
5,318 and 2,380,536 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 estimated fair value
of these shares has been recorded as deferred compensation and is being
amortized over the related vesting periods. The variable awards vest based upon
certain future events taking place, such as build-out milestone POP coverage,
the completion of our initial public offering and other events. Upon the
occurrence of these future events, the Company will remeasure the variable
awards and record compensation expense, deferred compensation and additional
paid-in-capital.
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 $7,448,318 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
$1,021,621, and $649,939 in cash as reimbursement of microwave relocation costs
and reimbursement of FCC interest and legal costs. The entire purchase price
has been allocated to the PCS licenses acquired.
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
F-21
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 nine months
ended September 30, 1999, the FCC refunded $11,361,351 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 nine months ended September 30, 1999,
Viper had no financial activity other than its capitalization which includes
the transfer of the initial deposit to Viper. The Company received final
regulatory approval of the license transfer from the FCC on September 9, 1999.
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 Company made its final payment of $14,769,600 to the FCC on
September 13, 1999 with respect to these licenses and received the remaining
funding commitments from AT&T and the certain Cash Equity Investors on
September 29, 1999.
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.
F-22
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
TeleCorp
On May 14, 1999, TeleCorp restated its Certificate of Incorporation, which
was subsequently amended. The Restated Certificate of Incorporation, as
amended, provides the Company with the authority to issue 656,014,090 shares of
stock, consisting of the following:
<TABLE>
<CAPTION>
Par Shares
Preferred Stock Value authorized
- --------------- ----- ----------
<S> <C> <C>
Mandatorily
redeemable Series
A................. $0.01 100,000
Mandatorily
redeemable Series
B................. $0.01 200,000
Mandatorily
redeemable Series
C................. $0.01 215,000
Mandatorily
redeemable Series
D................. $0.01 50,000
Mandatorily
redeemable Series
E................. $0.01 30,000
Series F........... $0.01 15,450,000
----------
Total............ 16,045,000
==========
</TABLE>
<TABLE>
<CAPTION>
Par Shares
Common Stock Value authorized
- ------------------ ----- -----------
<S> <C> <C>
Senior............ $0.01 21,630,000
Class A........... $0.01 308,550,000
Class B........... $0.01 308,550,000
Class C tracked... $0.01 309,000
Class D tracked... $0.01 927,000
Voting
Preference....... $0.01 3,090
-----------
Total........... 639,969,090
===========
</TABLE>
F-23
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
The following schedules represent 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 14)........ (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 Common stock
-------------- -------------- --------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
------ ------ ------ ------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock
Initial capitalization
for cash............... 8,750 $2,000 -- $-- 25,520 $-- -- $-- $2,000
Issuance of common
stock.................. 3,750 -- 5,104 -- -- -- -- -- --
------ ------ ------ ---- ------- ---- ---- ---- ------
Balance, December 31,
1996................... 12,500 2,000 5,104 -- 25,520 -- -- -- 2,000
Issuance of common stock
for cash............... -- -- -- -- 6,875 -- -- -- --
Noncash redemption of
equity interests (See
Note 14)............... (7,666) (1,144) (3,130) -- (19,868) -- -- -- (1,144)
------ ------ ------ ---- ------- ---- ---- ---- ------
Balance, December 31,
1997................... 4,834 856 1,974 -- 12,527 856
Recapitalization of
Holding................ (4,834) (856) (1,974) -- (12,527) -- 100 -- (856)
Elimination of 100% of
equity interests in
Holding................ -- -- -- -- -- -- (100) -- --
------ ------ ------ ---- ------- ---- ---- ---- ------
Balance, December 31,
1998................... -- $ -- -- $-- -- $-- -- $-- $ --
====== ====== ====== ==== ======= ==== ==== ==== ======
</TABLE>
F-24
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 September 30,
1999:
<TABLE>
<CAPTION>
Series A Series C Series D Series E
preferred stock Preferred stock preferred stock preferred stock
------------------- -------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------
<S> <C> <C> <C> <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 -- $ -- $100,866,639
Issuance of preferred
stock to Cash Equity
Investors, net of
issuance costs of
$1,027,695............. -- -- 128,000 126,847,780 -- -- -- -- 126,847,780
Accretion of preferred
stock dividends........ -- 3,039,603 -- 3,818,827 -- 945,788 -- 541,038 8,345,256
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...... -- -- 7,348 4,334,276 -- -- 14,156 10,215 4,344,491
------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------
Balance, December 31,
1998................... 66,723 69,762,603 135,348 135,000,883 34,267 35,089,427 18,877 555,966 240,408,879
Issuance of preferred
stock for cash, net of
issuance costs of
$2,500,000............. 30,750 30,454,218 72,382 51,089,023 15,150 11,079,951 -- -- 92,623,192
Issuance of preferred
stock for PCS licenses
and operating
agreements............. -- -- 2,878 2,674,130 -- -- -- -- 2,674,130
Accretion of preferred
stock dividends........ -- 6,450,160 -- 7,633,135 -- 1,865,758 -- 1,010,565 16,959,618
Noncash issuance of
restricted stock....... -- -- -- -- -- -- 6,680 348,883 348,883
Repurchase of restricted
stock for cash......... -- -- -- -- -- -- (577) (577) (577)
------ ------------ ------- ------------ ------ ----------- ------ ---------- ------------
Balance, September 30,
1999................... 97,473 $106,666,981 210,608 $196,397,171 49,417 $48,035,136 24,980 $1,914,837 $353,014,125
====== ============ ======= ============ ====== =========== ====== ========== ============
</TABLE>
F-25
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
<TABLE>
<CAPTION>
Class C Class D Voting
Series F Class A tracked common tracked common preference
preferred stock common stock stock stock common stock
------------------- -------------------- -------------- -------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Total
---------- -------- ---------- -------- ------- ------ ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series F preferred and
common stock
Issuance of common stock
to Cash Equity
Investors for cash..... -- $ -- 37,540,390 $375,404 110,549 $1,105 827,487 $8,275 -- $-- $384,784
Issuance of preferred
stock to AT&T PCS for
licenses and AT&T
agreements............. 10,308,676 103,087 -- -- -- -- -- -- -- -- 103,087
Exchange of 100% of
equity interests in
Predecessor Company for
equity in the Company.. -- -- 7,583,463 75,834 173,264 1,733 23,942 239 3,090 31 77,837
Noncash issuance of
restricted stock....... -- -- 3,095,473 30,955 -- -- -- -- -- -- 30,955
Repurchase of restricted
stock for cash......... -- -- (552,474) (18) -- -- -- -- -- -- (18)
---------- -------- ---------- -------- ------- ------ ------- ------ ----- ---- --------
Balance, December 31,
1998................... 10,308,676 103,087 47,666,852 482,175 283,813 2,838 851,429 8,514 3,090 31 596,645
Issuance of common stock
and preferred stock for
cash................... 4,604,102 46,041 22,366,242 223,662 -- -- -- -- -- -- 269,703
Issuance of common stock
for PCS licenses and
operating agreements... -- -- 865,089 8,651 -- -- -- -- -- -- 8,651
Noncash issuance of
restricted stock....... -- -- 3,343,868 23,846 -- -- -- -- -- -- 23,846
Repurchase of restricted
stock for cash......... -- -- (406,787) (13) -- -- -- -- -- -- (13)
---------- -------- ---------- -------- ------- ------ ------- ------ ----- ---- --------
Balance, September 30,
1999................... 14,912,778 $149,128 73,835,264 $738,321 283,813 $2,838 851,429 $8,514 3,090 $ 31 $898,832
========== ======== ========== ======== ======= ====== ======= ====== ===== ==== ========
</TABLE>
F-26
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
There are no issued or outstanding shares of Series B preferred stock,
Senior common stock or Class B common stock as of September 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 to
holders' option, into the liquidation preference of the Series A
Class A common stock 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 Series C
Company at the IPO date preferred stock divided by the IPO price.
into either Class A or B
common stock
Series D and Series F If Series C preferred The liquidation preference divided by the
preferred stock stock is converted then 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 Series E
Company at the IPO date preferred stock divided by the IPO price.
into either Class A or
Class B common stock
Series F preferred stock At the holders' option, One share of Series F preferred stock or
and Senior common stock into Class A, Class B or Senior common stock for one share of either
Class D common stock, Class A, Class B or Class D common stock.
depending upon the
occurrence of certain
defined events
Class A common stock At the holders' option One share of Class B common stock for one
into Class B common share of Class A common stock.
stock
Class C tracked common Subject to FCC One share of Class A or Class B common
stock constraints and Board stock for one share of Class C tracked
approval, at the common stock.
holders' option and 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 One share of Class A or Class B common
stock constraints and Board stock for one share of Class D tracked
approval, at the common stock.
holders' option and by
affirmative vote of at
least 66 2/3% of Class A
common stock into Class
A or Class B common
stock
</TABLE>
F-27
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 unpaid
preferred stock dividends.
Second Series C and Series D Series C: actual paid-in capital per share
preferred stock 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 and Series F preferred: $0.000032 per share
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 15,419,100 voting rights and the Voting
Preference common stock has 15,480,900 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
F-28
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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.
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, the completion of an initial public offering
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 7,085 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 and $0.00003 per share for the Series E preferred and common
stock, respectively.
F-29
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Series E Estimated Estimated
preferred fair value Class A fair value
stock per share common stock per share
--------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Shares awarded.............. 5,505 $ 1.00 3,095,473 $ .003
Repurchases................. (784) -- (552,474) --
----- ------------- --------- ------------
Balance, December 31, 1998.. 4,721 $ 1.00 2,542,999 $ .003
Shares awarded.............. 2,616 $52.00-$72.98 1,709,984 $.003-$17.00
Repurchases................. (577) -- (406,787) --
----- ------------- --------- ------------
Balance, September 30,
1999....................... 6,760 $ 1.00-$72.98 3,846,196 $.003-$17.00
===== =========
</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 nine months ended September 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
September 30, 1999 for each class of stock are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Series E preferred stock:
Fixed awards.................................... 3,664 5,339
Variable awards................................. 1,057 1,421
--------- ---------
Total Series E awards......................... 4,721 6,760
========= =========
Class A common stock:
Fixed awards.................................... 1,152,605 1,731,493
Variable awards................................. 1,390,394 2,114,703
--------- ---------
Total Class A awards.......................... 2,542,999 3,846,196
========= =========
</TABLE>
10. Employee and Director Stock Option Plan
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 on the date of
award 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) the
sale of all or substantially all of the outstanding capital stock of the
Company. The Company has reserved 1,814,321 shares of Class A common stock for
issuance under this plan.
On July 22, 1999, the Company granted 552,505 stock options at an exercise
price of $.0065 per share. The stock options awarded during the nine month
period ended September 30, 1999 represent variable awards
F-30
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
since their exercisability is restricted until the completion of an initial
public offering, sale of assets or sale of the Company. Therefore, the
measurement date will occur when the exercisability restrictions are relieved,
upon the initial public offering.
11. 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, LLC 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
March 30, 2001..................................................... 11,000,000
March 30, 2002..................................................... 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 during the nine months
ended September 30, 1999. The Company has recorded a preferred stock
subscription receivable of $75,914,054 and $103,000,543 as of December 31, 1998
and September 30, 1999, respectively, as a reduction to the mandatorily
redeemable preferred stock and a common stock subscription receivable of
$86,221 and $190,991 as of December 31, 1998 and September 30, 1999,
respectively, as a reduction to stockholders equity (deficit) for the unpaid
commitment.
F-31
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
12. 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 and
September 30, 1999, respectively, are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
Capitalized start-up costs............. $ 1,321,340 $ 17,599,251 $14,362,330
Net operating losses................... 145,710 3,634,809 61,014,328
Depreciation and amortization.......... -- 288,985 (6,757,195)
Deferred rent.......................... -- 74,504 230,088
Capitalized interest................... -- (917,107) (2,598,058)
Original Issue Discount................ (4,220) 174,952 7,189,515
Accrued expenses....................... -- -- 388,447
Bad debt allowance..................... -- -- 1,910,998
Deferred compensation.................. -- -- (232,289)
Other.................................. -- -- 23,275
----------- ------------ -----------
1,462,830 20,855,394 75,531,439
Less valuation allowance............... (1,462,830) (20,855,394) (75,531,439)
----------- ------------ -----------
$ -- $ -- $ --
=========== ============ ===========
</TABLE>
For federal income tax purposes, start-up costs are being amortized over
five years starting January 1, 1999 when active business operations commenced.
As of September 30, 1999, the Company had approximately $161 million of net
operating losses. The net operating losses will begin to expire in 2017. 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. 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.
13. 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 September 30, 1999, the Company has purchased
approximately $90,900,000 and $194,500,000, respectively, of equipment and
services from Lucent since the inception of the Vendor Procurement Contract.
F-32
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 on the
balance sheet. As of September 30, 1999, the aggregate minimum rental
commitments under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
October-December 1999................ $ 3,794,049
For the year ending December 31;
2000............................... 18,786,811
2001............................... 18,587,171
2002............................... 18,311,199
2003............................... 15,976,624
2004............................... 8,982,627
Thereafter......................... 24,347,399
------------
Total............................ $108,785,880
============
</TABLE>
Rental expense was approximately $2,000, $157,000, $3,193,000 and $9,675,500
for the period ended December 31, 1996 and for the years ended December 31,
1997 and 1998, and nine months ended September 30, 1999, 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
September 30, 1999.
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 and $1,476,000 at
December 31, 1998 and September 30, 1999, respectively. 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 or the nine months ended September 30, 1999.
14. 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
$1,868,300 for the period ended December 31, 1996, for the years ended December
31, 1997 and 1998 and for the nine months ended September 30, 1999,
respectively, for legal services. As of December 31, 1997, 1998 and September
30, 1999, the Company owed the law firm $70,464, $160,000 and $306,087,
respectively. Subsequent to December 31, 1997, the officer 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
F-33
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 nine months
ended September 30, 1999, the Company paid $30,829, $1,939,795, $30,719,865 and
$63,310,066, respectively, to Entel for these services. As of December 31, 1997
and 1998 and September 30, 1999, the Company owed Entel $170,596, $21,177,516
and $10,981,097, respectively. Subsequent to December 31, 1997, the Chief
Executive Officer and Executive Vice President sold 100% of their interests in
Entel.
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 enti-
ties............................... 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 September 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 $2,491, 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 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
F-34
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
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 nine months ended September 30, 1999, the Company paid
approximately $1,073,000 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 Towers provides network site leases for PCS
deployment. The Company has incurred $16,862 and $77,460 expense for the year
ended December 31, 1998 and the nine months ended September 30, 1999,
respectively.
15. 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 $628,262 for the year ended December 31, 1998 and for
the nine months ended September 30, 1999, respectively.
16. 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 September 30, 1999, and for the year ended December 31,
1998 and for the nine months ended September 30, 1999 are as follows:
F-35
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 $186,154,469 $(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
Accrued expenses........ -- -- -- -- --
Deferred rent........... -- -- 196,063 -- 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.................. 103,087 -- -- -- 103,087
Common stock............ 493,576 -- -- -- 493,576
Additional paid in
capital................ -- -- 4,369,680 (4,369,680) --
Deferred compensation... -- (7,177) -- -- (7,177)
Common stock
subscriptions
receivable............. (86,221) -- -- -- (86,221)
Treasury stock.......... (18) -- -- -- (18)
Accumulated deficit..... (17,254,841) (25,856,406) (21,875,437) (16,531) (65,003,215)
------------ ------------ ------------ ------------- ------------
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-36
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
Balance Sheet as of September 30, 1999:
<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........... $ 93,203,433 $(10,164,328) $ (2,628,997) $ -- $ 80,410,108
Accounts receivable,
net................... -- 17,823,462 28,950 -- 17,852,412
Inventory.............. -- 12,125,650 -- -- 12,125,650
Intercompany
receivables........... 701,489,565 -- -- (701,489,565) --
Prepaid expenses....... -- 784,848 1,483,988 -- 2,268,836
Other current assets... 31,053 196,248 4,446 -- 231,747
------------ ------------ ------------ -------------- -------------
Total current
assets.............. 794,724,051 20,765,880 (1,111,613) (701,489,565) 112,888,753
Property and equipment,
net.................... 5,513,458 163,707,122 178,198,908 (71,094) 347,348,394
PCS licenses and
microwave relocation
costs.................. 1,292,605 117,306,326 117,160,571 -- 235,759,502
Intangible assets--AT&T
agreements............. -- -- 39,696,161 -- 39,696,161
Deferred financing
costs, net............. 18,080,655 303,749 -- -- 18,384,404
FCC deposit............. -- (32,285,994) 32,285,994 -- --
Other assets............ 4,369,680 322,671 17,899,686 (21,886,073) 705,964
------------ ------------ ------------ -------------- -------------
Total assets......... $823,980,449 $270,119,754 $384,129,707 $ (723,446,732) $ 754,783,178
============ ============ ============ ============== =============
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Due to affiliates...... $ -- $327,455,847 $374,033,718 $ (701,489,565) --
Accounts payable....... -- 8,069,648 13,893,126 -- $ 21,962,774
Accrued expenses....... 24,751 35,078,700 3,690,934 -- $ 38,794,385
Long-term debt,
current portion....... -- -- 1,340,378 -- 1,340,378
Microwave relocation
obligation............ -- 5,297,484 -- -- 5,297,484
Accrued interest....... 3,163,174 -- 471,932 -- 3,635,106
Deferred Revenue....... -- 1,133,018 -- -- 1,133,018
------------ ------------ ------------ -------------- -------------
Total current
liabilities......... 3,187,925 377,034,697 393,430,088 (701,489,565) 72,163,145
Long-term debt.......... 611,867,136 -- 16,542,557 -- 628,409,693
Microwave relocation
obligation............. -- 2,364,544 -- -- 2,364,544
Accrued expenses........ -- -- 5,028,943 -- 5,028,943
Deferred rent........... -- -- 605,496 -- 605,496
------------ ------------ ------------ -------------- -------------
Total liabilities.... 615,055,061 379,399,241 415,607,084 (701,489,565) 708,571,821
------------ ------------ ------------ -------------- -------------
Mandatorily redeemable
preferred stock........ 353,014,125 -- -- -- 353,014,125
Deferred compensation... (5,371) (4,111) -- -- (9,482)
Treasury stock.......... -- -- -- -- --
Preferred stock
subscriptions
receivable............. (103,000,543) -- -- -- (103,000,543)
------------ ------------ ------------ -------------- -------------
Total mandatorily
redeemable preferred
stock, net.......... 250,008,211 (4,111) -- -- 250,004,100
------------ ------------ ------------ -------------- -------------
Series F preferred
stock.................. 149,128 -- -- -- 149,128
Common stock............ 749,704 -- -- -- 749,704
Additional paid in
capital................ 5,379,060 -- 21,886,075 (21,886,073) 5,379,062
Deferred compensation... (793,906) (7,177) -- -- (801,083)
Common stock
subscriptions
receivable............. (190,991) -- -- -- (190,991)
Treasury stock.......... -- -- -- -- --
Accumulated deficit..... (46,375,818) (109,268,199) (53,363,452) (71,094) (209,078,563)
------------ ------------ ------------ -------------- -------------
Total shareholders'
equity (deficit).... (41,082,823) (109,275,376) (31,477,377) (21,957,167) (203,792,743)
------------ ------------ ------------ -------------- -------------
Total liabilities and
shareholders' equity
(deficit)........... $823,980,449 270,119,754 $384,129,707 $ (723,446,732) $ 754,783,178
============ ============ ============ ============== =============
</TABLE>
F-37
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
Statement of Operations Information for the year ended December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.-- Non-Guarantor
TeleCorp Guarantor 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
------------ ------------ ------------ ----------- ------------
Total 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>
Statement of Operations Information for the nine months ended September 30,
1999:
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.-- Non-Guarantor
TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated
------------ ---------------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue........ $ -- $ 18,937,031 $ -- $ -- $ 18,937,031
Equipment revenue...... -- 10,321,594 -- -- 10,321,594
Roaming revenue........ -- 18,853,647 2,791,385 (2,702,952) 18,942,080
------------ ------------ ------------ ----------- -------------
Total revenue.......... -- 48,112,272 2,791,385 (2,702,952) 48,200,705
------------ ------------ ------------ ----------- -------------
Operating expenses:
Cost of revenue........ 23,086,816 -- -- 23,086,816
Operations and
development........... -- 20,019,859 8,553,540 (2,648,390) 25,925,009
Selling and
marketing............. -- 39,237,880 481,984 -- 39,719,864
General and
administrative........ 742,888 36,077,088 2,122,470 -- 38,942,446
Depreciation and
amortization.......... 542,745 12,959,402 21,297,264 -- 34,799,411
------------ ------------ ------------ ----------- -------------
Total operating
expense............. 1,285,633 131,381,045 32,455,258 (2,648,390) 162,473,546
------------ ------------ ------------ ----------- -------------
Operating loss....... (1,285,633) (83,268,773) (29,663,873) (54,562) (114,272,841)
Other (income) expense:
Interest expense....... 32,649,508 76 1,797,868 -- 34,447,452
Interest income........ (4,625,686) (173,111) (6,336) -- (4,805,133)
Other expense.......... 8,089 144,200 7,899 -- 160,188
------------ ------------ ------------ ----------- -------------
Net loss............. $(29,317,544) $(83,239,938) $(31,463,304) $ (54,562) $(144,075,348)
Accretion of mandatorily
redeemable preferred
stock.................. (16,959,618) -- -- -- (16,959,618)
------------ ------------ ------------ ----------- -------------
Net loss attributable
to common equity.... $(46,277,162) $(83,239,938) $(31,463,304) $ (54,562) $(161,034,966)
============ ============ ============ =========== =============
</TABLE>
F-38
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
December 31, 1998 Cash Flow Information:
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.--
TeleCorp Guarantor 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)
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-39
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
September 30, 1999 Cash Flow Information:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--Guarantor
TeleCorp Subsidiary
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (29,317,544) $(83,239,938)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 542,744 12,959,536
Noncash compensation expense associated with
the issuance of restricted common stock and
preferred stock............................... -- --
Noncash accretion of Series E preferred stock..
Noncash interest expense associated with Lucent
Notes and High Yield facility................. 19,033,533 --
Noncash general and administrative expense
charged by affiliates......................... -- 932,267
Amortization of deferred financing costs....... 1,199,642 --
Amortization of discount on notes payable...... -- --
Changes in cash flow from operations resulting
from changes in assets and liabilities:
Accounts receivable............................ 56,689 (16,968,748)
Inventory...................................... -- (11,347,415)
Prepaid expenses............................... -- 31,172
Other current assets........................... 549,360 (80,858)
Other assets................................... 395,025 220,262
Accounts payable............................... -- 5,810,780
Accrued expenses............................... 950,237 12,715,386
Deferred rent.................................. -- --
Accrued interest............................... (1,103,686) 427,657
------------- ------------
Net cash used in operating activities......... (7,694,000) (78,539,899)
------------- ------------
Cash flows from investing activities:
Expenditures for network under development,
wireless network and property and equipment... (325,655) (111,663,204)
Capitalized interest on network under
development and wireless network.............. (3,876,641) --
Expenditures for microwave relocation.......... -- (5,679,738)
Purchase of PCS licenses....................... (1,371,153) (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......... (23,089,842) (187,032,942)
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
preferred stock............................... 64,364,415 --
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............. 21,880,791 --
Proceeds from long-term debt................... 397,635,000 --
Purchases of treasury shares................... (19) --
Payments on notes payable...................... (40,938,898) --
Payments of deferred financing costs........... (10,738,044) (261,249)
Proceeds from cash transfers from and expenses
paid by affiliates............................ 4,171,365 315,780,445
Payments on behalf of and transfers to
affiliates.................................... (406,674,017) (81,551,403)
------------- ------------
Net cash provided by financing activities..... 30,940,661 233,967,793
------------- ------------
Net increase in cash and cash equivalents...... 156,819 (31,605,048)
Cash and cash equivalents at the beginning of
period........................................ 93,046,614 21,440,720
------------- ------------
Cash and cash equivalents at the end of
period........................................ 93,203,433 (10,164,328)
============= ============
</TABLE>
F-40
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
17. Subsequent Events
Initial Public Offering
On November 2, 1999, the Company filed a preliminary prospectus with the
Securities and Exchange Commission for an initial public offering of 7,800,000
shares of Class A common stock with an estimated price range of $16 to $18 per
share.
Deferred Compensation
Upon an initial public offering, the variable stock option awards (see Note
10) will reach their measurement date. At that point, the Company will record
deferred compensation expense based on the difference between the estimated
fair value and the exercise price of the award. Deferred compensation has been
estimated to be $9,400,000 and will be recognized as compensation expense over
the related vesting periods, of which approximately $1,700,000 will be recorded
as compensation expense in the fourth quarter of 1999.
In addition, certain variable restricted stock awards will become fixed upon
effectiveness of an initial public offering (see Note 9). This will result in
estimated deferred compensation of approximately $53,300,000 of which
$17,600,000 will be recorded as compensation expense in the fourth quarter of
1999.
Certain employees, the Chief Executive Officer and the Executive Vice
President of the Company will be issued a total of 1,111 shares and 503,022
shares of mandatorily redeemable Series E preferred stock and Class A common
stock, respectively, pending final FCC approval of the share issuance related
to the Viper Wireless transaction. The Chief Executive Officer's and the
Executive Vice President's shares vest immediately and the employees' shares
vest ratably over five years. The total estimated fair value of these shares is
approximately $8,600,000, which will be recorded as deferred compensation, of
which $5,500,000 will be recorded as compensation expense in the fourth quarter
of 1999 if final share transfer approval is received from the FCC.
Stock Split
On November 8, 1999, the Company filed an amendment to its certificate of
incorporation with the Delaware Secretary of State to effect a 3.09-for-1 stock
split of its outstanding and authorized Series F preferred stock and all
classes of its common stock. The stock split has been retroactively reflected
in the financial statements for all periods presented. In addition, the
amendment to the Company's certificate of incorporation increased the
authorized number of shares of each of the Class A common stock and the Class B
common stock by 15 million. In addition, the Board of Directors and the
stockholders approved further amendments and restatements to the Company's
certificate of incorporation to become effective upon the closing of the
Company's pending initial public offering, including a 300 million increase in
the number of authorized shares of the Company's class A common stock.
Pending Acquisitions
On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc.
(TeleCorp LMDS) through a purchase of all of the outstanding stock of TeleCorp
LMDS for an estimated aggregate purchase price of approximately $16,900,000.
The consideration will be comprised of Series C preferred stock and Class A
common stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price
has been preliminarily allocated to the acquired licenses, subject to
adjustment, based on a final valuation. TeleCorp LMDS'
F-41
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
------------
stockholders are Mr. Vento, Mr. Sullivan and three of our Cash Equity
Investors. By acquiring TeleCorp LMDS, the Company will gain local multipoint
distribution service, or LMDS. The LMDS licenses will provide the Company with
additional airwaves to use as back-haul portions of the Company's PCS network
traffic in several of the Company's markets.
On October 14, 1999, the Company agreed to purchase 15 MHz of additional
airwaves in the Lake Charles, Louisiana basic trading area from Gulfstream
Telecomm, L.L.C. Total consideration approximates $2,700,000 and consists of
approximately $400,000 in cash plus the assumption of approximately $2,300,000
in debt related to the license. Additionally, the Company will reimburse Gulf
Telecomm for all interest it paid to the FCC on debt related to the license
from June 1998 until the date the transaction is completed.
Each of these agreements are subject to governmental approvals and other
customary conditions to closing, but no assurance can be given that they will
be closed on schedule or at all.
Vendor Financing
In October 1999, the Company entered into an amended and restated note
purchase agreement with Lucent for the issuance of up to $12,500,000 of new
series A notes and up to $12,500,000 of new series B notes under a vendor
expansion facility in connection with prior acquisitions of licenses in certain
markets. The terms of these notes issued under these facilities are identical
to the original Lucent series A and series B notes.
In addition, pursuant to the amended and restated note purchase agreement,
Lucent has agreed to make available up to an additional $50.0 million of new
vendor financing not to exceed an amount equal to 30% of the value of
equipment, software and services provided by Lucent in connection with any
additional markets we acquire. This $50.0 million of availability is subject to
a reduction up to $20 million on a dollar for dollar basis of any additional
amounts Lucent otherwise lends to us for such purposes under our senior credit
facilities. Any notes purchased under this facility would be divided equally
between Lucent series A and series B notes.
The terms of Lucent series A and series B notes issued under these expansion
facilities would be identical to the terms of the original Lucent series A and
series B notes as amended, including a maturity date of October 23, 2009.
In addition, any Lucent series B notes issued under the vendor expansion
facility will mature 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 any private placement of
notes issued to finance any additional markets and borrowings under the senior
credit facilities or any replacement facility.
F-42
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Description of Unaudited Pro Forma
Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated financial
statements are 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 form condensed consolidated balance sheet as of
September 30, 1999 has been prepared to illustrate the effects of the issuance
of mandatorily redeemable preferred stock and common stock to certain
employees, the Chief Executive Officer and the Executive Vice President of the
Company related to Viper Wireless, the acquisition of TeleCorp LMDS, Inc. and
certain adjustments related to the asset acquisitions which completed in the
first nine months of 1999 as if these transactions had occurred on January 1,
1998. The unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1998 and for the nine months ended September
30, 1999 have been prepared to illustrate the effects of the issuance of
mandatorily redeemable preferred stock and common stock to certain employees,
the Chief Executive Officer and the Executive Vice President of the Company
related to Viper Wireless, and the acquisition of TeleCorp LMDS, Inc. as if
these transactions occurred on January 1, 1998.
The unaudited pro forma condensed consolidated financial statements 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 financial statements are provided for informational
purposes only and do not purport to be indicative of what the Company's
consolidated financial position would actually have been had the issuance of
mandatorily redeemable preferred stock, preferred stock, and common stock to
certain employees, the Chief Executive Officer and the Executive Vice President
of the Company related to Viper Wireless and the acquisition of TeleCorp LMDS,
Inc. occurred on such date or to project the Company's consolidated financial
position for any future period.
F-43
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of September 30, 1999 (unaudited)
------------------------------------------------------
Historical
TeleCorp PCS,
Inc. and
Subsidiaries
and Predeces- Telecorp Proforma
sor Company LMDS Adjustments Pro Forma
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 80,410,108 $ -- $ -- $ 80,410,108
Accounts receivable,
net................... 17,852,412 -- -- 17,852,412
Inventory.............. 12,125,650 -- -- 12,125,650
Prepaid expenses....... 2,268,836 -- -- 2,268,836
Other current assets... 231,747 -- -- 231,747
------------- ----------- ------------ -------------
Total current assets.. 112,888,753 -- -- 112,888,753
Property and equipment,
net................... 347,348,394 -- -- 347,348,394
PCS licenses and
microwave relocation
costs................. 235,759,502 16,900,000 -- 252,659,502
Intangible assets --
AT&T agreements....... 39,696,161 -- (2,065,000) 37,631,161
Deferred financing
costs, net............ 18,384,404 -- -- 18,384,404
Other assets........... 705,964 -- -- 705,964
------------- ----------- ------------ -------------
Total assets.......... $ 754,783,178 $16,900,000 $ (2,065,000) $ 769,618,178
============= =========== ============ =============
Liabilities, Mandatorily
Redeemable Preferred
Stock and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable....... $ 21,962,774 $ -- $ -- $ 21,962,774
Accrued expenses....... 38,794,385 -- -- 38,794,385
Microwave relocation
obligation, current
portion............... 5,297,484 -- -- 5,297,484
Long-term debt, current
portion............... 1,340,378 -- -- 1,340,378
Accrued interest....... 3,635,106 -- -- 3,635,106
Deferred revenue....... 1,133,018 -- -- 1,133,018
------------- ----------- ------------ -------------
Total current
liabilities.......... 72,163,145 -- -- 72,163,145
------------- ----------- ------------ -------------
Long-term debt......... 628,469,693 -- -- 628,409,693
Microwave relocation
obligation............ 2,364,544 -- -- 2,364,544
Accrued expenses....... 5,028,943 -- -- 5,028,943
Deferred rent.......... 605,496 -- -- 605,496
------------- ----------- ------------ -------------
Total liabilities..... 708,571,821 -- -- 708,571,821
------------- ----------- ------------ -------------
Mandatorily redeemable
preferred stock....... 353,014,125 2,500,000 15,453,775 370,967,900
Deferred compensation.. (9,482) -- (16,172) (25,654)
Treasury stock, at
cost.................. -- -- -- --
Preferred stock
subscriptions
receivable............ (103,000,543) -- -- (103,000,543)
------------- ----------- ------------ -------------
Total mandatorily
redeemable preferred
stock, net........... 250,004,100 2,500,000 15,437,603 267,941,703
------------- ----------- ------------ -------------
Commitments and
contingencies.........
Stockholders' equity
(deficit):
Series F preferred
stock................. 149,128 -- -- 149,128
Common stock........... 749,704 8,343 5,030 763,077
Additional paid-in-
capital............... 5,379,062 14,391,657 8,534,970 28,305,689
Deferred compensation.. (801,083) -- (3,040,000) (3,841,083)
Common stock
subscriptions
receivable............ (190,991) -- -- (190,991)
Treasury stock, at
cost.................. -- -- -- --
Accumulated deficit.... (209,078,563) (23,002,603) (232,081,166)
------------- ----------- ------------ -------------
Total stockholders'
equity (deficit)..... (203,792,743) 14,400,000 (17,502,603) (206,895,346)
------------- ----------- ------------ -------------
Total liabilities,
mandatorily
redeemable preferred
stock and
stockholders' equity
(deficit)............ $ 754,783,178 $16,900,000 $ (2,065,000) $ 769,618,178
============= =========== ============ =============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-44
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months September 30, 1999 (Unaudited)
------------------------------------------------------------
Historical
TeleCorp PCS, Inc
and Predecessor TeleCorp Pro Forma
Company LMDS Adjustments Pro Forma
----------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue....... $ 18,937,031 $ -- $ -- $ 18,937,031
Equipment revenue..... 10,321,594 -- -- 10,321,594
Roaming revenue....... 18,942,080 -- -- 18,942,080
------------- ------- ------------ -------------
Total revenue....... 48,200,705 -- -- 48,200,705
------------- ------- ------------ -------------
Operating expenses:
Cost of revenue....... 23,086,816 -- -- 23,086,816
Operations and
development.......... 25,925,009 -- -- 25,925,009
Selling and
marketing............ 39,719,864 -- -- 39,719,864
General and
administrative....... 38,942,446 13,258 5,500,000 44,455,704
Depreciation and
amortization......... 34,799,411 -- 885,000 35,684,411
------------- ------- ------------ -------------
Total operating
expenses........... 162,473,546 13,258 6,385,000 168,871,804
------------- ------- ------------ -------------
Operating loss.......... (114,272,841) (13,258) (6,385,000) (120,671,099)
Other (income) expense:
Interest expense...... 34,447,452 -- -- 34,447,452
Interest income....... (4,805,133) (9,667) -- (4,814,800)
Other expense......... 160,188 -- -- 160,188
------------- ------- ------------ -------------
Net loss............ (144,075,348) (3,591) (6,385,000) (150,463,939)
Accretion of mandatorily
redeemable preferred
stock.................. (16,959,618) -- (6,066,409) (23,026,027)
------------- ------- ------------ -------------
Proforma net loss
attributable to
common equity...... $(161,034,966) $(3,591) $(12,451,409) $(173,489,966)
============= ======= ============ =============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-45
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended December 31, 1998 (unaudited)
-------------------------------------------------------
Historical
TeleCorp PCS, Inc.
and Predecessor TeleCorp ProForma
Company LMDS Adjustments Pro Forma
------------------ -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service revenue....... $ -- $ -- $ -- $ --
Equipment revenue..... -- -- -- --
Roaming revenue....... 29,231 -- -- 29,231
------------ -------- ------------ ------------
Total revenue....... 29,231 -- -- 29,231
------------ -------- ------------ ------------
Operating expenses:
Cost of revenue....... -- -- --
Operations and
development.......... 9,772,485 -- -- 9,772,485
Selling and
marketing............ 6,324,666 -- -- 6,324,666
General and
administrative....... 26,239,119 40,996 5,500,000 31,780,115
Depreciation and
amortization......... 1,583,864 -- 1,180,000 2,763,864
------------ -------- ------------ ------------
Total operating
expenses........... 43,920,134 40,996 6,680,000 50,641,130
------------ -------- ------------ ------------
Operating loss...... (43,890,903) (40,996) (6,680,000) (50,611,899)
Other (income) expense:
Interest expense...... 11,934,263 -- -- 11,934,263
Interest income....... (4,697,233) (62,292) -- (4,759,525)
Other expense......... 27,347 -- -- 27,347
------------ -------- ------------ ------------
Net (loss) income... (51,155,280) 21,296 (6,680,000) (57,813,984)
Accretion of mandatorily
redeemable preferred
stock.................. (8,566,922) -- (9,329,594) (17,896,516)
------------ -------- ------------ ------------
Proforma net (loss)
income attributable
to common equity..... $(59,722,202) $ 21,296 $(16,009,594) $(75,710,500)
============ ======== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated
financial statements.
F-46
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
------------
On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc.
through a purchase of all of the outstanding stock of TeleCorp LMDS for an
aggregate purchase price of approximately $16,900,000. The consideration will
be comprised of Series C preferred stock and Class A Common Stock. TeleCorp
LMDS' only assets are LMDS licenses. The purchase price has been preliminarily
allocated to the acquired licenses, subject to adjustment based upon a final
valuation. TeleCorp LMDS' stockholders are Mr. Vento, Mr. Sullivan and three of
the Company's Cash Equity Investors. By acquiring TeleCorp LMDS, the Company
will gain local multipoint distribution service, or LMDS. The LMDS licenses
will provide the Company with additional airwaves the Company can use to back-
haul portions of its PCS network traffic in several of its markets.
On October 14, 1999, the Company agreed to purchase 15 MHz of additional
airwaves from Gulf Telecomm, LLC for $362,844 in cash, the assumption of
approximately $2.3 million of FCC debt and the reimbursement of Gulf Telecomm
for all interest paid to the FCC from June 1998 until the transaction is
completed. This acquisition has not been included in the unaudited pro forma
condensed consolidated financial statements due to its immateriality.
The proforma adjustments result from the following:
(i) The amortization of the extension of the Network Membership License
Agreement related to the AT&T Puerto Rico acquisition as if the
transaction occurred on January 1, 1998, and
(ii) The accretion of manditorily redeemable preferred stock issued
related to asset acquisitions which have completed (AT&T Puerto Rico,
Wireless 2000, Digital PCS and Viper Wireless) or to be issued
related to pending acquisitions (TeleCorp LMDS) as if the
transactions occurred on January 1, 1998.
(iii) Certain employees, the Chief Executive Officer and the Executive
Vice President of the Company will be issued a total of 1,111 shares
and 503,022 shares of mandatorily redeemable Series E preferred
stock and Class A common stock, respectively, pending final FCC
approval of the share issuance related to the Viper Wireless
transaction. The Chief Executive Officer and the Executive Vice
President's shares vest immediately and the employees' shares vest
ratably over five years. The total estimated fair value of these
shares is approximately $8,600,000 which will be recorded as
deferred compensation of which $5,500,000 will be recorded as
compensation expense in the fourth quarter of 1999 if final share
transfer approval is received from the FCC.
F-47
<PAGE>
[Pictures of company stores, customers using handsets and customer care
center.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,800,000 Shares
TeleCorp PCS, Inc.
Class A Common Stock
--------
PROSPECTUS
, 1999
--------
Salomon Smith Barney
Lehman Brothers
Deutsche Banc Alex. Brown
Merrill Lynch & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of common stock registered
hereby, all of which expenses, except for the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee, and the Nasdaq National Market listing application fee, are
estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 44,886
National Association of Securities Dealers, Inc. filing fee......... 14,875
Nasdaq National Market listing fee.................................. 95,000
Printing and engraving fees and expenses*........................... 250,000
Legal fees and expenses*............................................ 550,000
Accountants' fees and expenses*..................................... 250,000
Transfer Agent and Registrar fees and expenses*..................... 5,000
Miscellaneous expenses*............................................. 116,239
----------
Total*............................................................ $1,326,000
==========
</TABLE>
- --------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 101(b)(7) of the DGCL, our restated certificate of
incorporation includes a provision that eliminates the personal liability of
our directors and executive officers for monetary damages for breach of
fiduciary duty as a director or executive officer, except: (1) for any breach
of the director's or executive officer's duty of loyalty to us or our
stockholders; (2) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (3) for unlawful
dividends and stock purchases under the DGCL; or (4) for any transaction from
which the director derived an improper personal benefit.
In addition, Section 145 of the General Corporation Law of the State of
Delaware ("DGCL") provides that a corporation may indemnify a director,
officer, employee or agent against expenses (including attorneys' fees),
judgements, fines and for amounts paid in settlement in respect of or in
successful defense of any action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Our bylaws provide that: (1) we must indemnify our directors and officers to
the fullest extent permitted by Delaware law, subject to very limited
exceptions; (2) we may indemnify our other employees and agents to the same
extent that we indemnify our officers and directors, unless otherwise required
by law, our amended and restated certificate of incorporation, our bylaws or
agreements; and (3) we must advance expenses, as incurred, to our directors and
executive officers in connection with any legal proceeding to the fullest
extent permitted by Delaware law, subject to limited exceptions.
Prior to the closing of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we have obtained directors' and officers' insurance providing indemnification
for our directors, officers and key employees for various liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception, we sold shares of our common stock and preferred stock
in the amounts (restated to account for our 100-to-1 stock split effected on
August 27, 1999 and 3.09-to-1 stock split effected on November 8, 1999), at the
times, and for the aggregate amounts of consideration listed below without
registration under the Securities Act of 1933. Exemption from registration
under the Securities Act for each of the following sales is claimed under
Section 4(2) of the Securities Act because such transactions were by an issuer
and did not involve a public offering.
On July 17, 1998, we issued, in the aggregate, 66,722.81 shares of series A
preferred stock, 135,347.76 shares of series C preferred stock, 34,266.97
shares of series D preferred stock, 3,336,141 shares of series F preferred
stock, 12,855,107 shares of class A common stock, 36,738 shares of class C
common stock, 275,539 shares of class D common stock and 1,000 shares of voting
preference stock to 21 individuals and entities for an aggregate consideration
of $128,000,000, ownership of all of the issued and outstanding shares of
TeleCorp Holding Corp. and a PCS license.
On April 20, 1999, we issued 2,332.55 shares of class C preferred stock and
226,923 shares of class A common stock to Digital PCS, LLC in consideration for
the transfer of the ownership of PCS licenses.
On May 14, 1999, we issued 980 shares of series D preferred stock, 98,000
shares of series F preferred stock, 5,477.2 shares of series C preferred stock
and 547,720 shares of class A common stock to 15 entities for an aggregate
consideration of $6,457,200.
On May 25, 1999, we issued 30,750 shares of series A preferred stock,
39,996.60 shares of series C preferred stock, 4,063.35 shares of series E
preferred stock and 3,999,660 shares of class A common stock to 20 individuals
and entities for an aggregate consideration of $79,996,640.63 and a PCS
license.
On June 2, 1999, we issued 545.20 shares of series C preferred stock and
53,040 shares of class A common stock to Wireless 2000, Inc. in consideration
for the transfer of the ownership of PCS licenses.
On July 15, 1999, we issued 1,678.44 shares of series D preferred stock,
518,638 shares of series F preferred stock, 9,380.75 shares of series C
preferred stock and 2,898,652 shares of class A common stock to 15 entities for
an aggregate consideration of $11,059,190.
On September 29, 1999, we issued 2,241.56 shares of series D preferred
stock, 224,156 shares of series F preferred stock, 12,528.05 shares of series C
preferred stock and 3,871,168 shares of class A common stock to 15 entities for
an aggregate consideration of $14,769,610.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Unless indicated otherwise below, the following exhibits were filed with
registrant's Registration Statement on Form S-4 as initially filed on June 22 ,
1999, or amendments thereto, and are incorporated herein by reference.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Draft of Underwriting Agreement
3.1.1 Fourth Amended and Restated Certificate of Incorporation of the
registrant, as amended
3.1.2* Form of Fifth Amended and Restated Certificate of Incorporation to be
adopted by the registrant
3.2.1 Amended and Restated Bylaws of the registrant
3.2.2* Second Amended and Restated Bylaws to be adopted by the registrant
4.1* Articles IV, V, VI, and IX of the TeleCorp PCS, Inc. Fifth Amended and
Restated Certificate of Incorporation to be adopted by the registrant
(contained in Exhibit 3.1.2)
4.2* Articles 1, 5, 8 and 9 of the TeleCorp PCS, Inc. Second Amended and
Restated Bylaws to be adopted by the registrant (contained in Exhibit
3.22)
5.1* Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.1.2* Amended and Restated Note Purchase Agreement by and between TeleCorp
PCS, Inc. and Lucent Technologies, Inc., dated as of October 29, 1999
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
10.5.3* Amendment No. 2 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of October 18, 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")
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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
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
10.8.9* Eighth Amendment to the Credit Agreement, dated as of October 25,
1999
10.8.10* Ninth Amendment to the Credit Agreement, dated as of October 26, 1999
10.9.1 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
10.9.2 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.
10.9.3 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.
10.9.4 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.
10.9.5 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.
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 Stockholders' Agreement dated May 25, 1999
10.17.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 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.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.21 Employee Agreement, dated as of July 17, 1998, by and between
TeleCorp PCS, Inc. and Julie A. Dobson.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie A. Dobson.
10.23 Separation Agreement, dated as of March 8, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.24 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.
10.25 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.
10.26 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
10.27* TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as
amended.
10.30 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
10.31* Form of Indemnification Agreement to be entered into between TeleCorp
PCS, Inc. and its directors and executive officers.
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
24.1*** Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
27.1**** Financial Data Schedule
</TABLE>
- --------
*Filed herewith.
**To be filed by amendment.
***Previously filed with this registration statement.
****Filed with registrant's Form 10-Q on November 15, 1999 and incorporated by
reference herein.
ITEM 17. UNDERTAKINGS.
(a) 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 public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling persons of the
registrant in the successful defense of any action suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether 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 such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Arlington, Commonwealth of Virginia, on November 17, 1999.
Telecorp PCS, Inc.
/s/ Gerald T. Vento
By: _________________________________
Gerald T. Vento
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald T. Vento Chief Executive Officer November 17, 1999
______________________________________ (Principal Executive
Gerald T. Vento Officer) and Chairman
/s/ Thomas H. Sullivan Executive Vice President, November 17, 1999
______________________________________ Chief Financial Officer
Thomas H. Sullivan (Principal Financial and
Accounting Officer) and
Director
* Director November 17, 1999
______________________________________
Michael R. Hannon
* Director November 17, 1999
______________________________________
Scott Anderson
Director November , 1999
______________________________________
Rohit M. Desai
Director November , 1999
______________________________________
Gary S. Fuqua
* Director November 17, 1999
______________________________________
James M. Hoak
* Director November 17, 1999
______________________________________
Mary Hawkins-Key
* Director November 17, 1999
______________________________________
William Kussell
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director November , 1999
______________________________________
William Laverack, Jr.
* Director November 17, 1999
______________________________________
Joseph O'Donnell
* Director November 17, 1999
______________________________________
Michael Schwartz
* Director November 17, 1999
______________________________________
James F. Wade
</TABLE>
/s/ Thomas H. Sullivan
*By: ________________________________
Thomas H. Sullivan
Attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Draft of Underwriting Agreement
3.1.1 Fourth Amended and Restated Certificate of Incorporation of the
registrant, as amended
3.1.2* Form of Fifth Amended and Restated Certificate of Incorporation to be
adopted by the registrant
3.2.1 Amended and Restated Bylaws of the registrant
3.2.2* Second Amended and Restated Bylaws to be adopted by the registrant
4.1* Articles IV, V, VI, and IX of the TeleCorp PCS, Inc. Fifth Amended and
Restated Certificate of Incorporation to be adopted by the registrant
(contained in Exhibit 3.1.2)
4.2* Articles 1, 5, 8 and 9 of the TeleCorp PCS, Inc. Second Amended and
Restated Bylaws to be adopted by the registrant (contained in Exhibit
3.22)
5.1* Opinion of McDermott, Will & Emery regarding the legality of the
securities being registered
10.1.1 Note Purchase Agreement by and between TeleCorp PCS, Inc. and Lucent
Technologies, Inc., dated as of May 11, 1998
10.1.2* Amended and Restated Note Purchase Agreement by and between TeleCorp
PCS, Inc. and Lucent Technologies, Inc., dated as of October 29, 1999
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
10.5.3* Amendment No. 2 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of October 18, 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")
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
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
10.8.9* Eighth Amendment to the Credit Agreement, dated as of October 25,
1999
10.8.10* Ninth Amendment to the Credit Agreement, dated as of October 26, 1999
10.9.1 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
10.9.2 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.
10.9.3 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.
10.9.4 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.
10.9.5 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.
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 Stockholders' Agreement dated May 25, 1999
10.17.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.21 Employee Agreement, dated as of July 17, 1998, by and between
TeleCorp PCS, Inc. and Julie A. Dobson.
10.22 Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie A. Dobson.
10.23 Separation Agreement, dated as of March 8, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.24 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.
10.25 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.
10.26 TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
10.27* TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as
amended.
10.30 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
10.31* Form of Indemnification Agreement to be entered into between TeleCorp
PCS, Inc. and its directors and executive officers.
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
24.1*** Power of Attorney for TeleCorp PCS, Inc. (included on signature page)
27.1**** Financial Data Schedule
</TABLE>
- --------
*Filed herewith.
**To be filed by amendment.
***Previously filed with this registration statement.
****Filed with registrant's Form 10-Q on November 15, 1999 and incorporated by
reference herein.
<PAGE>
EXHIBIT 1.1
[Draft--11/15/99]
TeleCorp PCS, Inc.
7,800,000 Shares/a/
-
Class A Common Stock
($0.01 par value)
Underwriting Agreement
New York, New York
, 1999
Salomon Smith Barney Inc.
Lehman Brothers Inc.
Deutsche Bank Securities Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As Representatives of the several Underwriters
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
TeleCorp PCS, Inc., a corporation organized under the laws of the
State of Delaware (the "Company"), proposes to sell to the several underwriters
named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, 7,800,000 shares of class A
common stock, $0.01 par value ("Common Stock") of the Company (said shares to be
issued and sold by the Company being hereinafter called the "Underwritten
Securities"). The Company also proposes to grant to the Underwriters an option
to purchase up to 1,170,000 additional shares of Common Stock to cover over-
allotments (the "Option Securities"; the Option Securities, together with the
Underwritten Securities, being hereinafter called the "Securities"). To the
extent there are no additional Underwriters listed on Schedule I other than you,
the term Representatives as used herein shall mean you, as Underwriters, and the
terms Representatives and Underwriters shall mean either the singular or plural
as the context requires. Certain terms used herein are defined in Section 17
hereof. Certain terms used herein are defined in Section 17 hereof.
- ---------------------------
/a/ Plus an option to purchase from the Company, up to 1,170,000 additional
-
Securities to cover over-allotments.
<PAGE>
2
1. Representations and Warranties. The Company represents and
-------------------------------
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333-89393) on Form S-1, including a
related preliminary prospectus, for registration under the Act of the
offering and sale of the Securities. The Company may have filed one or
more amendments thereto, including a related preliminary prospectus, each
of which has previously been furnished to you. The Company will next file
with the Commission either (1) prior to the Effective Date of such
registration statement, a further amendment to such registration statement
(including the form of final prospectus) or (2) after the Effective Date of
such registration statement, a final prospectus in accordance with Rules
430A and 424(b). In the case of clause (2), the Company has included in
such registration statement, as amended at the Effective Date, all
information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or such
final prospectus, shall contain all Rule 430A Information, together with
all other such required information, and, except to the extent the
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined herein) and on any date on
which Option Securities are purchased, if such date is not the Closing Date
(a "settlement date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act
and the rules thereunder; on the Effective Date and at the Execution Time,
the Registration Statement did not or will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectus, if not filed
pursuant to Rule 424(b), will not, and on the date of any filing pursuant
to Rule 424(b) and on the Closing Date and any settlement date, the
Prospectus (together with any supplement thereto) will not, include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
--------
however, that the Company makes no representations or warranties as to the
-------
information contained in or omitted from the Registration Statement, or the
Prospectus (or any supplement thereto) in reliance upon and in
<PAGE>
3
conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through the Representatives specifically for
inclusion in the Registration Statement or the Prospectus (or any
supplement thereto).
(c) Except as set forth an Exhibit A hereto, the Company has no
subsidiaries and holds no minority interest in any entity. The Company and
each of its subsidiaries have been duly incorporated or formed and are
validly existing as corporations, limited liability companies or limited
partnerships in good standing under the laws of their respective
jurisdictions of incorporation or formation, are duly qualified to do
business and are in good standing as foreign corporations, limited
liability companies or limited partnerships in each jurisdiction in which
their respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power and
authority necessary to own or hold their respective properties and to
conduct the businesses in which they are engaged, except where the failure
to so qualify or have such power or authority would not, singularly or in
the aggregate, have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business.
(d) As of the Closing Date, the Company will have an authorized
equity capitalization as set forth in the Prospectus under the heading
"Capitalization" and "Description of Capital Stock"; all of the outstanding
shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable; and the
capital stock of the Company conforms in all material respects to the
description thereof contained in the Prospectus, including, in particular,
under the heading "Description of Capital Stock"; the Securities have been
duly and validly authorized, and, when issued and delivered to and paid for
by the Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the Securities have been approved by the Nasdaq National
Market, Inc. for listing, subject to official notice of issuance and
evidence of satisfactory distribution; the certificates for the Securities
are in valid and sufficient form; the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other rights
to subscribe for the Securities; and, except as set forth in the
Prospectus, no options, warrants or other rights to purchase, agreements or
other obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership
interests in the Company are outstanding.
(e) All of the outstanding shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of any lien, charge, encumbrance, security
interest, restriction upon voting or
<PAGE>
4
transfer or any other claim of any third party, other than (i) liens,
charges, encumbrances and security interests created by the Credit
Agreement dated as of July 17, 1998, as amended through the date hereof,
among the Company, the Lenders identified therein, The Chase Manhattan
Bank, as Administrative Agent and Issuing Bank, TD Securities (USA) Inc.,
as Syndication Agent, and Bankers Trust Company, as Documentation Agent,
and (ii) restrictions upon voting or transfer arising under (A) the
Stockholders' Agreement dated as of July 17, 1998, as amended through the
date hereof, among AT&T Wireless PCS Inc., TWR Cellular, Inc. and the other
investors identified therein, the individuals identified therein and the
Company, (B) the Management Agreement dated as of July 17, 1999, as amended
through the date hereof, between TeleCorp Management Corp. and the Company
and (C) the Investors Stockholders' Agreement dated as of July 17, 1998,
among AT&T Wireless PCS, Inc., CB Capital Investors, L.P., Private Equity
Investors III, L.P., Equity-Linked Investors-II, Entergy Technology Holding
Company, Whitney Equity Partners, L.P., Whitney Strategic Partners III,
L.P., J.H. Whitney III, L.P., Media/Communications Investors Limited
Partnership, Media/Communications Partners III Limited Partnership, Toronto
Dominion Investments, Inc., Northwood Ventures LLC, Northwood Capital
Partners LLC, One Liberty Fund III, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P. and the other stockholders named therein.
(f) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit thereto, which is not described or filed as
required; and the statements in the Prospectus under the headings "Material
U.S. Tax Consequences to Non-U.S. Holders" and "Business--Government
Regulation" fairly summarize the matters therein described.
(g) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms.
(h) The Company is not and, after giving effect to the offering and
sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940, as amended. Neither the Company nor
any of its subsidiaries is a "holding company" or a "subsidiary company" of
a holding company or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(i) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under
the Act and such as
<PAGE>
5
may be required under the blue sky laws of any jurisdiction in connection
with the purchase and distribution of the Securities by the Underwriters in
the manner contemplated herein and in the Prospectus.
(j) Neither the issue and sale of the Securities nor the consummation
of any other of the transactions herein contemplated nor the fulfillment of
the terms hereof will conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to, (i) the charter or
by-laws of the Company or any of its subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which the Company or any of its subsidiaries is a party or bound or to
which its or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over
the Company or any of its subsidiaries or any of its or their properties.
(k) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement that have
not been waived.
(l) The audited and unaudited consolidated historical financial
statements and schedules of the Company and its consolidated subsidiaries
included in the Prospectus and the Registration Statement present fairly in
all material respects the financial condition, results of operations and
cash flows of the Company as of the dates and for the periods indicated,
comply as to form with the applicable accounting requirements of the Act
and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as otherwise noted therein). The selected financial data set forth
under the caption "Selected Historical and Pro Forma Consolidated Financial
Information" in the Prospectus and Registration Statement fairly present,
on the basis stated in the Prospectus and the Registration Statement, the
information included therein. The historical financial information
contained in the Prospectus under the headings "Capitalization", "Selected
Historical and Pro Forma Consolidated Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is derived from the accounting records of the entities covered
thereby and fairly present the information purported to be shown thereby.
The pro forma financial statements included in the Prospectus and the
Registration Statement include assumptions that provide a reasonable basis
for presenting the significant effects directly attributable to the
transactions and events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
adjustments reflect the proper application of those adjustments to the
historical financial statement
<PAGE>
6
amounts in the pro forma financial statements included in the Prospectus
and the Registration Statement. The pro forma financial statements included
in the Prospectus and the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of Regulation
S-X under the Act and the pro forma adjustments have been properly applied
to the historical amounts in the compilation of those statements.
(m) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending or,
to the best knowledge of the Company, threatened that (i) could reasonably
be expected to have a material adverse effect on the performance of this
Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(n) Each of the Company and each of its subsidiaries owns or leases
all such properties as are necessary to the conduct of its operations as
presently conducted.
(o) Neither the Company nor any subsidiary is in violation or default
of (i) any provision of its charter or bylaws, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument
to which it is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or such
subsidiary or any of its properties, as applicable.
(p) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered
their report with respect to the audited consolidated financial statements
and schedules included in the Prospectus, are independent public
accountants with respect to the Company within the meaning of the Act and
the applicable published rules and regulations thereunder.
(q) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of
<PAGE>
7
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any supplement thereto))
and has paid all taxes required to be paid by it and any other assessment,
fine or penalty levied against it, to the extent that any of the foregoing
is due and payable, except for any such assessment, fine or penalty that is
currently being contested in good faith or as would not have a material
adverse effect on the condition (financial or otherwise), prospects,
earnings, business or properties of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(r) No labor problem or dispute with the employees of the Company or
any of its subsidiaries exists or is threatened or imminent, and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or its subsidiaries' principal suppliers,
contractors or customers, that could have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(s) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; all policies of insurance and fidelity or surety bonds
insuring the Company or any of its subsidiaries or their respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and its subsidiaries are in compliance with the terms
of such policies and instruments in all material respects; and there are no
claims by the Company or any of its subsidiaries under any such policy or
instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; neither the Company nor any
such subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
<PAGE>
8
(t) The Company and its subsidiaries possess all licenses,
certificates, permits and other authorizations issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus.
(u) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(w) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received and are in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) have
not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or
toxic substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required
permits, licenses or other approvals, or liability would not, individually
or in the aggregate, have a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth
in or contemplated in the Prospectus (exclusive of any
<PAGE>
9
supplement thereto). Except as set forth in the Prospectus, neither the
Company nor any of the subsidiaries has been named as a "potentially
responsible party" under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
(x) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws on the business, operations and
properties of the Company and its subsidiaries, in the course of which it
identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). On the basis
of such review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(y) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of
the United States Employee Retirement Income Security Act of 1974 ("ERISA")
and the regulations and published interpretations thereunder with respect
to each "plan" (as defined in Section 3(3) of ERISA and such regulations
and published interpretations) in which employees of the Company and its
subsidiaries are eligible to participate and each such plan is in
compliance in all material respects with the presently applicable
provisions of ERISA and such regulations and published interpretations.
The Company and its subsidiaries have not incurred any unpaid liability to
the Pension Benefit Guaranty Corporation (other than for the payment of
premiums in the ordinary course) or to any such plan under Title IV of
ERISA.
(z) The Company and its subsidiaries own, possess, license or have
other rights to use, on reasonable terms, all trade and service marks,
trade and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual
property (collectively, the "Intellectual Property") necessary for the
conduct of the Company's business as now conducted or as proposed in the
Prospectus to be conducted. Except as set forth in the Prospectus under
the caption "Business--Intellectual Property," (a) there are no rights of
third parties to any such Intellectual Property; (b) there is no material
infringement by third parties of any such Intellectual Property; (c) there
is no pending or threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any such Intellectual Property,
and the Company is
<PAGE>
10
unaware of any facts which would form a reasonable basis for any such
claim; (d) there is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such Intellectual
Property, and the Company is unaware of any facts which would form a
reasonable basis for any such claim; (e) there is no pending or threatened
action, suit, proceeding or claim by others that the Company infringes or
otherwise violates any patent, trademark, copyright, trade secret or other
proprietary rights of others, and the Company is unaware of any other fact
which would form a reasonable basis for any such claim and (f) there is no
U.S. patent or published U.S. patent application which contains claims that
dominate or may dominate any Intellectual Property described in the
Prospectus as being owned by or licensed to the Company or that interferes
with the issued or pending claims of any such Intellectual Property.
Neither the Company nor any of its subsidiaries own, possess, license or
have any other rights to use any patents, nor does the Company or any of
its subsidiaries have any patent applications pending.
(aa) The Company and each of its subsidiaries have good and
marketable title in fee simple to, or have valid rights to lease or
otherwise use, all items of real and personal property which are material
to the business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances, claims and defects and imperfections of
title except such as (i) do not materially interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries or
(ii) could not reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business.
(bb) Except as described in the Prospectus, there are no outstanding
subscriptions, rights, warrants, calls or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of
capital stock of or other equity or other ownership interest in the Company
or any of its subsidiaries.
(cc) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Prospectus has been made or reaffirmed without a reasonable basis or has
been disclosed other than in good faith.
(dd) None of the Company or any of its subsidiaries does business
with the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Florida Statutes Section 517.075.
<PAGE>
11
(ee) The Company and its subsidiaries have evaluated the accuracy of
the representations made by (i) the vendors from whom components of the
Company's internal information technology systems were purchased and (ii)
the vendors from whom all network hardware was purchased regarding the risk
that the products sold by such vendors may be unable to recognize and
properly execute date-sensitive functions involving certain dates prior to
and any dates after December 31, 1999 (the "Year 2000 Problem"); and the
Company believes, after due inquiry, that each supplier, vendor, customer
or financial service organization used or serviced by the Company and its
subsidiaries has remedied or will remedy on a timely basis the Year 2000
Problem.
(ff) Since the date as of which information is given in the
Prospectus, (i) there has been no material adverse change or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs,
management or business prospects of the Company and its subsidiaries, taken
as a whole, whether or not arising in the ordinary course of business, (ii)
neither the Company nor any of its subsidiaries has incurred any material
liability or obligation, direct or contingent, other than in the ordinary
course of business, (iii) neither the Company nor any of its subsidiaries
has entered into any material transaction other than in the ordinary course
of business and (iv) except as otherwise disclosed in the Prospectus, there
has not been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries, or any dividend or distribution of any
kind declared, paid or made by the Company or any of its subsidiaries on
any class of their respective capital stock.
(gg) (i) The Company and its subsidiaries have the full use and
benefit of all broadband personal communications services ("PCS") licenses
issued by the Federal Communications Commission (the "FCC") to the Company
and its subsidiaries (the "Licenses") necessary to operate assets
constituting a radio communications system authorized under the rules for
wireless communications services (including any license and the network,
marketing, distribution, sales, customer interface and operations functions
relating thereto) owned and operated by the Company or any of its
subsidiaries in the Major Trading Areas (as defined in 47 C.F.R. (S)24.202)
and the Basic Trading Areas (as defined in 47 C.F.R. (S)24.202) listed on
Parts A, B, C, D and E of Exhibit B attached hereto and each other area in
which the Company or any of its subsidiaries conducts a broadband PCS
business and will have the full use and benefit of the Licenses listed on
Part F of Exhibit B upon consummation of the acquisition of a [list
licenses to be acquired] from [ ]; (ii) such Licenses
have been duly issued by the FCC, are (in the case of Licenses listed on
Parts A, B, C, D and E of Exhibit B) or will be (upon consummation of the
relevant transaction in the case of Licenses listed on Part F of Exhibit B)
held by a wholly owned subsidiary of the Company and are in full force and
effect and (iii) the Company and its subsidiaries are in compliance in all
<PAGE>
12
material respects with all of the provisions of each such License held by
any of them.
(hh) (i) The Company and each of its subsidiaries are in compliance
in all material respects with the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations and
published policies of the FCC thereunder, as amended and as in effect from
time to time (collectively, the "Communications Act"), and all requirements
of the FCC, including the "very small business" requirements; (ii) the
Company has no knowledge of any investigation, notice of apparent
liability, violation, forfeiture or other order or complaint issued by or
before the FCC, or of any other proceedings (other than proceedings
relating to the wireless communications industries generally) of or before
the FCC, which could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business; (iii) no event has occurred which (A) has resulted in, or after
notice or lapse of time or both would result in, revocation, suspension,
adverse modifications, non-renewal, impairment, restriction or termination
of, or order of forfeiture with respect to, any License in any respect
which could reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business or (B)
affects or could reasonably be expected in the future to affect any of the
rights of the Company or any of its subsidiaries under any License held by
the Company or any of its subsidiaries in any respect which could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of
the Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business; (iv) the Company and
each of its subsidiaries have duly filed in a timely manner all material
filings, reports, applications, documents, instruments and information
required to be filed under the Communications Act, and all such filings
were when made true, correct and complete in all material respects; and (v)
the Company has no reason to believe that each License of the Company or
any of its subsidiaries will not be renewed in the ordinary course.
(ii) The Company is in compliance with its "Minimum Build-Out Plan",
as defined in the Securities Purchase Agreement dated January 23, 1998, as
amended through the date hereof, among AT&T Wireless PCS Inc., TWR
Cellular, Inc., the Cash Equity Investors (as identified therein), the
TeleCorp Investors (as identified therein), Gerald Vento, Thomas Sullivan
and the Company (the "Securities Purchase Agreement").
<PAGE>
13
Any certificate signed by any officer of the Company and delivered to
the Representatives or counsel for the Underwriters in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
------------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $
per share, the amount of the Underwritten Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
1,170,000 Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in
part at any time (but not more than once) on or before the 30th day after the
date of the Prospectus upon written or telegraphic notice by the Representatives
to the Company setting forth the number of shares of the Option Securities as to
which the several Underwriters are exercising the option and the settlement
date. The number of Option Securities to be purchased by each Underwriter shall
be the same percentage of the total number of shares of the Option Securities to
be purchased by the several Underwriters as such Underwriter is purchasing of
the Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
---------------------
Underwritten Securities and the Option Securities (if the option provided for in
Section 2(b) hereof shall have been exercised on or before the third Business
Day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on
, 1999, or at such time on such later date not more than three Business Days
after the foregoing date as the Representatives shall designate, which date and
time may be postponed by agreement between the Representatives and the Company
or as provided in Section 9 hereof (such date and time of delivery and payment
for the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to an account specified by
the Company. Delivery of the Underwritten Securities and the Option Securities
shall be made through the facilities of The Depository Trust Company unless the
Representatives shall otherwise instruct.
<PAGE>
14
If the option provided for in Section 2(b) hereof is exercised after
the third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
-------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
<PAGE>
15
5. Agreements. The Company agrees with the several Underwriters
-----------
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus or any Rule 462(b) Registration
Statement unless the Company has furnished you a copy for your review prior
to filing and will not file any such proposed amendment or supplement to
which you reasonably object. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b),
the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed and
will provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall have
become effective, (2) when the Prospectus, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to Rule
424(b) or when any Rule 462(b) Registration Statement shall have been filed
with the Commission, (3) when, prior to termination of the offering of the
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (4) of any request by the Commission or its
staff for any amendment of the Registration Statement, or any Rule 462(b)
Registration Statement, or for any supplement to the Prospectus or for any
additional information, (5) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (6) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any
jurisdiction or the institution or threatening of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of
any such stop order or the suspension of any such qualification and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the rules thereunder, the Company promptly will (1) notify the
Representatives of any such event, (2) prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section
5, an amendment or supplement which will correct such statement or omission
or effect such
<PAGE>
16
compliance; and (3) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(c) As soon as practicable, but in any event not later than 15 months
after the Effective Time, the Company will make generally available to its
security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for
the Underwriters signed copies of the Registration Statement (including
exhibits thereto) and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus and any supplement
thereto as the Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of
the Securities for sale under the laws of such jurisdictions as the
Representatives may reasonably designate and will maintain such
qualifications in effect so long as required for the distribution of the
Securities; provided that in no event shall the Company be obligated to
qualify to do business in any jurisdiction where it is not now so qualified
or to take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Securities, in
any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of
Salomon Smith Barney Inc., offer, sell, contract to sell, pledge, or
otherwise dispose of, (or enter into any transaction which is designed to,
or might reasonably be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement
or otherwise) by the Company or any affiliate of the Company or any person
in privity with the Company or any affiliate of the Company) directly or
indirectly, including the filing (or participation in the filing) of a
registration statement with the Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Exchange Act,
any other shares of Common Stock or any securities convertible into, or
exercisable, or exchangeable for, shares of Common Stock; or publicly
announce an intention to effect any such transaction, for a period of 180
days after the date of the Underwriting Agreement, provided, however, that
-------- -------
(i) the Company may issue and sell Common Stock pursuant to any director or
employee stock plan of the Company in effect at the Execution Time, and may
issue options to purchase or make stock awards up to an aggregate of shares
of Common Stock to directors, consultants or
<PAGE>
17
employees outside of such plans, (ii) the Company may issue Common Stock
issuable upon the conversion of securities or the exercise of warrants or
options outstanding at the Execution Time and (iii) the Company may issue
and sell, from time to time, Common Stock or securities convertible into
Common Stock up to an aggregate amount of Common Stock equal to __% of the
outstanding Common Stock following the offering in one or more transactions
to acquire licenses or properties that complement or extend the Company's
existing operations; provided further, however that with respect to clause
---------------- -------
(iii), the entity or entities acquiring such stock agree in writing to the
same extent as the Company by the restrictions set forth in this paragraph
5(f).
(g) The Company will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected
to cause or result, under the Exchange Act or otherwise, in stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and
filing with the Commission of the Registration Statement (including
financial statements and exhibits thereto), each Preliminary Prospectus,
the Prospectus, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, and
all amendments or supplements to any of them, as may, in each case, be
reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Securities, including any stamp,
transfer taxes or similar fees or charges required to be paid in connection
with the execution and delivery of this Agreement and the original issuance
and sale of the Securities; (iv) the registration of the Securities under
the Exchange Act and the listing of the Securities on the Nasdaq National
Market; (vi) any registration or qualification of the Securities for offer
and sale under the securities or blue sky laws of the several states
(including filing fees but excluding the fees and expenses of counsel for
the Underwriters relating to such registration and qualification); (vii)
any filings required to be made with the National Association of Securities
Dealers, Inc. (including filing fees and the reasonable fees and expenses
of counsel for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers
of the Securities; (ix) the fees and expenses of the Company's accountants
and the fees and expenses of counsel (including local and special counsel)
for the Company; and (x) all other costs and expenses incident to the
performance by the Company of its obligations hereunder. [Notwithstanding
any of the foregoing, so long as the Securities are purchased by
<PAGE>
18
the Underwriters in accordance with the terms of this Agreement, the
Underwriters agree to pay the first $ of any of the foregoing expenses that
are reasonably incurred by the Company.]
6. Conditions to the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 PM New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 PM New
York City time on such date or (ii) 9:30 AM on the Business Day following
the day on which the public offering price was determined, if such
determination occurred after 3:00 PM New York City time on such date; if
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b), the Prospectus, and any such supplement, will be filed in
the manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have requested and caused McDermott, Will &
Emery, counsel for the Company, to have furnished to the Representatives
their opinion, dated the Closing Date and addressed to the Representatives,
to the effect that:
(i) each of the Company and the subsidiaries of the Company set
forth on Exhibit A hereto other than TeleCorp of Puerto Rico, Inc. and
TeleCorp Puerto Rico Realty, Inc. (each individually a "Designated
Subsidiary" and collectively, the "Designated Subsidiaries") has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction in which it is chartered
or organized, with full corporate power and authority to own or lease,
as the case may be, and to operate its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the
laws of _____, ______ and ______ in the case of the Company and as set
forth opposite the name of the respective Designated Subsidiary on
Exhibit A;
<PAGE>
19
(ii) all the outstanding shares of capital stock of each
Designated Subsidiary have been duly and validly authorized and issued
and are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock of
the Designated Subsidiaries are owned by the Company either directly
or through wholly owned subsidiaries free and clear of any perfected
security interest and, to the knowledge of such counsel, after due
inquiry, any other security interest, claim, lien or encumbrance, and,
except as otherwise set forth in the Prospectus, all outstanding
shares of capital stock of the Puerto Rico Subsidiaries (as defined
below) are owned by the Company either directly or through wholly
owned subsidiaries free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any other
security interest, claim, lien or encumbrance;
(iii) upon filing of the Company's Fifth Amended and Restated
Certificate of Incorporation, which filing shall take place
immediately prior to the Effective Time, the Company's authorized
equity capitalization shall be as set forth in the Prospectus under
"Description of Capital Stock"; the capital stock of the Company
conforms in all material respects to the description thereof
contained in the Prospectus; the outstanding shares of Common Stock
have been duly and validly authorized and issued and are fully paid
and nonassessable; the Securities have been duly and validly
authorized, and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be fully paid and
nonassessable; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to
subscribe for the Securities; and, except as set forth in the
Prospectus, to the best knowledge of such counsel, no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property of a
character required to be disclosed in the Registration Statement which
is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed
as an exhibit thereto, which is not described or filed as required;
and the statements included in
<PAGE>
20
the Prospectus under the heading "Material U.S. Tax Consequences to
Non-U.S. Holders" fairly summarize the matters therein described;
(v) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the knowledge of
such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and the Prospectus (other than the financial statements and
other financial information contained therein, as to which such
counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the rules
thereunder;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company"
as defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, other than as may be
required by the National Association of Securities Dealers, Inc. or as
required by state securities and blue sky laws, as to which such
counsel need express no opinion, and except such as have been obtained
under the Act and such other approvals (specified in such opinion) as
have been obtained;
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Designated Subsidiaries pursuant to, (i) the charter or by-laws of
the Company or the Designated Subsidiaries, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement,
loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or the Designated Subsidiaries is a
party or bound or to which its or their property is subject, or (iii)
any statute, law, rule, regulation, judgment, order or decree
applicable to the Company or the Designated Subsidiaries of any court,
regulatory body,
<PAGE>
21
administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or the Designated
Subsidiaries or any of its or their properties; and
(x) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement that
have not been waived.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws other than those of The Commonwealth of Massachusetts, the
Delaware General Corporation Law or the Federal laws of the United States, to
the extent they deem proper and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact, to
the extent they deem proper, on certificates or representations of responsible
officers of the Company and public officials. References to the Prospectus in
this paragraph (b) include any supplements thereto at the Closing Date.
In addition, such counsel shall deliver a statement to the effect
that, subject to customary exceptions, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof, and nothing has come to such
counsel's attention that has caused it to believe that (i) the Registration
Statement at the time the Registration Statement became effective under the
Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and the date of such opinion contained
or contains any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Prospectus, as of its date
and the date of such opinion, contained or contains any untrue statement of
a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; it being understood that such counsel express no
comment with respect to the financial statements and the notes thereto and
the schedules and other financial and statistical data (including, without
limitation, summary or selected financial information) included in the
Registration Statement or the Prospectus.
<PAGE>
22
(c) The Company shall have requested and caused McConnell Valdes,
special Puerto Rico counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) each of TeleCorp Puerto Rico, Inc. and TeleCorp Puerto Rico
Reality, Inc. (the "Puerto Rico Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of Puerto Rico, with full corporate power and authority
to own or lease, as the case may be, and to operate its properties and
conduct its business as presently conducted[, and is duly qualified to
do business as a foreign corporation and is in good standing under the
laws of [list any]];
(ii) all the outstanding shares of capital stock of each of the
Puerto Rico Subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable;
(iii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or
encumbrance upon any property or assets of the Puerto Rico
Subsidiaries pursuant to (i) the charter or by-laws of the Puerto Rico
Subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which
either of the Puerto Rico Subsidiaries is a party or bound or to which
their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Puerto Rico
Subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction
over the Puerto Rico subsidiaries or any of its or their properties.
(d) The Company shall have requested and caused Wiley, Rein &
Fielding, special telecommunications counsel to the Company, to have
furnished to the Representatives their written opinion, dated the Closing
Date and addressed to the Representatives, in form and substance reasonably
satisfactory to the Representatives.
(e) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the
issuance and sale of the Securities, the Registration Statement, the
Prospectus (together with any supplement thereto) and other related matters
as the Representatives may
<PAGE>
23
reasonably require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.
(f) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chief Executive Officer and the
Executive Vice President and Chief Financial Officer of the Company, dated
the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any
supplements to the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) [to the Company's knowledge], no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or[, to the
Company's knowledge,] threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no material adverse effect on the condition (financial
or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
<PAGE>
24
(g) The Company shall have requested and caused
PricewaterhouseCoopers LLP to have furnished to the Representatives, at the
Execution Time and at the Closing Date, letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Act and the applicable rules and
regulations adopted by the Commission thereunder, and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included in the Registration Statement and the Prospectus and reported
on by them comply as to form in all material respects with the
applicable accounting requirements of the Act and the related rules
and regulations adopted by the Commission;
(ii) on the basis of carrying out certain specified procedures
(but not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of
the minutes of the meetings of the stockholders, directors and
executive, audit and compensation committees of the Company and the
Subsidiaries; and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters of the
Company and its subsidiaries as to transactions and events subsequent
to September 30, 1999, nothing came to their attention which caused
them to believe that:
(1) with respect to the period subsequent to September 30,
1999, there were any changes, at a specified date not more than
five days prior to the date of the letter, in the long-term debt
of the Company and its subsidiaries or capital stock of the
Company or decreases in the stockholders' equity of the Company
as compared with the amounts shown on the September 30, 1999
consolidated balance sheet included in the Registration Statement
and the Prospectus, or for the period from October 1, 1999 to
such specified date there were, as compared with the
corresponding period in the preceding quarter, any decrease in
total revenues or any increase in the total or per share amount
of net loss of the Company, except in all instances for changes
or decreases set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed
necessary by the Representatives; or
<PAGE>
25
(2) the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301 (Selected
Financial Data), and Item 402 (Executive Compensation) is not in
conformity with the applicable disclosure requirements of
Regulation S-K; and
(iii) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus, including the
information set forth under the captions in the Prospectus, agrees
with the accounting records of the Company and its subsidiaries,
excluding any questions of legal interpretation.
References to the Prospectus in this paragraph (f) include any supplement
thereto at the date of the letter.
(h) The Company shall have received from PricewaterhouseCoopers LLP
(and furnished to the Representatives) a report with respect to a review of
unaudited interim financial information of the Company for the nine-month
period ended September 30, 1998, in accordance with Statement on Auditing
Standards No. 71.
(i) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), earnings, business or
properties of the Company and its subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any supplement
thereto) the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the sole judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectus
(exclusive of any supplement thereto).
(j) Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as
the Representatives may reasonably request.
<PAGE>
26
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancelation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, counsel for the
Underwriters, at Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019, on the
Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
----------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
[because of any termination pursuant to Section 10 hereof or ]because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company agrees to
---------------------------------
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the
<PAGE>
27
Representatives specifically for inclusion therein; and provided further,
-------- -------
however, that the Company shall not be liable to any Underwriter under this
- -------
paragraph of Section 7 to the extent that any such loss, claim, damage or
liability results solely from an untrue statement of a material fact contained
in, or the omission of a material fact from, a Preliminary Prospectus if (i)
such untrue statement or omission was completely corrected in the Prospectus
prior to the written confirmation of the sale of the Securities giving rise to
such liability, (ii) such Underwriter sold Securities to the person alleging
such loss, claim, damage or liability without (to the extent required by
applicable law) sending or giving the Prospectus at or prior to the written
confirmation of the sale of the Securities giving rise to such liability, (iii)
the Company had furnished copies of the Prospectus to such Underwriter prior to
the written confirmation of the sale of the Securities giving rise to such
liability and (iv) such Underwriter would not have been subject to such
liability if it had delivered the Prospectus to such person at or prior to the
written confirmation of such sale. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the
statements set forth (i) in the last paragraph of the cover page regarding
delivery of the Securities and (i) under the heading "Underwriting" (A) the list
of Underwriters and their respective participation in the sale of the
Securities, (B) the sentences related to concessions and reallowances and (C)
the paragraph related to stabilization, syndicate covering transactions and
penalty bids in any Preliminary Prospectus and the Prospectus constitute the
only information furnished in writing by or on behalf of the several
Underwriters for inclusion in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at
<PAGE>
28
the indemnifying party's expense to represent the indemnified party in any
action for which indemnification is sought (in which case the indemnifying party
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
- -------- -------
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters severally
agree to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Underwriters may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and by the Underwriters on the other from the offering of the Securities;
provided, however, that in no case shall any Underwriter (except as may be
- -------- -------
provided in any agreement among underwriters relating to the offering of the
Securities) be responsible for any amount in excess of the underwriting discount
or commission applicable to the Securities purchased by such Underwriter
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Underwriters severally shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
of the Underwriters on the other in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal
<PAGE>
29
to the total net proceeds from the offering (before deducting expenses) received
by it, and benefits received by the Underwriters shall be deemed to be equal to
the total underwriting discounts and commissions, in each case as set forth on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether any untrue or any alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information provided by the Company on the one hand or
the Underwriters on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls an Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of an Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the meaning of
either the Act or the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall
--------------------------
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
-------- -------
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall
<PAGE>
30
relieve any defaulting Underwriter of its liability, if any, to the Company and
any nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if at any time prior to
such time (i) trading in the Company's Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities generally
on the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or the Nasdaq National Market, (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities or (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war, or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Prospectus
(exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancelation of this Agreement.
12. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed to the Salomon Smith Barney Inc. General Counsel (fax
no.: (212) 816-7912) and confirmed to the General Counsel, Salomon Smith Barney
Inc., at 388 Greenwich Street, New York, New York, 10013, Attention: General
Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to
Thomas H. Sullivan, Executive Vice President and Chief Financial Officer, (fax
number: (703) 236-1376) and confirmed to the Company at 1010 N. Glebe Road,
Suite 800, Arlington, VA 22201, attention of the Legal Department.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and construed
---------------
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
<PAGE>
31
15. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience
---------
only and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this
------------
Agreement, shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus included
in the Registration Statement at the Effective Date that omits Rule 430A
Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no
filing pursuant to Rule 424(b) is required, shall mean the form of final
prospectus relating to the Securities included in the Registration
Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at the
Execution Time, in the form in which it shall become effective) and, in the
event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the
<PAGE>
32
Closing Date, shall also mean such registration statement as so amended or
such Rule 462(b) Registration Statement, as the case may be. Such term
shall include any Rule 430A Information deemed to be included therein at
the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b) relating
to the offering covered by the registration statement referred to in
Section 1(a) hereof.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
TeleCorp PCS, Inc.
By:
--------------------------------------
Name:
Title:
<PAGE>
33
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
Salomon Smith Barney Inc.
Lehman Brothers Inc.
Deutsche Bank Securities Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: Salomon Smith Barney Inc.,
By:
------------------------------------------------------------
Name:
Title:
For themselves and the other several
Underwriters named in Schedule I to the
foregoing Agreement.
<PAGE>
SCHEDULE I
----------
Number of Underwritten
Securities to be
Underwriters Purchased
- ------------ -------------------------------
Salomon Smith Barney Inc.
Lehman Brothers Inc.
Deutsche Bank Securities Inc.
Merrill Lynch & Co.
[ ]
[ ] ------------------
Total............. ==================
<PAGE>
EXHIBIT A
TeleCorp PCS, Inc. Subsidiaries
-------------------------------
<TABLE>
<CAPTION>
State or
Subsidiary Name Territory of Qualified in:
Incorporation
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1. TeleCorp Communications, Inc. DE AR, DC, IL, IN, LA, MA, MS, NH,
TN, TX, VA
- -----------------------------------------------------------------------------------------
2. TeleCorp Holding Corp., Inc. DE None
- -----------------------------------------------------------------------------------------
3. TeleCorp Limited Holdings, DE AR, DC, IL, MA, MS
Inc.
- -----------------------------------------------------------------------------------------
4. TeleCorp Realty Holdings, Inc. DE None
- -----------------------------------------------------------------------------------------
5. TeleCorp PCS, L.L.C. (Sole DE None
Member is: TeleCorp PCS, Inc.)
- -----------------------------------------------------------------------------------------
6. TeleCorp Realty, L.L.C. DE AR, DC, IL, LA, MA, MO, MS, NH,
(Managing Member is: TeleCorp TN, TX
Communications, Inc.)
- -----------------------------------------------------------------------------------------
7. TeleCorp Equipment Leasing, DE AR, DC, IL, IN, LA, MA, MO, MS,
L.P. (General partner is: NH, TN, TX
TeleCorp Limited Holdings, Inc.)
- -----------------------------------------------------------------------------------------
8. Viper Wireless, Inc./1/ DE
- -----------------------------------------------------------------------------------------
9. Affiliate License Co., DE None
L.L.C./2/
- -----------------------------------------------------------------------------------------
10. TeleCorp of Puerto Rico, Inc. PR [ ? ]
- -----------------------------------------------------------------------------------------
11. TeleCorp of Puerto Rico PR [ ? ]
Realty, Inc.
=========================================================================================
</TABLE>
- ------------------------
/1/ TeleCorp Holding Corp. owns 85% of Viper Wireless, and Mr. Vento and Mr.
-
Sullivan together own the remaining 15% and have voting control. Mr. Vento and
Mr. Sullivan have agreed to sell their minority interest to TeleCorp Holding
Corp.
/2/ The Company owns one-third of the outstanding stock of this entity.
-
<PAGE>
EXHIBIT B
Network Area/Licenses
Part A:
Licenses contributed by AT&T Wireless PCS Inc.
pursuant to the Securities Purchase Agreement
Market Number Frequency Block License Description
- -------------------------------------------------------------------------------
M008 A Boston-Providence/b/c/
- -------------------------------------------------------------------------------
M019 A St. Louis/1/,/2/
- -------------------------------------------------------------------------------
M026 A Louisville-Lexington-
Evansville/1/,/2/
- -------------------------------------------------------------------------------
M040 A Little Rock/2/
- -------------------------------------------------------------------------------
M028 B Memphis-Jackson/1/,/2/
- -------------------------------------------------------------------------------
Part B:
Licenses held by TeleCorp Holding
Market Number Frequency Block License Description
- -------------------------------------------------------------------------------
B034 F Beaumont-Port Arthur, TX
- -------------------------------------------------------------------------------
B257 F Little Rock, AR
- -------------------------------------------------------------------------------
B290 F Memphis, TN
- -------------------------------------------------------------------------------
- ---------------------------------------
/b/ Contribution includes only a portion of the geographic area in the
-
referenced market as detailed in Schedule 2.1 to the Securities Purchase
Agreement.
/c/ Contribution includes only a portion of the spectrum in the referenced
-
frequency block.
<PAGE>
- -------------------------------------------------------------------------------
B320 F New Orleans, LA
- -------------------------------------------------------------------------------
<PAGE>
3
Part C:
Licenses purchased from AT&T Wireless PCS Inc.
pursuant to the License Purchase Agreement dated as of January 23, 1998,
between the Company and AT&T Wireless PCS Inc.
Market Number Frequency Block License Description
- -------------------------------------------------------------------------------
B032 D Baton Rouge, LA
- -------------------------------------------------------------------------------
B236 D Lafayette-New Iberia
- -------------------------------------------------------------------------------
B320 D New Orleans, LA
- -------------------------------------------------------------------------------
Part D:
Licenses acquired from Digital PCS, L.L.C.
Market Number Frequency Block License Description
- -------------------------------------------------------------------------------
B032 F Baton Rouge, LA
- -------------------------------------------------------------------------------
B180 F Hammond, LA
- -------------------------------------------------------------------------------
B195 F Houma-Thibodeaux, LA
- -------------------------------------------------------------------------------
B236 F Lafayette-New Iberia, LA
- -------------------------------------------------------------------------------
Part E:
License acquired from AT&T Corporation
Market Number Frequency Block License Description
- -------------------------------------------------------------------------------
M025 A Puerto Rico - U.S. Virgin
Islands/2/
- -------------------------------------------------------------------------------
<PAGE>
Part F: [TO BE UPDATED]
<PAGE>
Exhibit 3.1.2
FORM OF
FIFTH 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 27, 1999 (the "Third Amended and
Restated Certificate"), a Fourth Amended and Restated Certificate of
Incorporation filed with the Secretary of State on August 27, 1999, and amended
by Amendment No. 1 to the Fourth Amended and Restated Certificate filed with the
Secretary of State on November 8, 1999 (the "Fourth Amended and Restated
Certificate").
SECOND: This Fifth 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 Fourth Amended and
Restated Certificate as amended by amending Articles IV and VI and by adding
Article IX, all as set forth in this Restated Certificate of Incorporation.
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.
<PAGE>
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").
---
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 935,384,090, consisting
of (a) 17,045,000 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"), 15,450,000 shares designated "Series F Preferred Stock" (the
- ---------------
"Series F Preferred Stock"), and 1,000,000 undesignated shares available for
------------------------
designation and issuance pursuant to Section 4.2, and (b) 918,339,090 shares of
common stock, par value $0.01 per share (the "Common Stock"), consisting of
------------
608,550,000 shares designated "Class A Voting Common Stock" (the "Class A Common
--------------
Stock"), 308,550,000 shares designated "Class B Non-Voting Common Stock" (the
- ------
"Class B Common Stock"), 309,000 shares designated "Class C Common Stock" (the
--------------------
"Class C Common Stock"), 927,000 shares designated "Class D Common Stock" (the
--------------------
"Class D Common Stock") and 3,090 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 4.13.)
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, and the Series F
Preferred 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
-2-
<PAGE>
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
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.
-3-
<PAGE>
(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 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.
-4-
<PAGE>
(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.
(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).
-5-
<PAGE>
(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 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 them on July
17, 1998, holders of shares of Series A Preferred Stock shall have the exclusive
right, voting separately as a single class, to nominate one director of the
Corporation. The foregoing right to nominate 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 one director of the Corporation. 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 them on July 17, 1998, in the event any director so
nominated by the Initial Holders ceases to be a director of the Corporation
during such director's term (whether or not such director resigns, is removed
from the Board of Directors with or without cause or ceases to be a director by
reason of death, disability or for any other reason), the Initial Holders shall
have the right to designate a replacement for such director, and the Corporation
shall cause to be elected or appointed for the remainder of the term of any
director so replaced any person designated by the Initial Holders, upon written
notice to the Corporation and the other members of the Board of Directors which
notice shall set forth the name of the member being replaced and the name of the
new member.
(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
-6-
<PAGE>
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 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
-7-
<PAGE>
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 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
-8-
<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 4.3(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 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
-9-
<PAGE>
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.
(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,
-10-
<PAGE>
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 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 Holder 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,
-11-
<PAGE>
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.
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 4.11, (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
-12-
<PAGE>
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
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
-13-
<PAGE>
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 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) 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(g)(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
-14-
<PAGE>
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 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.
(f) 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(g)(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(f), 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
-15-
<PAGE>
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.
(g) Certain Restrictions.
--------------------
(i) Notwithstanding the provisions of Sections 4.5(b) 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 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
-16-
<PAGE>
respect to the other series and classes of capital stock of the Corporation as
provided in paragraph (b) below, (ii) 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(e), and (iii) 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 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.
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 and 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 or Series D Preferred Stock), (b) the
provisos to Section 4.5(e)(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 Common Stock with respect
to the distribution of assets on liquidation, dissolution or winding up (other
than on a Statutory Liquidation), (iii) senior to the Common Stock with respect
to the distribution of assets on a Statutory Liquidation (iv on a parity with
the Common Stock with respect to the payment of dividends, and (v) senior to any
series or class of the Corporation's common or preferred stock hereafter
-17-
<PAGE>
authorized (other than Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred 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 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
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<PAGE>
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 as follows:
(i) Optional Conversion. Each share of Series F Preferred 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 in accordance with Section 4.9(e)(i), each of the
first 63,127 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) 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
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<PAGE>
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.
(iii) 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 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 upon the conversion of Series F 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, as the case may be,
to the holders of Series F Preferred Stock.
(iv) 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 delivered upon conversion.
(v) Termination of Rights. All shares of Series F 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 Optional 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 Optional 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, to receive notices and to vote. Shares of Series F Preferred
Stock converted into 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.
(vi) No Conversion Charge or Tax. The issuance and delivery of certificates
---------------------------
for shares of 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 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
-20-
<PAGE>
(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.
----------
(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 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
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<PAGE>
rights, powers and privileges of stockholders under Delaware law. For purposes
of this Section 4.9 (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 4.10(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 terms, and subject to the limitations, provided in this
Section 4.9(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 4.9(b)(i) and (ii) and Section 4.10, 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 Bylaws 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
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<PAGE>
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 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 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
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<PAGE>
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 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 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.
4.10 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
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<PAGE>
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 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.
4.11 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, LLC 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 4.11 Transfers within 60 days after the Exchange
Event, to:
(i) require the Initial Holders and each Section 4.11 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 4.11 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 4.11 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 July 17, 1998 (or shares of Common Stock into which such shares of
Series D Preferred Stock, and Series F Preferred Stock shall have been
converted) and that the Initial Holders or a Section 4.11 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,
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<PAGE>
Series F Preferred 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; 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 4.11(a) shall not apply to any Section 4.11 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 into
which such shares shall have been converted) and shares of Common Stock subject
to exchange pursuant to this Section 4.11 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 4.11. Such notice
will be sent by first class or registered mail, postage prepaid, to the Initial
Holders and each Section 4.11 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 4.11 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 4.11 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
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<PAGE>
terminate, except only the rights of the Initial Holders and Section 4.11
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 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 4.11 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 4.11.
(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.
4.12 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:
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<PAGE>
(i) the redemption price of the shares to be redeemed pursuant to this
Section 4.12 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
4.12 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 4.12 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 4.12
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 4.12 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 4.12 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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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).
4.13 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 Series A
Preferred Stock.
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(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.
"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
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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, LLC, a Delaware limited
--------------
liability company, 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.
"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;
(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; and
(v) with respect to each share of Series F Preferred Stock, $.00003
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plus accrued and unpaid dividends thereon.
"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.
"Non-Tracked Common Stock" has the meaning specified in Section
------------------------
4.9(a).
"Non-Tracked Business Available Dividend Amount" has the meaning
----------------------------------------------
specified in Section 4.9(b)(i).
"Optional Conversion Date" has the meaning specified in 4.8(e)(ii).
------------------------
"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 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,
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<PAGE>
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 4.12, 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 4.12(d) at least equal to the price
required to be paid pursuant to Section 4.12(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).
"Section 4.11 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 July 17, 1998 (or any shares of Common Stock
into which any such shares are converted) that are acquired in a private
transaction.
"Section 4.12 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 4.12.
"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).
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"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.
"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 4.9(a).
--------------------
"Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc.
------------------
ARTICLE V
Election of Directors need not be by written ballot.
ARTICLE VI
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<PAGE>
6.1 Amendment of Restated Certificate of Incorporation. Subject to the
--------------------------------------------------
separate class vote requirements relating to any class or series of Preferred
Stock, the holders of shares of capital 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.
6.2 Amendment of the Bylaws. Except as otherwise provided by law or by this
-----------------------
Certificate of Incorporation, the Bylaws of the Corporation, as from time to
time altered or amended, may be made, altered or amended by the holders of
shares of capital 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 any annual or special
meeting of the stockholders called for such purpose, of which the notice shall
specify the subject matter of the proposed alteration or amendment or new bylaw
or the article or articles to be affected thereby, or by written consent of such
holders of such number of shares. If this Certificate of Incorporation so
provides, these Bylaws may also be made, altered or amended by a majority of the
whole number of directors. Notwithstanding anything to the contrary contained in
this Section 6.2, the rights of any Stockholder (as such term is defined in the
Stockholders Agreement) or group of Stockholders under Section 2.11(b) of the
Bylaws shall not be amended, altered or repealed without the prior written
approval of any such Stockholder or group of Stockholders at any annual or
special meeting of the stockholders called for such purpose, of which the notice
shall specify the subject matter of the proposed alteration or amendment or new
bylaw or the article or articles to be affected thereby, as the case may be.
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, 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
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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 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
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<PAGE>
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
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<PAGE>
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 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.
ARTICLE IX
9.1 Number, Terms and Election of Directors.
---------------------------------------
(a) Subject to the rights, if any, of the holders of any class or series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed and may be increased or
decreased from time to time by the Board of Directors, but in no case shall the
number be less than one nor more than fifteen.
(b) Upon the closing of an offer and sale of the Class A Common Stock of
the Corporation to the public (a "Public Offering") pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the "1933
Act"), in which (i) the aggregate gross proceeds received by the Corporation in
connection with such Registration Statement(s) equals or exceeds $20 million,
and (ii) the Class A Common Stock shall have been 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, the then
current directors and any new directors taking office upon such closing shall be
divided into three classes, as nearly equal in number as possible, by the
affirmative vote (which vote may be taken prior to such closing) of a majority
of the directors then holding office. One class of directors shall be appointed
to the Board of Directors for a term expiring at the first annual meeting of
stockholders to be held after the closing date of the Public Offering, another
class of directors shall be appointed to the Board of Directors for a term
expiring at the second annual meeting of stockholders to be held after the
closing date of the Public Offering, and another class of
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directors shall be appointed to the Board of Directors for a term expiring the
third annual meeting of stockholders to be held after the closing date of the
Public Offering, with members of each class to hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected by plurality vote of all votes
cast at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following their year of election.
9.2 Newly Created Directorships and Vacancies. Subject to the rights, if
-----------------------------------------
any, of the holders of any and all series of Preferred Stock to elect additional
directors pursuant to the terms and conditions of such Preferred Stock, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors, or by a sole remaining
director. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of an incumbent director.
9.3 Removal. Subject to the rights, if any, of the holders of any and all
-------
series of Preferred Stock to elect additional directors pursuant to the terms
and conditions of such Preferred Stock, any director may be removed from office
by the stockholders only for cause and only in the following manner. At any
annual meeting or special meeting of the stockholders of the Corporation, the
notice of which shall state that the removal of a director or directors is among
the purposes of the meeting, the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of the directors, voting together as a single
class, may remove such director or directors for cause.
9.4 Additional Rights of Certain Stockholders Regarding Directors.
-------------------------------------------------------------
Notwithstanding anything to the contrary contained in this Article IX, so long
as a Stockholder (as such term is defined in the Stockholders' Agreement) or
group of Stockholders has the right to nominate one or more of the directors of
the Corporation pursuant to the terms of the Stockholders' Agreement or this
Fifth Amended and Restated Certificate of Incorporation (including, without
limitation, the right of the Initial Holders to nominate a director pursuant to
Section 4.3(d)(iii) hereof), then, with respect to any directors so nominated by
such Stockholder or group of Stockholders, such Stockholder or group of
Stockholders, as the case may be, shall have the right to cause the Corporation
to remove any director so nominated by such Stockholder or group of
stockholders, as the case may be, with or without cause, and any vacancy caused
by the removal of such director or otherwise during the term of such director
(whether or not such director resigns, is removed from the Board of Directors
with or without cause or ceases to be a director by reason of death, disability
or for any other reason) shall be filled in accordance with the terms of the
-39-
<PAGE>
Stockholders' Agreement or this Fifth Amended and Restated Certificate of
Incorporation, as the case may be.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed this Fifth Amended and Restated Certificate of Incorporation this ___
day of ___________, 1999.
_________________________________
Name: Thomas H. Sullivan
Title: Executive Vice President
-40-
<PAGE>
Exhibit 3.2.2
FORM OF
TELECORP PCS, INC.
SECOND AMENDED AND RESTATED
BYLAWS
ADOPTED AS OF NOVEMBER ____, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. STOCKHOLDERS.................................. 1
1.1 Annual Meeting................................ 1
1.2 Special Meetings.............................. 2
1.3 Notice of Meetings; Waiver.................... 2
1.4 Quorum; Voting................................ 3
1.5 Voting by Ballot.............................. 3
1.6 Adjournment................................... 3
1.7 Proxies....................................... 4
1.8 Organization; Procedure....................... 4
1.9 Consent of Stockholders in Lieu of Meeting.... 4
ARTICLE 2. BOARD OF DIRECTORS............................ 4
2.1 General Powers................................ 4
2.2 Number; Election; Term of Office; Removal..... 4
2.3 Annual and Regular Meetings................... 5
2.4 Special Meetings; Notice...................... 5
2.5 Quorum; Voting................................ 5
2.6 Adjournment................................... 5
2.7 Action Without a Meeting...................... 5
2.8 Regulations; Manner of Acting................. 6
2.9 Action by Telephonic Communications........... 6
2.10 Resignation................................... 6
2.12 Compensation.................................. 7
2.13 Reliance on Accounts and Reports, etc......... 7
ARTICLE 3. EXECUTIVE COMMITTEE AND OTHER COMMITTEES...... 7
3.1 How Constituted............................... 7
3.2 Powers........................................ 7
3.3 Quorum; Voting................................ 8
3.4 Action without a Meeting...................... 8
3.5 Regulations; Manner of Acting................. 8
3.6 Action by Telephonic Communications........... 8
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
3.7 Resignation................................... 8
3.8 Removal....................................... 8
3.9 Vacancies..................................... 8
ARTICLE 4. OFFICERS...................................... 8
4.1 Titles........................................ 8
4.2 Election...................................... 9
4.3 Salaries...................................... 9
4.4 Removal and Resignation; Vacancies............ 9
4.5 Authority and Duties.......................... 9
4.6 The Chairman of the Board..................... 9
4.7 The President................................. 9
4.8 Vice President/Chief Operating Officer........ 9
4.9 Executive Vice President/General Counsel...... 10
4.10 The Vice Presidents........................... 10
4.11 The Secretary................................. 10
4.12 The Treasurer................................. 10
4.13 Additional Officers........................... 10
4.14 Security...................................... 10
ARTICLE 5. CAPITAL STOCK................................. 10
5.1 Certificates of Stock, Uncertificated Shares.. 10
5.2 Signatures; Facsimile......................... 11
5.3 Lost, Stolen or Destroyed Certificates........ 11
5.4 Transfer of Stock............................. 11
5.5 Record Date................................... 11
5.6 Registered Stockholders....................... 12
5.7 Transfer Agent and Registrar.................. 12
ARTICLE 6. INDEMNIFICATION............................... 12
6.1 Indemnification............................... 12
6.2 Definition.................................... 12
ARTICLE 7. OFFICES....................................... 12
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
7.1 Registered Office............................. 13
7.2 Other Offices................................. 13
ARTICLE 8. GENERAL PROVISIONS............................ 13
8.1 Dividends..................................... 13
8.2 Reserves...................................... 13
8.3 Execution of Instruments...................... 13
8.4 Corporate Indebtedness........................ 13
8.5 Deposits...................................... 14
8.6 Checks........................................ 14
8.7 Sale, Transfer, etc. of Securities............ 14
8.8 Voting as Stockholder......................... 14
8.9 Fiscal Year................................... 14
8.10 Seal.......................................... 14
8.11 Books and Records............................. 14
ARTICLE 9. AMENDMENT OF BYLAWS........................... 15
9.1 Amendment..................................... 15
ARTICLE 10. CONSTRUCTION................................. 15
10.1 Construction.................................. 15
-iii-
<PAGE>
SECOND AMENDED AND RESTATED BYLAWS
TeleCorp PCS, Inc.
ARTICLE 1.
STOCKHOLDERS
1.1 Annual Meeting. The annual meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of such other
business as may properly come before such meeting shall be held at such place,
either within or without the State of Delaware, at 9:00 A.M. on the second
Wednesday of each April of each year (or, if such day is a legal holiday, then
on the next succeeding business day), or at such other date and hour, as may be
fixed from time to time by resolution of the Board of Directors and set forth in
the notice or waiver of notice of the meeting.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before an annual meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (iii) otherwise properly
brought before the meeting by a stockholder of the Corporation who was
stockholder of record at the time of giving of notice provided for in this
Section, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation at the
principal executive office of the corporation. To be timely, a stockholder's
notice shall be delivered not less than 90 days prior to the first anniversary
of the preceding year's meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than 30 days or delayed by more
than 60 days from such anniversary date, notice by the stockholder, to be
timely, must be so delivered not later than the 10th day following the day on
which public announcement (as defined herein) of the date of such meeting is
first made.
Such stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (ii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the proposal is made (A) the name and
address of such stockholder, as they appear on the Corporation's books, and the
name and address of such beneficial owner and (B) the class and number of shares
of the
<PAGE>
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner; and (iii) in the event that such business includes a
proposal to amend either the Certificate of Incorporation or the Bylaws of the
Corporation, the language of the proposed amendment. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the preceding paragraph, and the Chairman of
the Board or other person presiding at an annual meeting of stockholders, may
refuse to permit any business to be brought before an annual meeting without
compliance with the foregoing procedures. "Public Announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In addition to the provisions of this paragraph, a stockholder shall also
comply with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth herein. Nothing in
these Bylaws shall be deemed to affect any rights of the Stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
1.2 Special Meetings. Special meetings of the stockholders may be called at
----------------
any time by the Chairman of the Board (or, in the event of his absence or
disability, by the President). A special meeting shall be called by the Chairman
of the Board (or, in the event of his absence or disability, by the President),
or by the Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than 35% of the outstanding
shares of the Corporation at the time entitled to vote at any meeting of the
stockholders or by a request of a majority of the Board of Directors. If such
officers shall fail to call such meeting within 20 days after receipt of such
request, any stockholder or member of the Board of Directors executing such
request may call such meeting.
Any such special meeting of the stockholders shall be held at such place,
within or without the State of Delaware, as shall be specified in the notice or
waiver of notice thereof.
1.3 Notice of Meetings; Waiver. The Secretary or any Assistant Secretary
--------------------------
shall cause written notice of the place, date and hour of each meeting of the
stockholders, and, in the case of a special meeting, the purpose or purposes for
which such meeting is called, to be given personally or by mail, not less than
ten nor more than 60 days before the date of the meeting, to each stockholder of
record entitled to vote at such meeting. If such notice is mailed, it shall be
deemed to have been given to a stockholder when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the record of stockholders of the Corporation, or, if he shall have filed
with the Secretary a written request that notices to him be mailed to some other
address, then directed to him at such other address. Such further notice shall
be given as may be required by law.
2
<PAGE>
Whenever notice is required to be given to stockholders hereunder, a
written waiver, signed by a stockholder, whether before or after the time stated
therein, shall be deemed equivalent to notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in a written waiver of notice. The attendance of
any stockholder at a meeting of stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
1.4 Quorum; Voting. Except as otherwise required by law or by the
--------------
Corporation's Certificate of Incorporation, as then amended and in effect (the
"Certificate of Incorporation"), at any meeting of the stockholders, a majority
of all shares issued and outstanding and entitled to vote upon a question to be
considered at the meeting shall constitute a quorum when represented at such
meeting by the holders thereof in person or by their duly constituted and
authorized attorney or attorneys, but holders of a lesser interest may adjourn
any meeting from time to time, and the meeting may be held as adjourned without
further notice. When a quorum is present at any meeting, a majority of the
stock so represented thereat and voting on any question brought before such
meeting shall be determinative, except where a larger vote is required by law,
by the Certificate of Incorporation or by these by-laws, and except that the
vote required for the election of directors shall be as set forth in the
Certificate of Incorporation.
Except as set forth in the Certificate of Incorporation, if, pursuant
to Section 5.5 of these Bylaws, a record date has been fixed, every holder of
record of shares entitled to vote at a meeting of stockholders shall be entitled
to one vote for each share outstanding in his name on the books of the
Corporation at the close of business on such record date. If no record date has
been fixed, then every holder of record of shares entitled to vote at a meeting
of stockholders shall be entitled to one vote for each share of stock standing
in his name on the books of the Corporation at the close of business on the day
next preceding the day on which notice of the meeting is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
1.5 Voting by Ballot. No vote of the stockholders need be taken by written
----------------
ballot or conducted by inspectors of election, unless otherwise required by law.
Any vote which need not be taken by ballot may be conducted in any manner
approved by the meeting.
1.6 Adjournment. If a quorum is not present at any meeting of the
-----------
stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.5 of these Bylaws, a notice of
the adjourned meeting, conforming to the requirements of Section 1.3 hereof,
shall be given to each stockholder of record entitled to vote at such
3
<PAGE>
meeting. At any adjourned meeting at which a quorum is present, any business may
be transacted that might have been transacted on the original date of the
meeting.
1.7 Proxies. Any stockholder entitled to vote at any meeting of the
-------
stockholders or to express consent to or dissent from corporate action without a
meeting may, by a written instrument signed by such stockholder or his attorney-
in-fact, authorize another person or persons to vote at any such meeting and
express such consent or dissent for him by proxy. No such proxy shall be voted
or acted upon after the expiration of three years from the date of such proxy,
unless such proxy provides for a longer period. Every proxy shall be revocable
at the pleasure of the stockholder executing it, except in those cases where
applicable law provides that a proxy shall be irrevocable. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the Secretary.
1.8 Organization; Procedure. At every meeting of stockholders the presiding
-----------------------
officer shall be the Chairman of the Board or, in the event of his absence or
disability, the President or, in the event of his absence or disability, a
presiding officer chosen by a majority of the stockholders present in person or
by proxy. The Secretary, or in the event of his absence or disability, the
Assistant Secretary, if any, or if there be no Assistant Secretary, in the
absence of the Secretary, an appointee of the presiding officer, shall act as
Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
1.9 Consent of Stockholders in Lieu of Meeting. To the fullest extent
------------------------------------------
permitted by law, whenever the vote of the stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted shall consent in writing to such corporate action being taken.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
so consented in writing.
ARTICLE 2.
BOARD OF DIRECTORS
2.1 General Powers. Except as may otherwise be provided by law, by the
--------------
Certificate of Incorporation or by these Bylaws, the property, affairs and
business of the Corporation shall be managed by or under the direction of the
Board of Directors and the Board of Directors may exercise all the powers of the
Corporation.
2.2 Number; Election; Term of Office; Removal. The classification of the
-----------------------------------------
board of directors, the term of each class of directors, the manner of election
and removal of directors and the filling of newly created directorships and
vacancies on the Board
4
<PAGE>
shall be as set forth in the Certificate of Incorporation. Each Director
(whenever elected) shall hold office until his successor has been duly elected
and qualified, or until his earlier death, resignation or removal.
2.3 Annual and Regular Meetings. The annual meeting of the Board of
---------------------------
Directors for the purpose of electing officers and for the transaction of such
other business as may come before the meeting shall be held as soon as possible
following adjournment of the annual meeting of the stockholders at the place of
such annual meeting of the stockholders. Notice of such annual meeting of the
Board of Directors need not be given. The Board of Directors from time to time
may by resolution provide for the holding of regular meetings and fix the place
(which may be within or without the State of Delaware) and the date and hour of
such meetings. Notice of regular meetings need not be given, provided, however,
that if the Board of Directors shall fix or change the time or place of any
regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, facsimile or cable, to each Director who shall not have been present
at the meeting at which such action was taken, addressed to him at his usual
place of business, or shall be delivered to him personally. Notice of such
action need not be given to any Director who attends the first regular meeting
after such action is taken without protesting the lack of notice to him, prior
to or at the commencement of such meeting, or to any Director who submits a
signed waiver of notice, whether before or after such meeting.
2.4 Special Meetings; Notice. Special meetings of the Board of Directors
------------------------
shall be held whenever called by the Chairman of the Board or, in the event of
his absence or disability, by the President, at such place (within or without
the State of Delaware), date and hour as may be specified in the respective
notices or waivers of notice of such meetings. Special meetings of the Board of
Directors may be called on 24 hours' notice, if notice is given to each Director
personally or by telephone or facsimile, or on five days' notice, if notice is
mailed to each Director, addressed to him at his usual place of business. Notice
of any special meeting need not be given to any Director who attends such
meeting without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be transacted
thereat.
2.5 Quorum; Voting. At all meetings of the Board of Directors, the presence
--------------
of a majority of the total authorized number of Directors shall constitute a
quorum for the transaction of business. Except as otherwise required by law or
the Certificate of Incorporation, the vote of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors.
2.6 Adjournment. A majority of the Directors present, whether or not a
-----------
quorum is present, may adjourn any meeting of the Board of Directors to another
time or place. No notice need be given of any adjourned meeting unless the time
and place of the adjourned meeting are not announced at the time of adjournment,
in which case notice conforming to the requirements of Section 2.5 shall be
given to each Director.
5
<PAGE>
2.7 Action Without a Meeting. Any action required or permitted to be taken
------------------------
at any meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent thereto in writing, and such writing
or writings are filed with the minutes of proceedings of the Board of Directors.
2.8 Regulations; Manner of Acting. To the extent consistent with applicable
-----------------------------
law, the Certificate of Incorporation and these Bylaws, the Board of Directors
may adopt such rules and regulations for the conduct of meetings of the Board of
Directors and for the management of the property, affairs and business of the
Corporation as the Board of Directors may deem appropriate. The Directors shall
act only as a Board, and the individual Directors shall have no power as such.
2.9 Action by Telephonic Communications. Members of the Board of Directors
-----------------------------------
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this provision shall constitute presence in person at such meeting.
2.10 Resignation. Any Director may resign at any time by delivering a
-----------
written notice of resignation, signed by such Director, to the Chairman of the
Board, the President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery. No director need be a stockholder
2.11 Nominations. Except as otherwise provided by law or by the Certificate
------------
of Incorporation, the business and affairs of the Corporation shall be managed
by the board of directors. Subject to the rights of holders of the Corporation's
preferred stock, nominations for the election of directors may be made by the
board of directors or a committee appointed by the board of directors or by any
stockholder entitled to vote in the election of directors generally. However,
any stockholder entitled to vote in the election of directors may nominate one
or more persons for election as directors at a meeting only if written notice of
such stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation not later than 90 days prior to the date of any
annual or special meeting. In the event that the date of such annual or special
meeting was not made by a Public Announcement (as defined in Section 1.1) more
than 90 days prior to the meeting, notice by the stockholder to be timely must
be delivered to the Secretary of the Corporation not later than the close of
business on the tenth day following the day on which such announcement of the
date of the meeting was communicated to the stockholders.
Each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or
6
<PAGE>
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the board of directors; and (e) the consent of each nominee
to serve as a director of the Corporation if so elected.
2.12 Compensation. The amount, if any, which each Director shall be
------------
entitled to receive as compensation for his services as such shall be fixed from
time to time by resolution of the Board of Directors.
2.13 Reliance on Accounts and Reports, etc. A member of the Board of
--------------------------------------
Directors, or a member of any Committee designated by the Board of Directors,
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, including without limitation
independent certified public accountants and appraisers.
ARTICLE 3.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
3.1 How Constituted. The Board of Directors may designate one or more
---------------
Committees, including an Executive Committee, each such Committee to consist of
such number of Directors as from time to time may be fixed by the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. In addition,
unless the Board of Directors has so designated an alternate member of such
Committee, in the absence or disqualification of a member of such Committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Thereafter, members (and alternate
members, if any) of each such Committee may be designated at the annual meeting
of the Board of Directors. Any such Committee may be abolished or redesignated
from time to time by the Board of Directors. Each member (and each alternate
member) of any such Committee (whether designated at an annual meeting of the
Board of Directors or to fill a vacancy or otherwise) shall hold office until
his successor shall have been designated or until he shall cease to be a
Director, or until his earlier death, resignation or removal.
3.2 Powers. Each Committee shall have and may exercise such powers of the
------
Board of Directors as may be provided by resolution of the Board, provided, that
neither the Executive Committee nor any such other Committee shall have the
power or authority to (i) approve or adopt, or recommend to the stockholders,
any action or matter expressly
7
<PAGE>
required by the General Corporation Law to be submitted to stockholders for
approval or (ii) adopt, amend or repeal any of these Bylaws. Each Committee may
be granted by the Board of Directors power to authorize the seal of the
Corporation to be affixed to any or all papers which may require it.
3.3 Quorum; Voting. Except as may be otherwise provided in the resolution
--------------
creating such Committee, at all meetings of any Committee the presence of
members (or alternate members) constituting a majority of the total authorized
membership of such Committee shall constitute a quorum for the transaction of
business. The act of a majority of the members present at any meeting at which
a quorum is present shall be the act of such Committee.
3.4 Action without a Meeting. Any action required or permitted to be taken
------------------------
at any meeting of any such Committee may be taken without a meeting, if all
members of such Committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings of the
Committee.
3.5 Regulations; Manner of Acting. Each such Committee may fix its own
-----------------------------
rules of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceeding. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
3.6 Action by Telephonic Communications. Members of any Committee
-----------------------------------
designated by the Board of Directors may participate in a meeting of such
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
3.7 Resignation. Any member (and any alternate member) of any Committee may
-----------
resign at any time by delivering a written notice of resignation, signed by such
member, to the Chairman of the Board or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
3.8 Removal. Any member (any alternate member) of any Committee may be
-------
removed at any time, with or without cause, by resolution adopted by a majority
of the whole Board of Directors.
3.9 Vacancies. If any vacancy shall occur in any Committee, by reason of
---------
death, resignation, removal or otherwise, the remaining members (and any
alternate members) shall continue to act, and any such vacancy may be filled by
the Board of Directors or the remaining members of the Committee as provided in
Section 3.1 hereof.
8
<PAGE>
ARTICLE 4.
OFFICERS
4.1 Titles. The officers of the Corporation shall be chosen by the Board of
------
Directors and shall be a Chairman of the Board, the President, an Vice
President/Chief Operating Officer, an Executive Vice President/General Counsel,
one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors
also may elect one or more Assistant Secretaries and Assistant Treasurers in
such numbers as the Board of Directors may determine, and shall also elect a
Chairman of the Board. Any number of offices may be held by the same person. No
officer need be a Director of the Corporation.
4.2 Election. Unless otherwise determined by the Board of Directors, the
--------
officers of the Corporation shall be elected by the Board of Directors at the
annual meeting of the Board of Directors, and shall be elected to hold office
until the next succeeding annual meeting of the Board of Directors. In the
event of the failure to elect officers at such annual meeting, officers may be
elected at any regular or special meeting of the Board of Directors. Each
officer shall hold office until his successor has been elected and qualified, or
until his earlier death, resignation or removal.
4.3 Salaries. The salaries of all officers of the Corporation shall be
--------
fixed by the Board of Directors.
4.4 Removal and Resignation; Vacancies. Any officer may be removed with or
----------------------------------
without cause at any time by the Board of Directors. Any officer may resign at
any time by delivering a written notice of resignation, signed by such officer,
to the Board of Directors or the Chairman of the Board. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
4.5 Authority and Duties. The officers of the Corporation shall have such
--------------------
authority and shall exercise such powers and perform such duties as may be
specified in these Bylaws, except that in any event each officer shall exercise
such powers and perform such duties as may be required by law.
4.6 The Chairman of the Board. The Chairman of the Board shall preside at
-------------------------
all meetings of the stockholders and directors. He shall also perform all duties
and exercise all powers usually pertaining to the office of a Chairman of the
Board of a corporation. He shall see that all orders and resolutions of the
Board of Directors are carried into effect. The Chairman of the Board shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
4.7 The President. The President shall be the chief executive officer of
-------------
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board,
the President shall
9
<PAGE>
preside at all meetings of the stockholders and directors. He shall manage and
administer the Corporation's business and affairs and shall also perform all
duties and exercise all powers usually pertaining to the office of a chief
executive officer of a corporation.
4.8 Vice President/Chief Operating Officer. The Vice President/Chief
--------------------------------------
Operating Officer shall, subject to the direction of the Board of Directors and
the President, perform all duties and exercise all powers usually pertaining to
the office of a chief operating officer of a corporation.
4.9 Executive Vice President/General Counsel. The Executive Vice
----------------------------------------
President/General Counsel shall, subject to the directions of the Board of
Directors, have general control and supervision of legal and regulatory policies
and operations of the Corporation. He shall also be the chief business
development officer of the Corporation and in connection therewith shall perform
all duties and exercise all powers usually pertaining to the office of a chief
business development officer.
4.10 The Vice Presidents. Each Vice President shall perform such duties
-------------------
and exercise such powers as may be assigned to him from time to time by the
President. In the absence of the President, the duties of the President shall be
performed and his powers may be exercised by such Vice President as shall be
designated by the President, or failing such designation, such duties shall be
performed and such powers may be exercised by each Vice President in the order
of their election to that office; subject in any case to review and superseding
action by the President.
4.11 The Secretary. The Secretary shall perform, in general, all duties
-------------
incident to the office of secretary and such other duties as may be specified in
these Bylaws or as may be assigned to him from time to time by the Board of
Directors or the President.
4.12 The Treasurer. The Treasurer shall be the chief financial officer of
-------------
the corporation and shall perform, in general, all duties incident to the office
of treasurer and such other duties as may be specified in these Bylaws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
4.13 Additional Officers. The Board of Directors may appoint such other
-------------------
officers and agents as it my deem appropriate, and such other officers and
agents shall hold their offices for such terms and shall exercise such powers
and perform such duties as may be determined from time to time by the Board of
Directors. The Board of Directors from time to time may delegate to any officer
or agent the power to appoint subordinate officers or agents and to prescribe
their respective rights, terms of office, authorities and duties. Any such
officer or agent may remove any such subordinate officer or agent appointed by
him, with or without cause.
4.14 Security. The Board of Directors may direct that the Corporation
--------
secure the fidelity of any or all of its officers or agents by bond or
otherwise.
10
<PAGE>
ARTICLE 5.
CAPITAL STOCK
5.1 Certificates of Stock, Uncertificated Shares. The shares of the
--------------------------------------------
Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the Chairman of the Board, President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these Bylaws.
5.2 Signatures; Facsimile. All of such signatures on the certificate may
---------------------
be a facsimile, engraved or printed, to the extent permitted by law. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
5.3 Lost, Stolen or Destroyed Certificates. The Secretary of the
--------------------------------------
Corporation may cause a new certificate of stock or uncertificated shares in
place of any certificate therefor issued by the Corporation, alleged to have
been lost, stolen or destroyed, upon delivery to the Secretary of an affidavit
of the owner or owners of such certificate, or his or their legal representative
setting forth such allegation. The Secretary may require the owner or owners of
such lost, stolen or destroyed certificate, or his or their legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate or uncertificated shares.
5.4 Transfer of Stock. Upon surrender to the Corporation or the transfer
-----------------
agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Section 151, 156, 202(a) or 218(a) of the General Corporation Law.
Subject to the provisions of the Certificate of Incorporation and these Bylaws,
the Board of Directors may prescribe such additional rules and regulations as it
may deem appropriate relating to the issue, transfer and registration of shares
of the Corporation.
11
<PAGE>
5.5 Record Date. In order to determine the stockholders entitled to notice
-----------
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than 60 nor less than ten days before the date of such meeting, nor more
than 60 days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting, provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
5.6 Registered Stockholders. Prior to due surrender of a certificate for
-----------------------
registration of transfer, the Corporation may treat the registered owner as the
person exclusively entitled to receive dividends and other distributions, to
vote, to receive notice and otherwise to exercise all the rights and powers of
the owner of the shares represented by such certificate, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
such shares on the part of any other person, whether or not the Corporation
shall have notice of such claim or interest. Whenever any transfer of shares
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer if, when the certificates are presented
to the Corporation for transfer or uncertificated shares are requested to be
transferred, both the transferor and transferee request the Corporation to do
so.
5.7 Transfer Agent and Registrar. The Board of Directors may appoint one
----------------------------
or more transfer agents and registrars, and may require all certificates
representing shares to bear the signature of any such transfer agents or
registrars.
ARTICLE 6.
INDEMNIFICATION
6.1 Indemnification. The Corporation shall, to the fullest extent
---------------
permitted by applicable law from time to time in effect, indemnify any and all
persons who may serve or who have served at any time as Directors or officers of
the Corporation, or who at the request of the Corporation may serve or at any
time have served as Directors or officers of another corporation (including
subsidiaries of the Corporation) or of any partnership, joint venture, trust or
other enterprise, from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said law. Such indemnification shall
continue as to a person who has ceased to be a Director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The Corporation may also indemnify any and all other persons whom it
shall have power to indemnify under any applicable law from time to time in
effect to the extent authorized by the Board of Directors and permitted by such
law. The indemnification provided by this Article shall not be deemed exclusive
of any other rights to which any person may be entitled under any provision of
the Certificate of Incorporation, other Bylaw, agreement, vote of
12
<PAGE>
stockholders or disinterested Directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
6.2 Definition. For purposes of this Article, the term "Corporation" shall
----------
include constituent corporations referred to in Subsection (h) of Section 145 of
the General Corporation Law (or any similar provision of applicable law at the
time in effect).
ARTICLE 7.
OFFICES
7.1 Registered Office. The registered office of the Corporation in the
-----------------
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, and the Corporation's
registered agent shall be The Corporation Trust Company.
7.2 Other Offices. The Corporation may maintain offices or places of
-------------
business at such other locations within or without the State of Delaware as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE 8.
GENERAL PROVISIONS
8.1 Dividends. Subject to any applicable provisions of law and the
---------
Certificate of Incorporation, dividends upon the shares of the Corporation may
be declared by the Board of Directors at any regular or special meeting of the
Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation.
8.2 Reserves. There may be set aside out of any funds of the Corporation
--------
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may similarly modify or abolish any such reserve.
8.3 Execution of Instruments. The President, any Executive Vice President,
------------------------
any Vice President, the Secretary or the Treasurer may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors or the President may authorize any other
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
13
<PAGE>
8.4 Corporate Indebtedness. No loan shall be contracted on behalf of the
----------------------
Corporation, and no evidence of indebtedness shall be issued in its name, unless
authorized by the Board of Directors. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors shall
authorize. When so authorized by the Board of Directors, any part of or all the
properties, including contract rights, assets, business or good will of the
Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of any interest thereon, by instruments
executed and delivered in the name of the Corporation.
8.5 Deposits. Any funds of the Corporation may be deposited from time to
--------
time in such banks, trust companies or other depositaries as may be determined
by the Board of Directors or the President, or by such officers or agents as may
be authorized by the Board of Directors or the President to make such
determination. 16
8.6 Checks. All checks or demands for money and notes of the Corporation
------
shall be signed by such officer or officers or such agent or agents of the
Corporation, and in such manner, as the Board of Directors, the Chairman of the
Board, or the President from time to time may determine.
8.7 Sale, Transfer, etc. of Securities. To the extent authorized by the
----------------------------------
Board of Directors or by the President, any Vice President, the Secretary or the
Treasurer, or any other officers designated by the Board of Directors, the
Chairman of the Board, or the President may sell, transfer, endorse, and assign
any shares of stock, bonds or other securities owned by or held in the name of
the Corporation, and may make, execute and deliver in the name of the
Corporation, under its corporate seal, any instruments that may be appropriate
to effect any such sale, transfer, endorsement or assignment.
8.8 Voting as Stockholder. Unless otherwise determined by resolution of
---------------------
the Board of Directors, the President or any Vice President shall have full
power and authority on behalf of the Corporation to attend any meeting of
stockholders of any corporation in which the Corporation may hold stock, and to
act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
8.9 Fiscal Year. The fiscal year of the Corporation shall commence on the
-----------
first day of January of each year (except for the Corporation's first fiscal
year which shall commence on the date of incorporation) and shall end in each
case on December 31.
14
<PAGE>
8.10 Seal. The seal of the Corporation shall be circular in form and shall
----
contain the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware". The form of such seal shall be subject to
alteration by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or may be used in any
other lawful manner.
8.11 Books and Records. Except to the extent otherwise required bylaw, the
-----------------
books and records of the Corporation shall be kept at such place or places
within or without the State of Delaware as may be determined from time to time
by the Board of Directors.
ARTICLE 9.
AMENDMENT OF BYLAWS
9.1 Amendment. Except as otherwise provided by law or by the Certificate
---------
of Incorporation, these by-laws, as from time to time altered or amended, may be
made, altered or amended at any annual or special meeting of the stockholders
called for the purpose, of which the notice shall specify the subject matter of
the proposed alteration or amendment or new by-law or the article or articles to
be affected thereby, by the holders of the shares of common stock representing
at least two-thirds (2/3) of the votes entitled to be cast at such annual or
special meeting. If the Certificate of Incorporation so provides, these by-laws
may also be made, altered or amended by a majority of the whole number of
directors.
ARTICLE 10.
CONSTRUCTION
10.1 Construction. In the event of any conflict between the provisions of
------------
these Bylaws as in effect from time to time and the provisions of the
Certificate of Incorporation as in effect from time to time, the provisions of
the Certificate of Incorporation shall be controlling.
15
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF McDERMOTT, WILL & EMERY]
November 15, 1999
TeleCorp PCS, Inc.
1010 N. Glebe Road
Arlington, Virginia 22201
Ladies and Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-1 (File No. 333-89393), filed by TeleCorp PCS, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission"), for the purpose of registering under the Securities Act of 1933,
as amended (the "Securities Act"), shares of the Company's Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), to be offered to the
public pursuant to an Underwriting Agreement (the "Underwriting Agreement")
among the Company and Salomon Smith Barney Inc., Lehman Brothers Inc., Deutsche
Bank Securities Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated, as
representatives of the underwriters.
In connection with the foregoing registration, we have acted as counsel
for the Company and have examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
representatives of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein. In our examination we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents.
We are members of the Bar of The Commonwealth of Massachusetts and do
not purport to be experts on, or generally familiar with, or certified to
express legal conclusions based upon, the laws of any other jurisdiction, other
than the corporate laws of the State of Delaware and the laws of the United
States to the extent applicable hereto. Accordingly, as to matters of law set
forth below, our opinion is limited to matters of law under the laws of the
District of Columbia, the laws of the United States to the extent applicable
hereto and the corporate laws of the State of Delaware, and we express no
opinion as to the laws of any states or jurisdictions other than as specified
above.
<PAGE>
Based upon the foregoing and subject to the other qualifications stated
herein, we are of the opinion that the shares of Class A Common Stock being
registered by the Company pursuant to the Registration Statement have been duly
authorized and, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and any abbreviated registration statements relating
thereto that may be filed to register additional securities identical to those
covered by the Registration Statement (including a registration statement filed
pursuant to Rule 462(b) under the Securities Act), and to the reference to this
firm under the caption "Legal Matters" contained in the prospectus filed as a
part thereof. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE>
EXHIBIT 10.1.2
EXECUTION COPY
--------------
================================================================================
TELECORP PCS, INC.
Increasing Rate Subordinated Notes Series A Due 2009
Increasing Rate Subordinated Notes Series B Due 2009
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
Dated as of October 29, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Authorization of Notes...................................................2
2. Sale and Purchase of Notes...............................................3
2.1 Sale of Series A Notes..........................................3
2.2 Sale of Series B Notes..........................................3
3. Closings; Fees...........................................................3
3.1 Series A Closings...............................................3
3.2 Series B Closings...............................................3
3.3 Payments........................................................4
3.4 Legal Fees......................................................4
4. Terms of the Notes.......................................................4
4.1 Scheduled Payment of Notes......................................4
4.2 Interest on Series A Notes......................................5
4.3 Interest on Series B Notes......................................5
5. Conditions to Effectiveness..............................................6
5.1 Effective Date..................................................6
5.2 Initial Series B Closing........................................8
5.3 Conditions to Closings..........................................8
6. Representations and Warranties, etc......................................9
6.1 Organization, Standing, etc.....................................9
6.2 Authorization; Enforceability..................................10
6.3 Qualification..................................................10
6.4 Financial Statements...........................................10
6.5 Changes, etc...................................................10
6.6 Compliance with Other Instruments, etc.........................11
6.7 Governmental Consents, etc.....................................11
6.8 Capital Stock and Related Matters..............................11
6.9 Debt...........................................................12
6.10 Title to Properties; Liens.....................................12
6.11 Litigation.....................................................12
6.12 Patents, Trademarks, Authorizations, etc.......................12
6.13 Requirements of Law............................................13
6.14 Federal Reserve Regulations....................................13
6.15 Status Under Certain Federal Statutes..........................13
6.16 Compliance with ERISA..........................................13
6.17 Offer of Securities............................................13
6.18 Use of Proceeds................................................14
6.19 Solvency of the Company........................................14
6.20 Certain Fees...................................................14
6.21 Regulatory Compliance..........................................14
6.22 Disclosure.....................................................15
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.23 Subsidiaries...............................................................15
6.24 Licenses...................................................................16
6.25 Transaction Documents......................................................16
7. Purchase Intent; Investor Status....................................................17
7.1 Purchase Intent............................................................17
7.2 Accredited Investor........................................................17
8. Furnishing of Information...........................................................17
8.1 Financial Statements and Other Information.................................17
9. Inspection; Confidentiality.........................................................19
9.1 Inspection.................................................................19
9.2 Confidentiality............................................................19
10. Prepayment of Notes.................................................................20
10.1 Optional Prepayments.......................................................20
10.2 Contingent Prepayments Upon Change of Control..............................21
10.3 Premium....................................................................22
10.4 Mandatory Redemption of Series A Notes.....................................22
10.5 Mandatory Redemption of Series B Notes.....................................23
10.6 Notice of Optional Prepayments; Officers' Certificate......................23
10.7 Allocation of Partial Prepayments..........................................23
10.8 Maturity; Surrender, etc...................................................24
10.9 Acquisition of Notes.......................................................24
11. Covenants...........................................................................24
11.1 Payment of Notes...........................................................24
11.2 Payment of Taxes and Claims................................................24
11.3 Liens, etc.................................................................24
11.4 Restricted Payments........................................................25
11.5 Consolidation, Merger, Sale of Assets, etc.................................25
11.6 Requirements of Law........................................................26
11.7 Transactions with Affiliates...............................................26
11.8 Corporate Existence, etc.; Business........................................27
11.9 Limitation on Designation of Unrestricted Subsidiaries.....................27
11.10 Limitation on Activities of the Company and the Restricted Subsidiaries.............28
12. Events of Default; Acceleration.....................................................28
13. Remedies on Default, etc............................................................30
14. Subordination.......................................................................31
14.1 Notes Subordinate to Senior Debt...........................................31
14.2 Payment of Proceeds Upon Dissolution, Etc..................................31
14.3 No Payment When Senior Debt in Default.....................................33
14.4 Acceleration of Subordinated Debt..........................................34
14.5 Payment Permitted If No Default............................................35
14.6 Subrogation To Rights of Holders of Senior Debt............................35
14.7 Provisions Solely To Define Relative Rights................................35
14.8 No Waiver of Subordination Provisions......................................35
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
14.9 Reliance On Judicial Order or Certificate of Liquidating Agent.............36
15. Definitions.........................................................................36
16. Tax Matters.........................................................................52
16.1 Taxes......................................................................52
17. Notes held by Company, etc., Deemed Not Outstanding.................................55
18. Payments on Notes...................................................................55
18.1 Place of Payment...........................................................55
18.2 Home Office Payment........................................................56
18.3 Expenses, etc..............................................................56
19. Survival of Representations and Warranties..........................................57
20. Amendments and Waivers..............................................................57
21. Notices, etc........................................................................57
22. Indemnification.....................................................................58
23. Successors and Assigns; Participations; Assignments; Replacement of Notes...........58
23.1 Successors and Assigns.....................................................58
23.2 Participations.............................................................59
23.3 Assignments................................................................59
23.4 Register...................................................................60
23.5 Disclosure of Information in Connection with a Transfer....................60
23.6 Assignment to Federal Reserve Bank.........................................60
23.7 Replacement of Notes.......................................................60
24. Remarketing.........................................................................61
25. Adjustments.........................................................................62
26. Miscellaneous.......................................................................62
27. Submission To Jurisdiction; Waivers.................................................62
28. Expansion Notes.....................................................................63
29. Waivers of Jury Trial...............................................................65
30. Series B Notes.............................................................65
</TABLE>
-iv-
<PAGE>
SCHEDULE A Purchaser Information
SCHEDULE B Disclosure Schedule
SCHEDULE 6.23 Subsidiaries
EXHIBIT A Form of Increasing Rate Notes Series A due 2009
EXHIBIT B Form of Increasing Rate Notes Series B due 2009
ANNEX I Designated Areas
ANNEX II SLE Expansion Areas
-v-
<PAGE>
TeleCorp PCS, Inc.
1010 N. Glebe Road
Arlington, VA 22201
Increasing Rate Subordinated Notes Series A due October 23, 2009
Increasing Rate Subordinated Notes Series B due October 23, 2009
As of October 29, 1999
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Ladies and Gentlemen:
TeleCorp PCS, Inc., a Delaware corporation (the "Company"), and its
Subsidiaries intend to develop personal communications services ("PCS") Systems
serving portions of the areas listed on Annex I hereto (the "Designated Areas"),
as well as additional MTAs and BTAs from time to time designated by the Company.
The Company has entered into a General Agreement for Purchase of Personal
Communication Systems and Services effective as of May 12, 1998 between the
Company and you (in such capacity, the "Vendor") (the "General Agreement") (the
General Agreement as so amended and as further amended, modified or supplemented
from time to time, being referred to herein as the "Procurement Contract") as
amended by Amendment No. 1 thereto dated as of November 20, 1998; Amendment No.
2 thereto dated as of September 18, 1998, Amendment No. 3 thereto dated as of
November 10, 1998, Amendment No. 5 thereto dated as of January 27, 1999,
Amendment No. 6 thereto dated as of August 9, 1999, and Amendment No. 7 thereto
("Amendment No. 7") dated as of July 1, 1999, pursuant to which the Company
shall purchase and the Vendor shall provide certain telecommunications systems
and services for the development of the Company's PCS Systems in the Designated
Areas all on the terms and conditions therein set forth.
In order to finance a portion of the development costs of such PCS
Systems and certain working capital requirements (a) on May 11, 1998, the
Company and you entered into a Note Purchase Agreement (the "Existing Note
Agreement") pursuant to which the Company agreed to issue and you agreed to
purchase, from time to time, two series of increasing rate subordinated notes
consisting of up to $40,000,000 aggregate initial principal amount of its Series
A Notes (as defined below) and up to $40,000,000 aggregate initial principal
amount of its
<PAGE>
Increasing Rate Series B Notes due 2012 (the "Initial Series B Notes"), (b) the
Company obtained from the Cash Equity Investors contributions which, together
with amounts previously funded, aggregate $40,000,000, (c) the Company entered
into the Credit Agreement pursuant to which the lenders party thereto committed
to provide loans in an aggregate principal amount of up to $525,000,000 and (d)
the Company issued $575,000,000 face amount of 11 5/8% Senior Subordinated
Discount Notes Due 2009 (the "High Yield Notes") pursuant to the Indenture dated
April 23, 1999 among the Company, TeleCorp Communications, Inc. and Bankers
Trust Company, as trustee (the "Indenture"). Concurrent with the issuance of the
High Yield Notes, the Company repaid the Initial Series B Notes and the Initial
Series B Commitment was terminated.
The Company desires to develop PCS Systems in the MTAs and BTAs set
forth in Annex II (such MTAs and BTAs being grouped into three Expansion Areas
as set forth in such Annex and collectively referred to herein as the "SLE
Expansion Area"). In connection therewith, the Company has entered into
Amendment No. 7 with the Vendor pursuant to which the Company shall purchase and
the Vendor shall provide certain telecommunications systems and services for the
development of the Company's Systems in the SLE Expansion Area. The transactions
contemplated under the Procurement Contract and the financings contemplated by
the foregoing paragraph are referred to as the "Financing Transactions".
The Company and you desire to amend and restate the Existing Note
Agreement as follows:
Certain capitalized terms used in this Agreement are defined in
section 15; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
The Company hereby agrees with you as follows:
1. Authorization of Notes. The Company has previously authorized
----------------------
the issue and sale of its Increasing Rate Subordinated Notes Series A due
October 23, 2009 in an initial aggregate principal amount not to exceed
$40,000,000 and will authorize the issue and sale of such Notes in an additional
initial principal amount not to exceed $12,500,000 (the "Series A Notes" such
term to include any notes issued in substitution therefor pursuant to section
23.7 and any Additional Series A Notes) to be substantially in the form of
Exhibit A with such changes therefrom, if any, as may be approved by you and the
Company. The Company will authorize the issue and sale of its Increasing Rate
Subordinated Notes Series B due October 23, 2009 in an initial aggregate
principal amount not to exceed $12,500,000 (the "Series B Notes"; such term to
include any notes issued in substitution therefor pursuant to section 23.7 and
any Additional Series B Notes), and to be substantially in the form of Exhibit
B, with such changes therefrom, if any, as may be approved by you and the
Company. The Series A Notes and Series B Notes are
-2-
<PAGE>
collectively referred to as the "Notes"; the Additional Series A Notes and
Additional Series B Notes are collectively referred to as the "Additional
Notes."
2. Sale and Purchase of Notes.
--------------------------
2.1 Sale of Series A Notes. From time to time through and including
----------------------
the Series A Note Commitment Termination Date, the Company will issue and sell
to you and, subject to the terms and conditions of this Agreement, you will
purchase from the Company, Series A Notes in an aggregate initial principal
amount not to exceed the Series A Note Commitment.
2.2 Sale of Series B Notes. From time to time commencing on the
----------------------
Initial Series B Closing Date and ending on the Series B Note Commitment
Termination Date, the Company will issue and sell to you and, subject to the
terms and conditions of this Agreement, you will purchase from the Company,
Series B Notes in an aggregate initial principal amount not to exceed the Series
B Note Commitment.
3. Closings; Fees.
--------------
3.1 Series A Closings. (a) The initial sale of the Series A Notes
-----------------
to be purchased by you shall take place at a closing (the "Initial Series A
Closing") on the Initial Series A Closing Date at such location as the Company
and you may agree. At the Initial Series A Closing, the Company will deliver to
you the Series A Notes to be purchased by you (which amount shall be specified
by the Company to you in a notice delivered not less than five Business Days
prior to such Initial Series A Closing Date) in the form of a single Series A
Note (or such greater number of Series A Notes in denominations of at least
$100,000 as you may request not less than two Business Days prior to the Initial
Series A Closing Date) dated the Initial Series A Closing Date and registered in
your name (or in the name of your nominee).
(b) From time to time after the Initial Series A Closing Date but
prior to the Series A Note Commitment Termination Date, the Company may issue to
you, in accordance with the terms of this Agreement, additional Series A Notes
(each, a "Series A Closing"). The Company shall deliver a notice to you setting
forth the principal amount of the Series A Notes to be issued (which shall be in
an amount equal to the lesser of (i) $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and (ii) the remaining amount of the Series A Note
Commitment) and stating the date (which shall be not less than five Business
Days after the date of such notice) on which the Company desires that you
purchase such Series A Notes (each, a "Series A Closing Date"). At each Series
A Closing, the Company will deliver to you the Series A Notes to be purchased by
you in the form of a single Series A Note (or such greater number of Series A
Notes in denominations of at least $100,000 as you may request not less than two
Business Days prior to such Series A Closing Date) dated the date of such Series
A Closing and registered in your name (or in the name of your nominee).
-3-
<PAGE>
3.2 Series B Closings. (a) The initial sale of the Series B Notes
-----------------
to be purchased by you shall take place at a closing (the "Initial Series B
Closing") on the Initial Series B Closing Date at such time during the Series B
Availability Period and at such location as the Company and you may agree. At
the Initial Series B Closing, the Company will deliver to you the Series B Notes
to be purchased by you (which amount shall be specified by the Company to you in
a notice delivered not less than five Business Days prior to such Initial Series
B Closing Date) in the form of a single Series B Note (or such greater number of
Series B Notes in denominations of at least $100,000 as you may request not less
than two Business Days prior to the Initial Series B Closing Date) dated the
Initial Series B Closing Date and registered in your name (or in the name of
your nominee).
(b) From time to time after the Initial Series B Closing Date but
prior to the Series B Note Commitment Termination Date, the Company may issue to
you, in accordance with the terms of this Agreement, additional Series B Notes
(each, a "Series B Closing"). The Company shall deliver a notice to you setting
forth the principal amount of the Series B Notes to be issued (which shall be in
an amount equal to the lesser of (i) $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and (ii) the remaining amount of the Series B Note
Commitment) and stating the date (which shall be not less than five Business
Days after the date of such notice) on which the Company desires that you
purchase such Series B Notes (each, a "Series B Closing Date"). At each Series
B Closing, the Company will deliver to you the Series B Notes to be purchased by
you in the form of a single Series B Note (or such greater number of Series B
Notes in denominations of at least $100,000 as you may request not less than two
Business Days prior to such Series B Closing Date) dated the date of such Series
B Closing and registered in your name (or in the name of your nominee).
3.3 Payments. Payment for each of the Notes shall be in
--------
immediately available funds or, if you elect, by notice to the Company not less
than three Business Days prior to the Closing in respect of such Notes, by means
of a credit against amounts due to the Vendor under the Procurement Contract;
provided that, if you elect to credit amounts under the Procurement Contract,
- --------
(i) you shall specify by notice to the Company one Business Day prior to such
Closing which invoices will be so credited and (ii) on the date of such Closing,
you shall deliver copies of such invoices marked "paid" against presentation of
the Notes to be delivered by the Company.
3.4 Legal Fees. On the Effective Date, the Company will pay the
----------
reasonable fees and disbursements of your special counsel (with evidence of time
recorded as your special counsel may customarily provide) in connection with the
transactions contemplated by this Agreement and thereafter the Company will
promptly pay additional reasonable fees and disbursements of such special
counsel, incurred in connection with such transactions.
40 Terms of the Notes.
------------------
-4-
<PAGE>
4.1 Scheduled Payment of Notes. The Company shall pay in full the
--------------------------
outstanding aggregate principal amount of the Series A Notes, together with any
accrued interest and other amounts with respect to such Notes no later than the
Series A Final Maturity Date. The Company shall pay in full the outstanding
aggregate principal amount of the Series B Notes, together with any accrued
interest and other amounts with respect to such Notes no later than the Series B
Final Maturity Date.
4.2 Interest on Series A Notes. The Series A Notes shall bear
--------------------------
interest at an initial rate of 8.50% per annum; provided that if the Company
--------
does not redeem all (but not less than all) the Series A Notes on or prior to
January 1, 2001, such initial rate shall increase on each January 1, beginning
January 1, 2001 and continuing thereafter, by an amount equal to 1.50% per annum
or such lesser amount as will result in the Series A Notes bearing interest at
the Maximum Rate (the "Series A Coupon Rate"). Interest on the Series A Notes
shall be paid in arrears in cash on each six-month and yearly anniversary of the
Initial Series A Closing Date (each, a "Series A Payment Date"), commencing with
the date of initial issuance; provided, that (i) interest payable on the Series
--------
A Notes on or prior to May 11, 2004 shall be payable in Additional Series A
Notes and (ii) thereafter at any time that payment of interest on the Series A
Notes in cash shall be prohibited under the terms of the Credit Agreement or the
High Yield Debt of the Company interest on the Series A Notes shall be payable
in Additional Series A Notes. Any principal payments on the Series A Notes not
paid when due and, to the extent permitted by applicable law, any interest
payment on the Series A Notes not paid when due, in each case whether at stated
maturity, by notice of prepayment, by acceleration or otherwise, shall
thereafter bear interest payable upon demand at a rate which is 2.00% per annum
in excess of the rate of interest otherwise payable under this Agreement for the
Series A Notes. Interest on the Series A Notes shall be computed on the basis
of a 360-day year and twelve 30-day months. In computing interest on the Series
A Notes, the date of the making of the Series A Notes shall be included and the
date of payment shall be excluded.
4.3 Interest on Series B Notes. The Series B Notes shall bear
--------------------------
interest at an initial rate of 10% per annum (the "Series B Coupon Rate");
provided that if the Company does not redeem all (but not less than all) the
- --------
Series B Notes on or prior to January 1, 2000, such initial rate shall increase
on each January 1, beginning January 1, 2000 and continuing thereafter, by an
amount equal to 1.50% per annum or such lesser amount as will result in the
Series B Notes bearing interest at the Maximum Rate (the "Series B Coupon
Rate"). Interest on the Series B Notes shall be paid in arrears in cash on each
six-month and yearly anniversary of the Initial Series B Closing Date (each, a
"Series B Payment Date"), commencing with the date of initial issuance;
provided, that (i) interest payable on the Series B Notes on or prior to May 11,
- --------
2004 shall be payable in Additional Series B Notes and (ii) thereafter at any
time that payment of interest on the Series B Notes in cash shall be prohibited
under the terms of the Credit Agreement, or the High Yield Debt of the Company
interest on the Series B Notes shall be payable in Additional Series B Notes.
Any principal payments on the Series B Notes not paid when due and, to the
extent permitted by applicable law, any interest payment on the Series B Notes
not paid when due, in each case whether at stated maturity, by notice of
prepayment, by
-5-
<PAGE>
acceleration or otherwise, shall thereafter bear interest payable upon demand at
a rate which is 2.00% per annum in excess of the rate of interest otherwise
payable under this Agreement for the Series B Notes. Interest on the Series B
Notes shall be computed on the basis of a 360-day year and twelve 30-day months.
In computing interest on the Series B Notes, the date of the making of the
Series B Notes shall be included and the date of payment shall be excluded.
5 Conditions to Effectiveness.
---------------------------
5.4 Effective Date. Your obligation to perform your obligations on
--------------
the Effective Date is subject to the fulfillment to your satisfaction, prior to
or concurrently with the Effective Date, of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in this Agreement which are not qualified by
Material Adverse Effect shall be correct in all material respects when made and
at the time of such Closing and the representations and warranties contained in
this Agreement that are qualified by Material Adverse Effect shall be correct
when made and at the time of such Closing.
(b) Performance; No Default. The Company shall have performed and
-----------------------
complied in all material respects with all agreements and conditions contained
in this Agreement required to be performed or complied with by it prior to or at
such Closing and, at the Effective Date, no Event of Default or Potential Event
of Default shall have occurred and be continuing.
(c) Compliance Certificate. The Company shall have delivered to you
----------------------
an Officers' Certificate, dated the Effective Date, certifying that the
conditions specified in paragraphs (a) and (b) of this section 5.1 have been
fulfilled.
(d) Replacement Notes. The Company shall have delivered a Series A
-----------------
Note dated the Effective Date in an aggregate principal amount equal to
$41,583,479.16 and you shall have returned to the Company the Series A Notes
issued on each Series A Closing Date prior to the date hereof and any Additional
Series A Notes issued to you prior to the Effective Date.
(e) Opinions of Counsel. You shall have received from McDermott, Will
-------------------
& Emery, counsel for the Company, favorable opinions covering such matters as
you may reasonably request, each addressed to you, dated the Effective Date and
reasonably satisfactory in substance and form to you.
(f) Procurement Contract. The Company shall have executed and
--------------------
delivered Amendment No. 7. The Procurement Contract shall be a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditor's rights generally and to general
equitable principles (whether enforcement is sought by proceedings in equity or
at
-6-
<PAGE>
law), shall be in full force and effect and no default or breach by the Company
shall have occurred thereunder which is continuing.
(g) Consents, Agreements. The Company shall have obtained all
--------------------
consents and waivers under any term of any agreement or instrument to which it
is a party or by which it or any of its properties or assets are bound
including, without limitation, any consents or waivers required under the Credit
Agreement, or any term of any applicable law, ordinance, rule or regulation of
any Governmental Authority or any term of any applicable order, judgment or
decree of any court, arbitrator or Governmental Authority, necessary or
appropriate in connection with this Agreement, the Securities Purchase Agreement
and the Procurement Contract, and such consents and waivers shall be in full
force and effect on the Effective Date. A complete and correct copy of each
such consent and waiver shall have been delivered to you.
(h) Compliance with Securities Laws. The offering and sale of the
-------------------------------
Notes (including any Notes to be issued after the Effective Date) to you shall
have complied with all applicable requirements of federal and state securities
laws and you shall have received evidence thereof in form and substance
satisfactory to you.
(i) No Actions Pending. There shall be no suit, action,
------------------
investigation, inquiry or other proceeding by or before any Governmental
Authority or any other Person or any other legal or administrative proceeding,
pending or, to the Company's knowledge, threatened, which questions the validity
or legality of the Financing Transactions or the payment, prepayment,
administration, sale or other disposition of the Notes or performance by the
Company of its obligations under this Agreement and seeks damages or injunctive
or other equitable relief in connection therewith.
(j) Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory to
you and your special counsel, and you and your special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as you or they may reasonably request.
(k) Credit Agreement. The Credit Agreement shall be in full force and
----------------
effect and no Default or Event of Default (each as defined in the Credit
Agreement) shall have occurred which is continuing.
(l) Fees. The fees required to be paid on the Effective Date under
----
section 3.4 shall have been paid.
(m) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments, and other legal matters in connection with the
transactions contemplated by this Agreement and the Financing Transactions (to
the extent the agreements evidencing such Financing Transactions have been or
are required to have been completed as of the Effective
-7-
<PAGE>
Date) shall be satisfactory to you in form and substance and you shall have
received any other documents, instruments and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or thereby as you
may reasonably request.
5.5 Initial Series B Closing. Your obligation to purchase and pay
------------------------
for the Series B Notes to be sold to you at the Initial Series B Closing is
subject to the fulfillment to your satisfaction, prior to or concurrently with
such Closing, of the following conditions:
(a) Representations and Warranties: The representations and
------------------------------
warranties of the Company contained in this Agreement which are not qualified by
Material Adverse Effect shall be correct in all material respects when made and
at the time of such Closing and the representations and warranties of the
Company contained in this Agreement that are qualified by Material Adverse
Effect shall be correct when made and at the time of such Closing.
(b) No Default. No Potential Default or Event of Default shall have
----------
occurred and be continuing on such date or after giving effect to the issuance
of the Series B Notes to be issued on such date.
(c) Compliance Certificate. The Company shall have delivered to you
----------------------
an Officers' Certificates, dated the date of such Closing, certifying that the
conditions specified in paragraphs (a) and (b) of this section 5.2 have been
fulfilled.
(d) Delivery of Notes. The Company shall have delivered to you the
-----------------
Series B Notes to be purchased by you at such Closing, which shall be duly
authorized, executed and delivered and shall be in such denominations as you
shall have previously requested pursuant to section 3.
(e) Disclosure Schedule. If necessary, the Company shall have
-------------------
delivered to you a revised section 6.8(b) setting forth the capitalization of
each Subsidiary of the Company, section 6.9 of the Disclosure Schedule setting
forth the Debt of the Company and its Subsidiaries outstanding, or for which the
Company has any commitments on such Closing Date, and section 6.23 setting forth
the identity of each Subsidiary of the Company other than TeleCorp PCS, LLC and
TeleCorp Holdings.
(f) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the Financing Transactions (to
the extent the agreements evidencing such Financing Transactions have been or
are required to have been completed as of the date of such Closing) shall be
satisfactory to you in form and substance and you shall have received any other
documents, instruments and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as you may
reasonably request.
-8-
<PAGE>
5.6 Conditions to Closings: Your obligation to purchase and pay
----------------------
for any Notes to be sold to you at any Closing (other than the Initial Series B
Closing) is subject to the fulfillment to your satisfaction, prior to or
concurrently with such Closing, of the following conditions:
(a) Representations and Warranties: The representations and
------------------------------
warranties of the Company contained in this Agreement which are not qualified by
Material Adverse Effect shall be correct in all material respects when made and
at the time of such Closing and the representations and warranties of the
Company contained in this Agreement that are qualified by Material Adverse
Effect shall be correct when made and at the time of such Closing.
(b) No Default. No Potential Default or Event of Default shall have
----------
occurred and be continuing on such date or after giving effect to the issuance
of the Notes to be issued on such date.
(c) Compliance Certificate. The Company shall have delivered to you
----------------------
an Officers' Certificates, dated the date of such Closing, certifying that the
conditions specified in paragraphs (a) and (b) of this section 5.3 have been
fulfilled.
(d) Delivery of Notes. The Company shall have delivered to you the
-----------------
Notes to be purchased by you at such Closing, which shall be duly authorized,
executed and delivered and shall be in such denominations as you shall have
previously requested pursuant to section 3.
(e) Disclosure Schedule. If necessary, the Company shall have
-------------------
delivered to you a revised section 6.8(b) setting forth the capitalization of
each subsidiary of the Company, section 6.9 of the Disclosure Schedule setting
forth the Debt of the Company and its Subsidiaries outstanding, or for which the
Company has any commitments on such Closing Date, and section 6.23 setting forth
the identity of each Subsidiary of the Company other than TeleCorp PCS, LLC and
TeleCorp Holdings.
(f) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments, and other legal matters in connection with the
transactions contemplated by this Agreement and the Financing Transactions (to
the extent the agreements evidencing such Financing Transactions have been or
are required to have been completed as of the date of such Closing) shall be
reasonably satisfactory to you in form and substance and you shall have received
any other documents, instruments and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as you may
reasonably request.
60 Representations and Warranties, etc. The Company represents and
------------------------------------
warrants as follows:
6.1 Organization, Standing, etc. Each of the Company and its
----------------------------
Subsidiaries is a corporation, limited liability company or limited partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has all requisite entity
-9-
<PAGE>
power and authority to own, lease and operate its properties, to carry on its
business as now conducted and as proposed to be conducted following the
Financing Transactions. The Company has all requisite corporate power and
authority to enter into this Agreement, to issue and sell the Notes and to carry
out the transactions contemplated by this Agreement and the Financing
Transactions.
6.2 Authorization; Enforceability. The Company has taken all
-----------------------------
necessary corporate action to execute, deliver and perform this Agreement and
the Notes and has validly executed and delivered each of such documents. Each
of this Agreement and the Notes delivered prior to the Effective Date
constitutes, and each of the Notes to be delivered after the Effective Date and
any other documents upon execution and delivery will constitute, the legal,
-
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or general equitable principles or principles of
good faith and fair dealing.
6.3 Qualification. Each of the Company and its Subsidiaries is,
-------------
and, after giving effect to the Financing Transactions, will be, duly qualified
and in good standing as a foreign corporation authorized to do business in each
jurisdiction (other than the jurisdiction of its incorporation) in which the
nature of its activities or the character of the properties it owns or leases
makes such qualification necessary, except where the failure so to qualify would
not have a Material Adverse Effect.
6.4 Financial Statements. (a) The Company has delivered to you
--------------------
complete and correct copies of the unaudited consolidated balance sheet of the
Company and its Subsidiaries dated as of September 30, 1999, and the related
statements of income, stockholders' equity and cash flows for the nine-month
period then ended (the "Financial Statements"). The Financial Statements have
been prepared in accordance with GAAP, applied on a consistent basis throughout
the periods specified, and present fairly in all material respects the financial
position of the Company and its Subsidiaries as of the respective dates
specified and the consolidated results of their operations and changes in
financial position for the respective periods specified subject to normal year-
end adjustments and footnote disclosure.
(b) The forecast of the Company and its Subsidiaries contained in the
business plan entitled "TeleCorp PCS Bank Plan" dated May 5, 1998 as revised on
October 19, 1999 for the period commencing January 1, 1998 to and including
December 31, 2009, prepared by a Responsible Officer of the Company presented on
a consolidated basis has been prepared in good faith and utilizing reasonable
assumptions; provided that nothing contained therein shall be deemed a
--------
representation that the results set forth in such Plan will be achieved.
6.5 Changes, etc. Except as set forth in section 6.5 of the
-------------
Disclosure Schedule, since December 31, 1998, (a) there has been no change in
the assets, liabilities or financial condition of the Company and its
Subsidiaries, other than changes which have not been, in any case or in the
aggregate, materially adverse to any of them, and (b) other than TeleCorp
-10-
<PAGE>
Holdings, neither the business, operations or affairs nor any of the properties
or assets of the Company or its Subsidiaries has been affected by any occurrence
or development (whether or not insured against) which has been, either in any
case or in the aggregate, materially adverse to any of them.
6.6 Compliance with Other Instruments, etc. Neither the Company
---------------------------------------
nor any Subsidiary is, and, after giving effect to the Financing Transactions,
neither the Company nor any Subsidiary will be, in violation of its certificate
of incorporation or by-laws. Neither the Company nor any Subsidiary is, and,
after giving effect to the Financing Transactions, neither the Company nor any
Subsidiary will be, in material violation of any term of any agreement or
instrument to which it is a party or by which it or any of its properties or
assets is bound, or any term of any applicable law, ordinance, rule or
regulation of any Governmental Authority or any term of any applicable order,
judgment or decree of any court, arbitrator or Governmental Authority, the
consequences of any which violation (or all such violations in the aggregate)
would reasonably be expected to have a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the Notes will not
result in any material violation of or be in material conflict with or
constitute a default under any such term or result in the creation of (or impose
any obligation on the Company to create) any Lien upon any of the properties or
assets of the Company pursuant to any such term.
6.7 Governmental Consents, etc. No consent, approval or
---------------------------
authorization of, or declaration or filing with, any Governmental Authority on
the part of any of the Company or any of its Subsidiaries is required for the
valid execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or the valid offer, issue, sale and delivery of
the Notes, other than those which have been obtained or made and are
unconditional and in full force and effect.
6.8 Capital Stock and Related Matters.
---------------------------------
(a) The authorized Capital Stock of the Company is as set forth in
section 6.8 of the Disclosure Schedule. Except in each case as specified
therein, the Company does not have outstanding securities convertible into or
exchangeable for any shares of its Capital Stock, nor will it have outstanding
any rights to subscribe for or to purchase, or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of, or
any calls, commitments or claims of any character relating to, any shares of its
Capital Stock or any securities convertible into or exchangeable for any shares
of its Capital Stock.
(b) The authorized Capital Stock of each Subsidiary of the Company,
and the number of shares issued and outstanding, is as set forth in section 6.8
of the Disclosure Schedule. Except as set forth in section 6.8 of the
Disclosure Schedule, no Subsidiary of the Company has any outstanding securities
convertible into or exchangeable for any shares of its Capital Stock, nor will
it have outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any
-11-
<PAGE>
calls, commitments or claims of any character relating to, any shares of its
Capital Stock or any securities convertible into or exchangeable for any shares
of its Capital Stock.
(c) Except as set forth on Schedule 6.8(c), the Company is not subject
---------------
to any obligation (contingent or otherwise) to repurchase or otherwise to
acquire or retire any shares of its Capital Stock.
6.9 Debt. Section 6.9 of the Disclosure Schedule (as revised, if
----
necessary pursuant to section 5.2(e) or section 5.3(e)) correctly describes all
Debt of the Company and its Subsidiaries outstanding, or for which the Company
or any Subsidiary has commitments on the date hereof and all Debt of the Company
and its Subsidiaries to be outstanding, or for which the Company or any
Subsidiary will have commitments, on the Effective Date and the Initial Series B
Closing Date, in each case, after giving effect to the Financing Transactions.
6.10 Title to Properties; Liens. Each of the Company and its
--------------------------
Subsidiaries has good and marketable title to all its material owned properties
and assets, and none of such properties or assets will be subject to any Liens
other than the Liens in favor of the Administrative Agent for the benefit of the
Lenders and other Liens permitted under the Credit Agreement including any Liens
as to which the Lenders shall have granted their consent or waived any objection
and other Liens which could not reasonably be expected to have a Material
Adverse Effect. On each Closing Date and after giving effect to the Financing
Transactions, each of the Company and its Subsidiaries will enjoy peaceful and
undisturbed possession under all leases necessary for the operation of its
business, and all such leases will be valid and subsisting and will be in full
force and effect except where such failure could not reasonably be expected to
have a Material Adverse Effect. No Lien currently exists which would require the
Company to equitably and ratably secure the obligations hereunder and under the
Notes pursuant to section 11.3.
6.11 Litigation. Except as set forth in section 6.11 to the
----------
Disclosure Schedule, there is no action, proceeding or investigation pending or,
to the knowledge of the Company, threatened which questions the validity or
legality of the Financing Transactions or this Agreement or the Notes, or any
action taken or to be taken pursuant to this Agreement or the Notes or which
would reasonably be expected to have a Material Adverse Effect.
6.12 Patents, Trademarks, Authorizations, etc. Each of the Company
-----------------------------------------
and its Subsidiaries owns or is licensed to use all patents, trademarks, service
marks, trade names, copyrights, technology, know-how and processes necessary for
the conduct of its business, without any known conflict with the rights of
others except to the extent that the failure to be in compliance could not
reasonably be expected to have a Material Adverse Effect. The transactions
under the Securities Purchase Agreement and the Related Agreements have been
consummated and the Company is licensed to market under the AT&T brand name and
to use the trademarks, service marks, logo and trade dress licensed thereunder
for a period of not less than five years from the date of such Related
Agreements.
-12-
<PAGE>
6.13 Requirements of Law. Each of the Company and its Subsidiaries
-------------------
is in compliance with all Requirements of Law applicable to it and its business,
except to the extent that the failure to be in compliance could not reasonably
be expected to have a Material Adverse Effect.
6.14 Federal Reserve Regulations. The Company will not use any of
---------------------------
the proceeds of the sale of the Notes for the purpose, whether immediate,
incidental or ultimate, of buying a "margin stock" or of maintaining, reducing
or retiring any indebtedness originally incurred to purchase a stock that is
currently a "margin stock", or for any other purpose which might constitute this
transaction a "purpose credit", in each case, within the meaning of Regulation U
of such Board (12 C.F.R. 221, as amended), or otherwise take or permit to be
taken any action which would involve a violation of such Regulation U or of
Regulation T (12 C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as
amended) or any other regulation of such Board. No Debt of the Company or any
Subsidiary being reduced or retired out of the proceeds of the sale of the Notes
was incurred for the purpose of purchasing or carrying any such "margin stock"
and neither the Company nor any Subsidiary owns or has any present intention of
acquiring any such "margin stock".
6.15 Status Under Certain Federal Statutes. Neither the Company
-------------------------------------
nor any Subsidiary is, and after giving effect to the Financing Transactions
none of them will be, (a) an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended; (b) a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended; (c) a "public utility", as such term is
defined in the Federal Power Act, as amended; or (d) a "rail carrier or a person
controlled by or affiliated with a rail carrier", within the meaning of Title
49, U.S.C., or a "carrier" to which 49 U.S.C. 11301(b)(1) is applicable.
Neither the Company nor any Subsidiary is subject to regulation under any
Federal or state statute, regulation, decree or order which limits its ability
to incur Debt or conditions such ability upon any act, approval or consent of
any Governmental Authority.
6.16 Compliance with ERISA. Neither the acquisition of the Notes
---------------------
by you nor the consummation of any of the other transactions contemplated by
this Agreement is or will constitute a "prohibited transaction" within the
meaning of Section 4975 of the Code, or Section 406 of ERISA.
6.17 Offer of Securities. The sale of the Notes in accordance with
-------------------
the terms of this Agreement (a) is exempt from the registration requirements of
the Securities Act and applicable state securities or blue sky laws and (b) does
not require the qualification of an indenture under the Indenture Act. Neither
the Company nor any financial advisor of the
-13-
<PAGE>
Company has directly or indirectly offered the securities to be purchased by you
pursuant to this Agreement or any part thereof or any similar securities for
sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with any Person other than you.
Neither the Company nor anyone acting on its behalf has taken or will take any
action which would subject the issuance and sale of the Notes to the
registration and prospectus delivery provisions of the Securities Act.
6.18 Use of Proceeds. The Company will apply the proceeds of the
---------------
sale of the Notes solely to develop PCS Systems in the Designated Areas and the
SLE Expansion Area.
6.19 Solvency of the Company. As of each Closing Date, (a) the
-----------------------
aggregate value of all the assets of the Company and its Subsidiaries taken as a
whole, at a fair valuation, will exceed the total liabilities of such Person
(including contingent, subordinated, unmatured and unliquidated liabilities);
(b) each of the Company and its Subsidiaries will be able to pay its debts as
they mature; and (c) neither the Company nor any Subsidiary will have
unreasonably small capital for the business in which it is proposed to be
engaged. For purposes of this section 6.19, the "fair valuation" of any asset
will be that amount which may be realized within a reasonable time, either
through collection or sale of such asset at fair market value, defining the
latter as the amount which could be obtained for the property in question within
such period by a willing seller from a willing buyer, each having reasonable
knowledge of the relevant facts, neither being under any compulsion to act, with
equity to both. Neither the Company nor any Subsidiary has any intent to
hinder, delay or defraud any entity to which it is, or will become, on or after
the Initial Series A Closing Date, indebted or to incur debts that would be
beyond its ability to pay as they mature.
6.20 Certain Fees. Except for the fees referred to in section 3.4
------------
and as disclosed on section 6.20 of the Disclosure Schedule, no broker's or
finder's fee or commission has been paid or will be payable by the Company with
respect to the offer, issue and sale of the Notes or with respect to the
Financing Transactions and the Company hereby indemnifies you against, and will
hold you harmless from, any claim, demand or liability asserted against you for
broker's or finder's fees alleged to have been incurred by the Company or any
other Person (other than you or your Affiliates) in connection with any such
offer, issue and sale or the Financing Transactions or any of the other
transactions contemplated by this Agreement.
6.21 Regulatory Compliance. (a) The Company and its Subsidiaries
---------------------
are in compliance with the Communications Act and the Telecommunications Act,
except to the extent that the failure to be in compliance could not reasonably
be expected to have a Material Adverse Effect.
(b) None of the chief executive officer, chief operating officer,
chief financial officer, general counsel or any other officer or employee of the
Company specifically charged with having knowledge of or monitoring FCC matters
has knowledge of any investigation, notice of apparent liability, violation,
forfeiture or other order or complaint issued by or before the FCC,
-14-
<PAGE>
or of any other proceedings of or before the FCC, which could reasonably be
expected to have a Material Adverse Effect.
(c) Each of the Company and its Subsidiaries holds all Licenses
necessary for the operation of its business as currently conducted except where
the failure to hold such Licenses could not reasonably be expected to have a
Material Adverse Effect. No event has occurred which (i) results in, or after
notice or lapse of time or both would result in, revocation, suspension, adverse
modification, non-renewal, impairment, restriction or termination of, or order
of forfeiture with respect to, any such License in any respect that could
reasonably be expected to have a Material Adverse Effect, or (ii) affects or
could reasonably be expected in the future to affect any of the rights of the
Borrower or its Subsidiaries under any License in any respect that could
reasonably be expected to have a Material Adverse Effect.
(d) The Company and its Subsidiaries have duly filed in a timely
manner all material filings, reports, applications, documents, instruments and
information required to be filed by it under the Communications Act, the
Telecommunications Act and under any other applicable federal, state and local
laws, and all such filings were when made true, correct and complete in all
material respects, except to the extent that the failure of any of the foregoing
to be true and correct could not reasonably be expected to have a Material
Adverse Effect.
(e) TeleCorp Holdings currently qualifies, and at all times since it
has held any Licenses from the FCC has qualified and will qualify, as a "very
small business," as defined in 47 C.F.R. 101.112(b), and neither the Company nor
TeleCorp Holdings has committed or has any present intention to take any action
that would result in TeleCorp Holdings not being qualified as a "very small
business" other than by reason of its annual gross revenues. As a result of the
closing of the transactions under Article II and Article III of the Securities
Purchase Agreement the Company owns 100% of the issued and outstanding Capital
Stock of TeleCorp Holdings.
6.22 Disclosure. Neither this Agreement nor any other document,
----------
certificate or instrument delivered to you by or on behalf of the Company in
connection with the transactions contemplated by this Agreement taken as a whole
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein, in
light of the circumstances under which they were made, not misleading (it being
understood that, except as set forth in section 6.4, no representation or
warranty is made with respect to any projections or other prospective financial
information). There is no fact known to the Company (other than matters of a
general economic or political nature which do not affect the Company uniquely)
which has resulted in, or could reasonably be expected to result in, a Material
Adverse Effect, which has not been set forth in this Agreement or in the other
documents, certificates and instruments delivered to you by or on behalf of the
Company in connection with the transactions contemplated hereby and thereby.
-15-
<PAGE>
6.23 Subsidiaries. On the Effective Date and on the date of each
------------
Closing thereafter, the Company's only Subsidiaries are as set forth on Schedule
6.23.
6.24 Licenses. (a) (i) The Company and its Subsidiaries hold all
--------
Licenses necessary to operate a System in each of the MTAs in the Designated
Areas and the SLE Expansion Area, (ii) such Licenses have been duly issued by
the FCC and are in full force and effect and (iii) the Company and its
Subsidiaries are in compliance in all material respects with all the provisions
of each such License. No such License is subject to any pending or, to the
knowledge of the Company, threatened revocation, adverse modification,
suspension or termination proceeding or action.
(b) The Company and its Subsidiaries hold all Licenses necessary to
operate Systems in MTAs and BTAs covering at least 16,800,000 POPs, and such
Licenses have been duly issued by the FCC, are held by the Company or any
Subsidiary and are in full force and effect; and the Company and its
Subsidiaries are in compliance in all material respects with all of the
provisions of each such License.
6.25 Transaction Documents. (a) The Company has delivered to you
---------------------
complete and correct copies of each of the Transaction Documents (including all
exhibits, schedules and disclosure letters referred to therein or delivered
pursuant thereto, if any) and all amendments thereto, waivers relating thereto
and other side letters or agreements affecting the terms thereof, as such
Transaction Documents are in effect on the date this representation is made or
deemed made. Each of the Transaction Documents, as such Transaction Documents
are in effect on the date this representation is made or deemed made, has been
duly executed and delivered by the Company, each Subsidiary and other party
thereto and is a legal, valid and binding obligation of the Company, Subsidiary
and each other party thereto, enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency or other similar laws
affecting the rights of creditors generally and by general principles of equity
(whether enforcement is sought by proceedings in equity or at law).
(b) The Transactions (as defined in the Securities Purchase Agreement)
under Article II and Article III of such Agreement contemplated to be completed
on the Closing Date (as defined in the Securities Purchase Agreement) including
(i) the contribution by each Cash Equity Investor of its Initial Cash
Contributions and its irrevocable commitment to contribute an amount equal to
its Aggregate Commitment (each as defined in the Securities Purchase Agreement),
(ii) the contribution by AT&T and TWR of the Contributed Licenses (as defined in
the Securities Purchase Agreement) and (iii) the sale by AT&T to the Company of
the Purchased Licenses (as defined in the Securities Purchase Agreement) and the
actions required to be completed as of such date under the Related Agreements
have been completed in accordance with the terms thereof. Each Transaction
Document is in full force and effect and no breach or default under any
Transaction Document shall have occurred which is continuing.
-16-
<PAGE>
(c) The representations and warranties of the Company and, to the
knowledge of the chief executive officer, chief operating officer, chief
financial officer and the general counsel of the Company, each other party to
the Transaction Documents, as such Transaction Documents are in effect on the
date this representation is made or deemed made (other than representations
which by their terms are limited to a specific date), are true and correct in
all material respects except where the failure of such representations to be
true and correct in all material respects could not reasonably be expected to
have a Material Adverse Effect. Such representations and warranties, together
with the definitions of all defined terms used therein, are by this reference
deemed incorporated herein mutatis mutandis and you are entitled to rely on the
----------------
accuracy of such representations and warranties.
7 Purchase Intent; Investor Status.
--------------------------------
7.26 Purchase Intent. You represent that you are purchasing the
---------------
Notes for your own account, not with a view to the distribution thereof or with
any present intention of distributing or selling any of such Notes except in
compliance with the Securities Act and any applicable state securities laws;
provided that the disposition of your property shall at all times be within your
- --------
control.
7.27 Accredited Investor. You are knowledgeable, sophisticated and
-------------------
experienced in business and financial matters; you acknowledge that the Notes
have not been registered under the Securities Act; you understand that the Notes
must be held indefinitely unless they are subsequently registered under the
Securities Act or such sale is permitted pursuant to an available exemption from
such registration requirement; you are able to bear the economic risk of your
investment in the Notes and are presently able to afford the complete loss of
such investment; you are an "accredited investor" as defined in Regulation D
promulgated under the Securities Act; and you have been afforded access to
information about the Company and its Subsidiaries and their financial
condition, results of operations, business, property, management and prospects
sufficient to enable you to evaluate your investment in the Notes. You
acknowledge that you have conducted your own analysis of the foregoing factors.
8 Furnishing of Information.
-------------------------
8.28 Financial Statements and Other Information. The Company will
------------------------------------------
deliver to you, so long as you shall be entitled to purchase Notes under this
Agreement or you or your nominee shall be the holder of any Notes and to each
other holder of any Notes:
(a) within 45 days after the end of each of the first three quarterly
fiscal periods in each fiscal year of the Company, unaudited consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such period and the related unaudited consolidated and consolidating
statements of income, stockholders' equity and cash flows for such period and
(in the case of the second and third quarterly periods) for the period from the
beginning of the current fiscal year to the end of such quarterly period,
setting forth in each case
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<PAGE>
in comparative form the consolidated figures for the corresponding periods of
the previous fiscal year, all in reasonable detail and certified by a principal
financial officer of the Company as having been prepared in accordance with GAAP
(except for the absence of notes thereto) applied (except as specifically set
forth therein) on a basis consistent with such prior fiscal periods, subject to
changes resulting from normal year-end audit adjustments;
(b) within 90 days after the end of each fiscal year of the Company,
consolidated balance sheets of the Company and its Subsidiaries as at the end of
such year and the related consolidated statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries for such fiscal year,
accompanied by a report thereon of PriceWaterhouseCoopers LLP, or other
independent public accountants of recognized national standing selected by the
Company (and reasonably satisfactory to the Required Holders) (subject to
section 17), which report shall state that such consolidated financial
statements present fairly the financial position of the Company and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years (except as otherwise specified in such report)
and that the audit by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards together with a consolidating balance sheet and consolidating
statements of income and cash flow reviewed by PriceWaterhouseCoopers LLP, and
certified by a principal financial officer of the Company as presenting fairly
the financial position of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated in accordance with GAAP (except as specifically set forth
therein) applied on a basis consistent with prior years;
(c) promptly upon receipt thereof, if provided by the Company to the
holders of its High Yield Debt, copies of all reports submitted to the Company
or any Subsidiary by independent public accountants in connection with each
annual, interim or special audit of the books of the Company or such Subsidiary
made by such accountants, including, without limitation, any comment letter
submitted by such accountants to management in connection with their annual
audit;
(d) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its security holders, of all regular and periodic
reports and all registration statements and prospectuses filed by the Company
with any securities exchange or with the Securities and Exchange Commission or
any Governmental Authority succeeding to any of its functions, and of all press
releases and other statements made available generally by the Company to the
public concerning material developments in the business of the Company or its
Subsidiaries;
(e) promptly upon any Responsible Officer obtaining knowledge of any
condition or event which constitutes an Event of Default or Potential Event of
Default, or that the holder of any Note has given any notice or taken any other
action with respect to a claimed Event
-18-
<PAGE>
of Default or Potential Event of Default under this Agreement or that any Person
has given any notice to the Company or any Subsidiary or taken any other action
with respect to a claimed default or event or condition of the type referred to
in paragraph (f) of section 12, an Officers' Certificate describing the same and
the period of existence thereof and what action the Company and its Subsidiaries
have taken, are taking and propose to take with respect thereto; and
(f) such information as the Company may provide to the holders of its
High Yield Debt (including any certifications or statements with respect to the
Company's financial condition or otherwise); provided that, solely in connection
--------
with any remarketing by you of the Notes in an aggregate principal amount of not
less than $10,000,000, you may request and, subject to section 9.2, the Company,
solely in connection with any remarketing of the Notes, shall provide to any
prospective participant or assignee such information as the Company may provide
to the Lenders (or to the Administrative Agent for the benefit of the lenders)
under the Credit Agreement.
9 Inspection; Confidentiality.
---------------------------
9.29 Inspection. (a) The holders of the Notes shall not be bound
----------
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond, debenture, note or other paper or document provided that
--------
any holder or holders of not less than a majority in principal amount of the
Notes at the time outstanding, may, in their discretion, make such further
inquiry or investigation into such facts or matters as such holder or holders
may see fit, and, if such holder or holders shall determine to make such further
inquiry or investigation, such holder or holders shall be entitled to examine
the books, records and premises of the Company, personally or by agent or
attorney.
(b) Except with respect to any disclosure in the Company's
registration statement in the form S-1 filed with the Securities Exchange
Commission on October 20, 1999 and the registration statement on form S-4
previously filed with the SEC, the Company shall use its good faith efforts to
obtain from any Governmental Authority to whom this Agreement or the terms
thereof must be disclosed or publicly filed confidential treatment with respect
to those provisions of this Agreement and the Notes which relate to the interest
rate, pricing and remarketing and such other provisions as you may reasonably
designate. The Company shall cooperate with you in such manner as you may
reasonably request to obtain such confidential treatment and will promptly
advise you of any discussions with representatives of any Governmental Authority
with respect to obtaining such treatment.
9.30 Confidentiality. (a) You (including for purposes of this
---------------
section your transferees) agree to exercise all reasonable efforts (consistent
with your customary methods for keeping information confidential) to keep any
information delivered or made available by the Company confidential from anyone
other than persons employed or retained by you who are or
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<PAGE>
are expected to become engaged in evaluating, approving, structuring or
administering the transactions contemplated hereunder; provided, that nothing
herein shall prevent you from disclosing such information (i) to any Affiliate
(provided that you shall be responsible for any breach of this provision by such
Affiliate) or to any other holder of the Notes, (ii) upon the order of any court
or administrative agency, (iii) upon the request or demand of any regulatory
agency or Governmental Authority having jurisdiction over you, (iv) that has
been publicly disclosed, (v) in connection with any litigation relating to the
Notes, this Agreement or any transaction contemplated hereby to which any of
you, the Company or any Subsidiary may be a party, (vi) to the extent reasonably
required in connection with the exercise of any remedy hereunder, (vii) to your
legal counsel and independent auditors and (viii) to any proposed participant or
assignee of all or any part of the Notes hereunder, if such other Person, prior
to such disclosure, agrees, in writing, for the benefit of the Company to comply
with the provisions of this section 9.2 (it being understood that prior to any
disclosure under clause (ii), (iii) or (v) of this proviso, you shall, if
reasonably practicable and if such action could not reasonably be expected to
subject you to any civil or criminal sanction or penalty, notify the Company of
such potential disclosure so as to afford the Company the opportunity to contest
such disclosure). You and any recipient of the information set forth in section
8.1(f) will not use such information for any purpose other than the remarketing
contemplated by section 8.1(f) and without limiting the generality of the
foregoing, you and any recipient of such information will not use such
information in connection with the offer, sale or purchase of any securities of
the Company or any Affiliate of the Company.
(b) The Company shall use its good faith efforts to obtain from any
Governmental Authority to whom this Agreement or the terms thereof must be
disclosed or publicly filed confidential treatment with respect to those
provisions of this Agreement and the Notes which relate to the interest rate,
pricing and remarketing and such other provisions as you may reasonably
designate. The Company shall cooperate with you in such manner as you may
reasonably request to obtain such confidential treatment and will promptly
advise you of any discussions with representatives of any Governmental Authority
with respect to obtaining such treatment.
10 Prepayment of Notes.
-------------------
10.1 Optional Prepayments.
--------------------
(a) The Company, at its option, upon notice as provided in section
10.6, may redeem at any time, in whole or in part (in a minimum amount of
$10,000,000 and in integral multiples of $1,000,000 in excess thereof), without
premium, any Notes that are held by the Vendor or any Affiliate to the extent
that participations have not been granted to Participants (other than
Participants who are Affiliates of the Vendor) in such Notes.
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<PAGE>
(b) Subject to section 10.1 (a), with respect to any Series A Notes
which the Vendor has either assigned or granted participations, in each case, to
Persons who are not Affiliates of the Vendor, the Company, at its option, upon
notice as provided in section 10.6, may redeem at any time prior to May 1, 2002
in whole or in part (in a minimum amount of $10,000,000 and in integral
multiples of $1,000,000 in excess thereof), without premium, any such Series A
Notes; provided, that any such Series A Notes that are not redeemed prior to
--------
such date shall not be subject to redemption prior to May 1, 2007. On or after
May 1, 2007, such Series A Notes shall be subject to redemption at a price equal
to 100% of the aggregate principal amount being so redeemed plus a premium
expressed as a percentage of the Series A Coupon Rate (determined in accordance
with section 10.3(a)) multiplied by the outstanding principal balance.
(c) Subject to section 10.1 (a), with respect to any Series B Notes
which the Vendor has either assigned or granted participations, in each case, to
Persons who are not Affiliates of the Vendor, the Company, at its option, upon
notice as provided in section 10.6, may redeem at any time prior to May 1, 2000,
in whole or in part (in a minimum amount of $10,000,000 and in integral
multiples of $1,000,000 in excess thereof), without premium, any such Series B
Notes; provided, that any such Series B Notes that are not redeemed prior to
--------
such date shall not be subject to redemption prior to May 1, 2005. On or after
May 1, 2005, such Series B Notes shall be subject to redemption at a price equal
to 100% of the aggregate principal amount being so redeemed plus a premium
expressed as a percentage of the Series B Coupon Rate (determined in accordance
with section 10.3(b)) multiplied by the outstanding principal balance.
10.2 Contingent Prepayments Upon Change of Control. If a Change of
---------------------------------------------
Control occurs, the Company shall give prompt written notice thereof to each
holder of the Notes, by facsimile transmission (and shall confirm such notice by
prompt telephonic advice to an investment officer of each such holder) or
registered mail, which notice shall also contain a written, irrevocable offer by
the Company to prepay, not more than 60 days and not less than 30 days after the
date of such notice, the Notes held by such holder in full (and not in part);
provided that such prepayment shall be permitted under the Credit Agreement and
- --------
the other Funded Debt Documents of the Company. Upon the acceptance of such
offer by such holder by written notice to the Company at least 10 days prior to
the date of prepayment specified in the Company's offer, such prepayment of the
Notes shall be made at a premium (determined in accordance with section 10.3)
expressed as a percentage of the Series A Coupon Rate or Series B Coupon Rate,
as applicable, together with, in each case, accrued and unpaid interest through
the date of purchase. Any offer by the Company to prepay the Notes pursuant to
this section 10.2 shall be accompanied by an Officers' Certificate certifying
that the conditions of this section 10.2 have been fulfilled and specifying the
particulars of such fulfillment. If the holder of any Notes shall accept such
offer, the principal amount of such Notes shall become due and payable on the
date specified in such offer. Notwithstanding the foregoing, if a Change of
Control shall occur prior to May 1, 2000, in the case of the Series B Notes, or
May 1, 2002, in the case of the Series A Notes, the Company may in lieu of such
irrevocable offer to prepay elect to prepay the Series A
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<PAGE>
Notes or the Series B Notes pursuant to section 10.1; provided that (a) such
prepayment shall be for all the Notes of such Series and (b) all the Notes then
outstanding shall be redeemed or prepaid; provided further, that such time
restrictions shall not apply to any Notes held by the Vendor or any of its
Affiliates (except to the extent participations have been granted to Persons who
are not Affiliates of the Vendor).
10.3 Premium. (a) For the purposes of clauses (b) and (c) of
-------
section 10.1 and for purposes of section 10.2, whenever a premium is required to
be paid upon prepayment of any Series A Note, the applicable premium shall be as
set forth opposite the applicable twelve-month period below:
Premium (% of Series A
Twelve Month Period Commencing Coupon Rate)
------------------------------ ------------
May 31, 2007 50%
May 31, 2008 31.67%
May 31, 2009 13.33%
(it being understood that there shall not be partial reductions for any portion
of a year which has elapsed).
(b) For the purposes of sections 10.1 and 10.2, whenever a premium is
required to be paid upon prepayment of any Series B Note, the applicable premium
shall be as set forth opposite the applicable twelve-month period below:
Premium (% of Series B
Twelve-Month Period Commencing Coupon Rate)
------------------------------ ------------
May 31, 2005 50%
May 31, 2006 39.55%
May 31, 2007 28.90%
May 31, 2008 18.35%
May 31, 2009 7.80%
(it being understood that there shall not be partial reductions for any portion
of a year which has elapsed).
10.4 Mandatory Redemption of Series A Notes. In the event that the
--------------------------------------
Net Securities Proceeds, received by the Company from Equity Issuances shall
exceed $198,000,000 as adjusted pursuant to section 28, the Company shall give
prompt written notice thereof (which notice shall in any event be within 10 days
after such receipt) to each holder of the Series A Notes by facsimile
transmission (and shall confirm such notice by prompt telephonic advice to an
investment officer of each such holder) or by registered mail. Such notice shall
state that on a date specified therein (which date shall be not less than 15
days after the date of such notice) the
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<PAGE>
Company shall redeem, to the extent of such excess, the aggregate principal
amount of the Series A Notes held by each holder for a price equal to the
aggregate principal amount thereof plus accrued interest; provided that if all
or any portion of such redemption of the Series A Notes shall not be permitted
under the Credit Agreement (i) the Company shall redeem Series A Notes in a
principal amount equal to the maximum amount of the Net Securities Proceeds
permitted to be so applied under the Credit Agreement which in no event shall be
less than 50% of all Net Securities Proceeds in excess of $198,000,000 as
adjusted pursuant to section 28 (the "Proceeds Redemption Amount") and (ii) from
time to time thereafter if the Company shall receive additional proceeds from
Equity Issuances, the Company shall redeem Series A Notes in a principal amount
equal to the Proceeds Redemption Amount until the Series A Notes have been
redeemed in full. Any notice from the Company to redeem all or a portion of the
Series A Notes pursuant to this section 10.4 shall be accompanied by an
Officer's Certificate certifying that the conditions of this section 10.4 have
been fulfilled. On the date specified in the Company's notice, the Company, upon
receipt of an outstanding Series A Note, shall redeem all or such portion of
such Series A Note together with accrued interest thereon and shall promptly
mail to the holder of such Series A Note payment therefor and, if applicable, a
new Series A Note in a principal amount equal to the excess of the principal
amount of the Series A Note redeemed in connection with such redemption over the
principal amount of such Series A Note so redeemed.
10.5 Mandatory Redemption of Series B Notes. In the event that the
--------------------------------------
Company receives the Net Debt Proceeds from any High Yield Offering after the
date hereof, the Company shall give prompt written notice thereof (which notice
shall in any event be within 10 days after such receipt) to each holder of the
Series B Notes by facsimile transmission (and shall confirm such notice by
prompt telephonic advice to an investment officer of each such holder) or by
registered mail. Such notice shall state that on a date specified therein
(which date shall not be less than 15 days after the date of such notice) the
Company, upon receipt of the outstanding Series B Note, shall redeem Series B
Notes in an aggregate principal amount equal to such Net Debt Proceeds. Any
notice from the Company to redeem any of the Series B Notes pursuant to this
section 10.5(a) shall be accompanied by an Officer's Certificate certifying that
the conditions of this section 10.5(a) have been fulfilled. On the date
specified in the Company's notice, the Company, upon receipt of an outstanding
Series B Note, shall redeem such portion of such Series B Note together with
accrued interest thereon and shall promptly mail to the holder of such Series B
Note the redemption payment therefor and a new Series B Note in a principal
amount equal to the excess of the principal amount of the Series B Note
submitted in connection with such redemption over the principal amount of such
Series B Note so redeemed.
10.6 Notice of Optional Prepayments; Officers' Certificate. The
-----------------------------------------------------
Company will give each holder of any Notes written notice of each optional
prepayment under section 10.1 not less than 15 days and not more than 60 days
prior to the date fixed for such prepayment, in each case specifying such date,
the aggregate principal amount of the Notes to be prepaid, the principal amount
of each Note held by such holder to be prepaid, and the premium, if any,
applicable to such prepayment. Such notice shall be accompanied by an Officers'
Certificate
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<PAGE>
certifying that the conditions of such section have been fulfilled and
specifying the particulars of such fulfillment.
10.7 Allocation of Partial Prepayments. In the case of each
---------------------------------
partial prepayment paid or to be prepaid (except a prepayment pursuant to
section 10.2), the principal amount of the Notes to be prepaid shall be
allocated (in integral multiples of $1,000) among all the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment, with
adjustments, to the extent practicable, to compensate for any prior prepayments
not made exactly in such proportion. In the case of each partial prepayment
under section 10.2, the principal amount of the Notes to be prepaid or
purchased, as applicable, shall be allocated pro rata among the holders who
accepted such prepayment offer or offer to tender.
10.8 Maturity; Surrender, etc. In the case of each prepayment, the
-------------------------
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable premium, if any. From
and after such date, unless the Company shall fail to pay such principal amount
when so due and payable, together with the interest and premium, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
10.9 Acquisition of Notes. The Company shall not, and shall not
--------------------
permit any Subsidiary or Affiliate to, purchase, redeem or otherwise acquire any
Note except upon the payment, redemption or prepayment thereof in accordance
with the terms of this Agreement and such Note.
11. Covenants. The Company covenants that from the date of this
---------
Agreement and so long as any of the Notes are outstanding:
11.1 Payment of Notes. The Company shall pay the principal of,
----------------
premium, if any, and interest on the Notes on the dates and in the manner
provided herein and in the Notes.
11.2 Payment of Taxes and Claims. The Company shall, and shall
---------------------------
cause each Subsidiary to, pay all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its franchises, business, income or profits as and when due and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien upon any of its properties or assets; provided that (i) no
--------
such charge or claim need be paid if being contested in good faith by
appropriate proceedings diligently conducted, if reserves or other appropriate
provision, if any, as shall be required by GAAP, shall have been made therefor
and (ii) there shall be no default pursuant to this section if the failure to
pay any of the foregoing could not reasonably be expected to have Material
Adverse Effect.
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<PAGE>
11.3 Liens, etc. The Company shall not, and shall not permit any
----------
Restricted Subsidiary to, directly or indirectly incur, issue, assume, guarantee
or suffer to exist any High Yield Debt or any other Debt which ranks pari passu
or junior to the Notes which is secured by any Lien on any property or assets of
the Company or any Restricted Subsidiary or on any shares of Capital Stock of
any Restricted Subsidiary, without effectively providing that the principal of,
premium, if any, and interest on the Notes shall be secured equitably and
ratably with (or prior to) such High Yield Debt or other Debt; provided that the
--------
priority of such lien shall be subordinated to any Liens securing any High Yield
Debt that is senior to the Notes.
11.4 Restricted Payments. Unless (a) no Event of Default or
-------------------
Potential Event of Default shall exist which is continuing and (b) the Company
shall have paid, in cash, all interest on the Notes on each of the prior three
Payment Dates, the Company shall not declare or make any Restricted Payment;
provided that the restriction set forth in clause (b) shall not apply to
- --------
Restricted Payments made by the Company in respect of (i) shares of Series A
Convertible Preferred Stock, $.01 par value per share, which are outstanding and
held by AT&T PCS, TWR or any other wholly-owned Subsidiary of AT&T which
payments shall not exceed $100 per share per year and (ii) the repurchase or
redemption of any Capital Stock of the Company held by any member of management
of the Company or any Subsidiary pursuant to a management subscription
agreement, stock option agreement, restricted stock option agreement or other
similar agreement in an amount not to exceed $4,000,000 in any twelve-month
period (it being understood that any portion which is not used in any twelve-
month period may be carried forward to one or more future twelve-month periods
so long as the aggregate of all unused amounts that may be carried forward to
any twelve-month period shall not exceed $16,000,000).
11.5 Consolidation, Merger, Sale of Assets, etc. The Company shall
-------------------------------------------
not, and shall not permit any Restricted Subsidiary to, directly or indirectly:
(a) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it, except that:
(i) any Restricted Subsidiary of the Company may consolidate with
or merge into the Company or a Wholly-Owned Subsidiary (or any Person
who, after giving effect to any such merger or consolidation would be
a Wholly-Owned Subsidiary) if the Company or such Restricted
Subsidiary, as the case may be, shall be the surviving corporation and
if, immediately after giving effect to such transaction, no condition
or event shall exist which constitutes an Event of Default or
Potential Event of Default;
(ii) any corporation (other than a Subsidiary) may consolidate
with or merge into the Company if the Company shall be the surviving
corporation and if, immediately after giving effect to such
transaction, (x) substantially all the assets
-
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<PAGE>
of the Company shall be located and substantially all its business
shall be conducted within the United States and Puerto Rico, (y) the
-
Company's Consolidated Net Worth shall not be less than the
Consolidated Net Worth of the Company immediately prior to such
transaction and (z) no condition or event shall exist which
-
constitutes an Event of Default or Potential Event of Default; and
(iii) the Company may consolidate with or merge into any other
corporation if (w) the surviving corporation is a corporation
-
organized and existing under the laws of the United States of America
or a state thereof, with substantially all its assets located and
substantially all its business conducted within the United States and
Puerto Rico, (x) such corporation expressly assumes, by an agreement
-
reasonably satisfactory in substance and form to the Required Holders
(which agreement may require the delivery in connection with such
assumption of such opinions of counsel as such Holders may reasonably
require), the obligations of the Company under this Agreement and
under the Notes, (y) immediately after giving effect to such
-
transaction (and such assumption), the Company's Consolidated Net
Worth shall not be less than the Consolidated Net Worth of the Company
immediately prior to such transaction and (z) immediately after giving
-
effect to such transaction no condition or event shall exist which
constitutes an Event of Default or a Potential Event of Default; or
(b) sell, lease, abandon or otherwise dispose of all or substantially
all its assets, except that:
(iv) any Restricted Subsidiary of the Company may sell, lease or
otherwise dispose of all or substantially all its assets to the
Company or a Wholly-Owned Subsidiary; and
(v) the Company may sell, lease or otherwise dispose of all or
substantially all its assets to any corporation into which the Company
could be consolidated or merged in compliance with subdivision
(a)(iii) of this section 11.5; provided that (x) each of the
-------- -
conditions set forth in such subdivision (a)(iii) shall have been
fulfilled, and (y) no such disposition shall relieve the Company from
-
its obligations under this Agreement or the Notes.
11.6 Requirements of Law. Each of the Company and its Subsidiaries
-------------------
shall comply with all applicable Requirements of Law and obtain and comply in
all material respects with and maintain any and all Licenses necessary for its
operations, except to the extent that the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
11.7 Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any Restricted Subsidiary to, directly or indirectly, engage in
any transaction material to the
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<PAGE>
Company or any Restricted Subsidiary (including, without limitation, the
purchase, lease, sale or exchange of assets or the rendering of any service)
with any Affiliate, except upon fair and reasonable terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those which might be obtained, in the good faith judgment of the Company, in an
arm's length transaction at the time from Persons which are not Affiliates and,
in the case of any transaction between the Company and any Management
Stockholder(or any Affiliate of any Management Stockholder) shall have been
approved by a majority of the directors (excluding any directors who are either
Management Stockholders or who are selected by the Management Stockholders and
are not subject to approval by any of the other holders of the Capital Stock of
the Company); provided that the foregoing restrictions shall not apply to the
transactions contemplated under the Transaction Documents or any transaction
between the Company and any Wholly-Owned Subsidiary or between one Wholly-Owned
Subsidiary and another Wholly-Owned Subsidiary.
11.8 Corporate Existence, etc.; Business. The Company shall at all
-----------------------------------
times preserve and keep in full force and effect its corporate existence,
rights, qualifications and franchises (including, without limitation, all
Licenses) deemed material to its business and those of each of its Subsidiaries
(including, in the case of TeleCorp Holdings, its qualification as a "very
small business" as defined as 47 C.F.R. 101.112(b) other than by reason of its
annual gross revenues), except as otherwise specifically permitted by section
11.5 and except to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect.
11.9 Limitation on Designation of Unrestricted Subsidiaries. The
------------------------------------------------------
Company may designate any Subsidiary of the Company (other than the Real
Property Subsidiary and the Equipment Subsidiary) as an "Unrestricted
Subsidiary" under this Agreement (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and
(ii) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Value of the aggregate amount of its Investments in such Subsidiary on such
date;
(iii) the Company would be permitted to incur $1.00 of additional
Debt pursuant to the terms of any supplemental indenture to the Indenture
at the time of Designation (assuming the effectiveness of such
Designation); and
(iv) such Subsidiary does not and will not own or hold any FCC
licenses (other than FCC licenses in respect of cellular communications
covering an area that has been built out and is, on the date of
Designation, actively and continuously in operation).
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<PAGE>
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment in an amount equal to
the Designation Amount.
The Company shall not, and shall not permit any Restricted Subsidiary,
at any time (x) to 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 such Debt), (y) be directly or indirectly
liable for any Debt of any Unrestricted Subsidiary or (z) be directly or
indirectly liable for any Debt which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to 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 such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under the terms of any covenant with respect to Restricted
Payments contained in a this Agreement. The Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time, have
been permitted to be incurred for all purposes of this Agreement.
All Designations and Revocations must be evidenced by resolutions of
the Board delivered to you certifying compliance with the foregoing provisions.
11.10 Limitation on Activities of the Company and the Restricted
----------------------------------------------------------
Subsidiaries. The Company shall not, and shall not permit any Restricted
- ------------
Subsidiary to, engage in any business other than a Permitted Business, except to
such extent as is not material to the Company and its Restricted Subsidiaries,
taken as a whole.
12. Events of Default; Acceleration. If any of the following
-------------------------------
conditions or events ("Events of Default") shall occur and be continuing:
(a) if the Company shall default in the payment of any principal of or
premium, if any, on or any other amount (other than interest not paid in
connection with a prepayment or redemption) with respect to any Note when the
same becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
(b) if the Company shall default in the payment of any cash interest
(other than interest paid in connection with a prepayment or redemption) or pay-
in-kind interest on any Note for more than 15 days after the same becomes due
and payable; or
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<PAGE>
(c) if the Company shall default in the performance of section 11.5;
or
(d) if the Company shall default in the performance of or compliance
with any other term contained in this Agreement and such default shall not have
been remedied within 30 days after such failure shall first have become known to
any Responsible Officer of the Company or written notice thereof shall have
been received by the Company from any holder of any Note; or
(e) if any representation or warranty made in writing by or on behalf
of the Company in this Agreement or in any instrument furnished in compliance
with this Agreement shall prove to have been false or incorrect in any material
respect on the date as of which made; or
(f) if the Company or any Subsidiary shall default (as principal or
guarantor or other surety) in the payment of any principal of or premium or
interest on any Senior Debt which is outstanding in a principal amount of at
least $15,000,000 (or on any one or more items of Senior Debt which are
outstanding in the aggregate in a principal amount of at least $15,000,000), or
if any event shall occur or condition shall exist in respect of any such Senior
Debt or under any evidence of any such Senior Debt or of any mortgage, indenture
or other agreement relating thereto, the effect of which default in payment
event or condition is to cause the acceleration of the payment of such Senior
Debt, or to require the Company or Subsidiary to repurchase such Senior Debt,
before its stated maturity or before its regularly scheduled dates of payment;
provided that in the event such default in payment or such event or condition is
- --------
waived and any acceleration rescinded prior to the acceleration of the Notes or
the commencement of any exercise of remedies under section 13 and in any event
within 30 days following such occurrence by each affected holder of such Senior
Debt and by each Person that acquired a remedy as a result of such default in
payment or such event or condition, then such default in payment or such event
or condition shall be deemed waived hereunder; or
(g) if a final judgment or judgments shall be rendered against the
Company or any Subsidiary for the payment of money in excess of $15,000,000 in
the aggregate (excluding any such judgment covered by insurance not disputed by
the carrier thereof) and any one of such judgments shall not be discharged or
execution thereon stayed or bonded pending appeal within 90 days after entry
thereof or, in the event of such a stay, such judgment shall not be discharged
or satisfied within 90 days after such stay expires; or
(h) if the Company or any Material Subsidiary shall (i) be generally
not paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) be finally
adjudicated insolvent or (vi) take corporate action for the purpose of any of
the foregoing; or
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<PAGE>
(i) if a court or Governmental Authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any Material
Subsidiary, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
if an order for relief shall be entered in any case or proceeding for
liquidation or reorganization or otherwise to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution, winding-up
or liquidation of the Company or any Material Subsidiary, or if any petition for
any such relief shall be filed against the Company or any Material Subsidiary
and such petition shall not be dismissed within 60 days; or
(j) the Company shall be in default of or shall breach any of its
obligations under the Procurement Contract and as a result thereof such
Procurement Contract shall have terminated; provided that no Event of Default
--------
shall exist under this clause (j) if none of the Notes are then held by the
Vendor or, if held by the Vendor, participations have been granted in such Notes
(other than participations to Persons who are Affiliates), then (i) (A) upon
the occurrence of any Event of Default described in paragraphs (h) and (i) of
this section 12, the Commitments shall automatically terminate and (B) with
respect to any other Event of Default, the Required Holders of the Notes
(subject to section 17) may by notice to the Company declare the Commitments
terminated forthwith whereupon the Commitments shall be terminated, and (ii) (A)
upon the occurrence of any Event of Default described in paragraphs (h) and (i)
of this section 12, the unpaid principal amount of and accrued interest on the
Notes shall automatically be due and payable or (B) with respect to any other
Event of Default (x) if such event is an Event of Default described in
paragraphs (a), (b), (f) or (j), of this section 12 the Required Holders of
Notes at such time outstanding (subject to section 17) may at any time (unless
all defaults shall have been remedied) at its or their option, by written notice
or notices to the Company, declare the Notes to be due and payable; or (y) if
-
such event is an Event of Default described in any other paragraph of this
section 12 and such event occurs before the Credit Agreement shall have been
executed and delivered and shall be in full force and effect, the Required
Holders of the Notes (subject to section 17) may declare the Notes due and
payable; whereupon, with reference to any such declaration, the Notes shall
forthwith mature and become due and payable together with interest accrued
thereon, without presentment, demand, protest or notice, all of which are hereby
waived.
At any time after the principal of, and interest on, all the Notes are
declared due and payable, the holders of 66% or more in aggregate principal
amount of the Notes then outstanding, by written notice to the Company, may
rescind and annul any such declaration and its consequences if (1) the Company
has paid all overdue interest on the Notes and the principal of, and premium, if
any, on any Notes which have become due otherwise by reason of such declaration,
and interest on such overdue principal and premium and (to the extent permitted
by applicable law) any overdue interest in respect of the Notes at the rate of
2% per annum above the then effective rate of interest on the Notes, (2) all
Events of Default, other than non-payment of amounts which have become due
solely by reason of such declaration, and all conditions and
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<PAGE>
events which constitute Events of Default or Potential Events of Default have
been cured or waived and (3) no judgment or decree shall have been entered for
the payment of any monies due pursuant to the Notes or this Agreement that has
not been vacated; but no such rescission and annulment shall extend to or affect
any subsequent Event of Default or Potential Event of Default or impair any
right consequent thereon.
13. Remedies on Default, etc. If any Event of Default shall occur
-------------------------
and be continuing, the holder of any Note at the time outstanding may, to the
extent permitted by applicable law, proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in
such Note, or for an injunction against a violation of any of the terms hereof
or thereof, or in aid of the exercise of any power granted hereby or thereby or
by law or otherwise. No course of dealing and no delay on the part of any
holder of any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or remedies.
No right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.
14. Subordination.
-------------
14.1 Notes Subordinate to Senior Debt. The Company covenants and
--------------------------------
agrees, and each holder of a Note, by its acceptance thereof, likewise covenants
and agrees, that, to the extent and in the manner hereinafter set forth in this
section, the payment of the principal of, premium, if any, and interest on each
and all the Notes and the repurchase, redemption or other retirement of the
Notes is hereby expressly made subordinate and subject in right of payment to
the prior payment in full in cash or cash equivalents or, as acceptable to the
holders of Senior Debt, in any other manner, of all Senior Debt in the manner
set forth in this section 14. The terms of this section 14 are for the benefit
of, and shall be enforceable directly by, each holder of Senior Debt, and each
holder of Senior Debt whether now outstanding or hereafter created, incurred,
assumed or guaranteed shall be deemed to have acquired such Senior Debt in
reliance upon the covenants and provisions contained in this Agreement.
14.2 Payment of Proceeds Upon Dissolution, Etc. Upon any payment or
-----------------------------------------
distribution of assets of the Company to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or liabilities or any bankruptcy,
reorganization, receivership, insolvency or similar proceedings of the Company
or its property, whether voluntary or involuntary (each such event, if any,
herein sometimes referred to as a "Proceeding"):
(a) The holders of Senior Debt shall receive payment in full in cash
or cash equivalents or, as acceptable to the holders of Senior Debt, in any
other manner, of all amounts due on or to become due on or in respect of all
Senior Debt (including any interest accruing thereon after the commencement of
any such Proceeding, whether or not allowed as a claim
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<PAGE>
against the Company in such Proceeding) or provision shall be made for such
payment in a manner acceptable to such holders before the holders of the Notes
are entitled to receive any payment or distribution whether by setoff,
exercising contractual or statutory rights or otherwise and whether in the form
of cash, stock or property or otherwise (excluding any payment or distribution
described in the last paragraph of section 14.2(b)), on account of the principal
of, premium, if any, interest on or any other obligation owing in respect of the
Notes or on account of any purchase, redemption or other acquisition of Notes by
the Company (all such payments, distributions, purchases, redemptions and
acquisitions, whether or not in connection with a Proceeding (but excluding any
payment or distribution described in the last paragraph of section 14.2(b)),
being herein referred to, individually and collectively, as a "Securities
Payment"); and
(b) Any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, by set-off or otherwise,
to which the holders of the Notes would be entitled but for the provisions of
this section 14, shall be paid by the Company or the liquidating trustee or
agent or other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to the
holders of Senior Debt or their representatives or trustees under any credit
agreement, indenture or other agreement under which any such Senior Debt may
have been issued, ratably according to the aggregate amounts remaining unpaid on
account of the Senior Debt held or represented by each, to the extent necessary
to make payment in full in cash or cash equivalents or, as acceptable to the
holders of Senior Debt, in any other manner, of all Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
In the event that, notwithstanding the foregoing provisions of this
section, the holder of any Notes shall have received in connection with any
Proceeding any Securities Payment before all Senior Debt is paid in full or
payment thereof is provided for in cash or cash equivalents, then and in such
event such Securities Payment shall be held in trust for the benefit of and paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to make payment in full in
cash or cash equivalents or, as acceptable to the holders of the Senior Debt, in
any other manner, of all Senior Debt remaining unpaid after giving effect to any
concurrent payment to or for the holders of Senior Debt.
For purposes of this section 14 only, the words "payment or
distribution" or "any payment or distribution of any kind or character, whether
in cash, property or securities" shall not be deemed to include a payment or
distribution of stock or securities of the Company provided for by a plan of
reorganization or readjustment authorized by an order or decree of a court of
competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy law or of any other corporation provided for by such plan of
reorganization or readjustment, which stock or securities are subordinated in
right of payment to all then outstanding Senior Debt to substantially the same
extent, or to a greater extent than, the Notes are so subordinated as
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<PAGE>
provided in this section 14. The consolidation of the Company with, or the
merger of the Company into, another Person or the liquidation or dissolution of
the Company following the conveyance, transfer or lease of all or substantially
all of its properties and assets to another Person upon the terms and conditions
set forth in section 11.5 and so long as permitted under the terms of the Senior
Debt shall not be deemed a Proceeding for the purposes of this section if the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by conveyance, transfer or lease such properties and
assets, as the case may be, shall, as a part of such consolidation, merger,
conveyance, transfer or lease, comply with the conditions set forth in section
14.
(c) To the extent any payment of Senior Debt (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred.
14.3 No Payment When Senior Debt in Default. In the event that any
--------------------------------------
Senior Payment Default (as defined below) shall have occurred and be continuing,
then no Securities Payment whether by setoff, exercising contractual or
statutory rights or otherwise and whether in the form of cash, stock or property
or otherwise shall be made, unless and until such Senior Payment Default shall
have been cured or waived in writing or shall have ceased to exist or all
amounts then due and payable in respect of such Senior Debt (including, without
limitation, amounts that have become and remain due by acceleration) shall have
been paid in full in cash. "Senior Payment Default" means any default in the
payment of the principal of, premium, if any, or interest on any Senior Debt
when due, whether at the stated maturity of any such payment or by declaration
of acceleration, call for redemption, notice of the exercise of an option to
require such repayment, mandatory payment or prepayment or otherwise.
In the event that any Senior Nonmonetary Default (as defined below)
shall have occurred and be continuing, then, upon the receipt by the Company of
written notice of such Senior Nonmonetary Default from the Administrative Agent
to which such Senior Nonmonetary Default relates or, if no loans or other
amounts are then outstanding under the Credit Agreement or any renewal,
extension or refunding thereof, and the Credit Agreement and any such renewal,
extension or refunding have been terminated, upon receipt of such notice by or
on behalf of any other holder or holders of Senior Debt in an aggregate amount
in excess of $25,000,000, no Securities Payment shall be made whether by setoff,
exercising contractual or statutory rights or otherwise and whether in the form
of cash, stock or property or otherwise during the period (the "Payment Blockage
Period") commencing on the date of such receipt by the Company of such written
notice and ending on the earlier of (a) the date, if any, on which the Senior
Debt to which such Senior Nonmonetary Default relates is discharged or such
Senior Nonmonetary Default
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<PAGE>
shall have been cured or waived in writing or shall have ceased to exist and any
acceleration of Senior Debt to which such Senior Nonmonetary Default relates
shall have been rescinded or annulled and (b) the 179th day after the date of
receipt of such written notice. No more than one Payment Blockage Period may be
commenced with respect to the Notes during any period of 360 consecutive days
and there shall be a period of at least 181 consecutive days in each period of
360 consecutive days when no Payment Blockage Period is in effect. Following the
commencement of any Payment Blockage Period, the holders of Senior Debt shall be
precluded from commencing a subsequent Payment Blockage Period until the
conditions set forth in the preceding sentence shall have been satisfied. For
all purposes of this paragraph, no Senior Nonmonetary Default that existed and
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Senior Debt initiating such Payment Blockage Period shall be, or
may be made, the basis for the commencement of a subsequent Payment Blockage
Period by any holder of Senior Debt or any representative or trustee under any
indenture under which any such Senior Debt may have been issued unless such
Senior Nonmonetary Default shall have been cured for a period of not less than
90 consecutive days. "Senior Nonmonetary Default" means any default (other than
a Senior Payment Default), under the terms of any instrument or agreement
pursuant to which any Senior Debt is outstanding, permitting one or more holders
of such Senior Debt or any representative or trustee under any indenture under
which any such Senior Debt may have been issued to declare such Senior Debt due
and payable prior to the date on which it would otherwise become due and
payable.
In the event that, notwithstanding the foregoing, the Company shall
make any Securities Payment to any holder prohibited by the foregoing provisions
of this section 14.3, then in such event such Securities Payment shall be held
in trust and paid over and delivered forthwith to the representatives or trustee
under any indenture under which any such Senior Debt may have been issued
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Debt held or represented by under the Senior Debt or, if there is no such
representative or trustee with respect to such Senior Debt, to the holders of
such Senior Debt.
The provisions of this section 14.3 shall not apply to any Securities
Payment with respect to which section 14.2 hereof would be applicable.
14.4 Acceleration of Subordinated Debt. If an Event of Default
---------------------------------
shall have occurred and be continuing (other than an Event of Default pursuant
to paragraphs (h) or (i) of section 12), the holders of the Notes shall give the
holders of the Senior Debt not less than 30 days prior written notice before
accelerating the Notes which notice shall state it is a "Notice of Intent to
Accelerate". Upon such declaration, the holders of Senior Debt outstanding at
the time such Subordinated Debt so becomes due and payable shall be entitled to
receive payment in full in cash, cash equivalents or, as acceptable to the
holders of the Senior Debt, in any other manner on all amounts due or to become
due on or in respect of such Senior Debt, before the Company may make, and
before any holder of Subordinated Debt is entitled to receive, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
securities or other property on account of any Subordinated Debt. All payments
in respect of the
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<PAGE>
Subordinated Debt postponed under this section 14.4 shall be immediately due and
payable upon the termination of such postponement; the remittance in full of
such payments by the Company in accordance with the terms of the this Agreement
and the acceptance thereof by the holders of the Notes shall be deemed to
constitute a cure by the Company and a waiver by the holders of the Notes of any
Event of Default that existed immediately prior to such remittance and
acceptance to the extent that such Event of Default existed solely as a
consequence of the previous non-payment of such postponed payments during such
period of postponement.
14.5 Payment Permitted If No Default. Nothing contained in this
-------------------------------
section 14 or elsewhere in this Agreement or in any of the Notes shall prevent
the Company, at any time except during the pendency of any Proceeding referred
to in section 14.2 or under the conditions described in section 14.3, from
making Securities Payments in accordance with the terms of this Agreement.
Nothing in this section 14 shall have any effect on the right of the holders to
accelerate the maturity of the Notes upon the occurrence of an Event of Default,
but, in that event, no payment may be made in violation of the provisions of
this section 14 with respect to the Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
the holders of the Senior Debt (or their representatives) of such acceleration.
14.6 Subrogation To Rights of Holders of Senior Debt. Subject to
-----------------------------------------------
the payment in full in cash or cash equivalents, or as acceptable to the holders
of Senior Debt, in any other manner, of all Senior Debt, the holders of the
Notes shall be subrogated to the rights of the holders of such Senior Debt to
receive payments and distributions of cash, property and securities applicable
to the Senior Debt until the principal of, premium, if any, and interest on the
Notes shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holders of the Notes would be entitled except for the
provisions of this section 14, and no payments pursuant to the provisions of
this section 14 to the holders of Senior Debt by holders of the Notes, shall, as
among the Company, its creditors other than holders of Senior Debt and the
holders of the Notes, be deemed to be a payment or distribution by the Company
to or on account of the Senior Debt.
14.7 Provisions Solely To Define Relative Rights. The provisions
-------------------------------------------
of this section 14 are and are intended solely for the purpose of defining the
relative rights of the holders of the Notes on the one hand and the holders of
Senior Debt on the other hand. Nothing contained in this section 14 or
elsewhere in this Agreement or in the Notes is intended to or shall (a) impair,
as among the Company, its creditors other than holders of Senior Debt and the
holders of the Notes, the obligation of the Company, which is absolute and
unconditional (and which, subject to the rights under this section 14 of the
holders of Senior Debt, is intended to rank equally with all other general
obligations of the Company), to pay to the holders of the Notes the principal
of, premium, if any, and interest on the Notes as and when the same shall become
due and payable in accordance with their terms; or (b) affect the relative
rights against the Company of the holders of the Notes and creditors of the
Company other than the holders of Senior Debt; or (c) prevent the holder of any
Note from exercising all remedies otherwise permitted by
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<PAGE>
applicable law upon default under this Agreement, subject to this section 14,
including the rights, if any, under this section 14 of the holders of Senior
Debt to receive cash, property and securities otherwise payable or deliverable
to such holder or, under the conditions specified in section 14.3, to prevent
any payment prohibited by such section or enforce their rights pursuant to the
penultimate paragraph in section 14.
14.8 No Waiver of Subordination Provisions. No right of any
-------------------------------------
present or future holder of any Senior Debt to enforce the subordination
provisions provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Agreement,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the holders of the Notes, without incurring
responsibility to the holders of the Notes and without impairing or releasing
the subordination provided in this section 14 or the obligations hereunder of
the holders of the Notes to the holders of Senior Debt, do any one or more of
the following: (a) change the manner, place or terms of payment or extend the
time of payment of, or renew, refinance or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding; (b) permit the
Company to borrow, repay and then reborrow any or all the Senior Debt; (c) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (d) release any Person liable in any manner for
the collection of Senior Debt; (e) exercise or refrain from exercising any
rights against the Company and any other Person; and (f) apply any sums received
by such holders to Senior Debt.
14.9 Reliance On Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Company referred to in this
section 14, the holders of the Notes shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such Proceeding
is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the holders of Notes, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this section 14; provided that the foregoing shall apply
--------
only if such court has been apprised of the provisions of this section 14.
15. Definitions. As used herein the following terms have the
-----------
following respective meanings:
Additional Notes: the meaning specified in section 1.
----------------
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Additional Series A Notes: the additional Series A Notes issued by the
-------------------------
Company in lieu of payment of cash interest on the Series A Notes.
Additional Series B Notes: the additional Series B Notes issued by
-------------------------
the Company in lieu of payment of cash interest on the Series B Notes.
Administrative Agent: The Chase Manhattan Bank in its capacity as
--------------------
administrative agent for the Lenders under the Credit Agreement and any
successor thereto.
Affiliate: any Person directly or indirectly controlling or
---------
controlled by or under common control with another Person or any Subsidiary of
such other Person; provided that, for purposes of this definition, "control"
--------
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
Amendment No. 7: the meaning specified in the introduction.
---------------
Asset Purchase Agreement: the Asset Purchase Agreement dated as of
------------------------
May 24, 1999 between AT&T PCS and the Company.
Assignee: the meaning specified in section 23.3.
--------
Assignment and Acceptance: the meaning specified in section 23.3.
-------------------------
AT&T: AT&T Corp.
----
AT&T PCS: AT&T Wireless PCS, Inc.
--------
AT&T Stock Purchase Agreement: the Preferred Stock Purchase Agreement
-----------------------------
dated as of May 24, 1999 between the Company and AT&T PCS.
Base Case: the meaning specified in section 28.
---------
Benefitted Holder: the meaning specified in section 25.
-----------------
Board: the Board of Directors of the Company.
-----
BTA: a Basic Trading Area as defined in 47 C.F.R. 24.202, as amended
---
from time to time.
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<PAGE>
Business Day: any day except a Saturday, a Sunday or other day on
------------
which commercial banks in New York City are required or authorized by law to be
closed.
C Block: frequencies designated as Block C by the FCC in 47 C.F.R.
-------
24.229(b) or any successor provision thereof.
Capital Lease: as applied to any Person, any lease of any property
-------------
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
Capital Lease Obligation: with respect to any Capital Lease, the
------------------------
amount of the obligation of the lessee thereunder which would, in accordance
with GAAP, appear on a balance sheet of such lessee in respect of such Capital
Lease.
Capital Stock: any and all shares, interests, participations or other
-------------
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
Cash Equity Investors: the investors referred to on Schedule I to the
---------------------
Securities Purchase Agreement.
Change of Control: the occurrence of any of the following events:
-----------------
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) 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, became the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all such securities that such person has the
right to acquire within one year, upon the happening of an event or
otherwise) directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding Voting Stock;
(2) the following individuals cease for any reason to constitute more
than a majority of the number of directors then serving on the board of
directors of the Company: individuals who, on April 23, 1999, constitute
the board of directors of the Company 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 directors of the Company) whose
appointment or election by the board of directors of the Company or
nomination for election by the Company's 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
-38-
<PAGE>
previously so approved or recommended or made in accordance with the terms
of the Stockholders' Agreement; or
(3) the stockholders of the Company shall approve any Plan of
Liquidation (whether or not otherwise in compliance with the provisions of
the Indenture).
Closing: the reference to any Series A Closing or Series B Closing,
-------
as the context may require.
Code: the Internal Revenue Code of 1986, as amended from time to
----
time.
Commitments: the collective reference to the Series A Note Commitment
-----------
and the Series B Note Commitment.
Commonly Controlled Entity: an entity, whether or not incorporated,
--------------------------
which is under common control with the Company within the meaning of Section
4001 of ERISA or is part of a group which includes the Company and which is
treated as a single employer under Section 414 of the Code.
Communications Act: The Communications Act of 1934 and the rules and
------------------
regulations thereunder, as amended from time to time.
Company: TeleCorp PCS, Inc.
-------
Competitor: any Person which is engaged directly or indirectly in the
----------
ownership or operation of a wireless telecommunications system encompassing at
least one MTA; provided that a Person (a) which is solely a passive investor in
--------
companies engaged in the same or related business as the Company or (b) which
purchases or to whom the Company or any agent of the Company offers Senior Debt
of the Company shall not be a Competitor.
Consolidated Net Worth: the total of the amounts shown on the balance
----------------------
sheet of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as (a) the par or stated value of
all outstanding Capital Stock of such Person plus (b) paid-in capital or capital
surplus relating to such Capital Stock plus (c) any retained earnings or earned
surplus less (i) any accumulated deficit, (ii) any amounts attributable to
Redeemable Stock and (iii) any amounts attributable to Exchangeable Stock.
Credit Agreement: Credit Agreement dated as of July 17, 1998 among
----------------
the Company, the Lenders, the Administrative Agent, TD Securities (USA) Inc. as
Syndication Agent and Bankers Trust Company, as Documentation Agent, as amended
by First Amendment, Consent and Waiver, dated as of December 18, 1998, Second
Amendment and Waiver, dated as of March 1, 1999, Third Amendment, dated as of
March 30, 1999, Fourth Amendment, dated as
-39-
<PAGE>
of March 31, 1999, Fifth Amendment and Acceptance, dated as of April 7, 1999,
Sixth Amendment, dated as of April 7, 1999 and Seventh Amendment, dated as of
May 21, 1999.
Debt: as applied to any Person (without duplication):
----
(a) any indebtedness for borrowed money which such Person has directly
or indirectly created, incurred or assumed; and
(b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument; and
(c) any indebtedness, whether or not for borrowed money, secured by
any Lien in respect of property owned by such Person, whether or not such
Person has assumed or become liable for the payment of such indebtedness;
and
(d) any indebtedness, whether or not for borrowed money, including any
Capital Lease Obligation, with respect to which such Person has become
directly or indirectly liable and which represents or has been incurred to
finance the purchase price (or a portion thereof) of any property or
services or business acquired by such Person, whether by purchase,
consolidation, merger or otherwise (excluding accounts payable incurred in
the ordinary course of business, if such accounts payable are not more than
90 days past due);
(e) any indebtedness owing to the FCC with respect to payments for
Licenses; and
(f) any indebtedness of any other Person of the character referred to
in subdivision (a), (b), (c), (d) or (e) of this definition with respect to
which the Person whose Debt is being determined has become liable by way of
a Guaranty.
Default: any event or occurrence that with the passing of time or
-------
giving of notice or both would be an Event of Default.
Designated Areas: the meaning specified in the introduction.
----------------
Designation: the meaning specified in Section 11.9.
-----------
Designation Amount: the meaning specified in Section 11.9
------------------
Digital PCS: Digital PCS, L.L.C., a Mississippi limited liability
-----------
company.
Disclosure Schedule: the Disclosure Schedule attached as Schedule B
-------------------
to this Agreement.
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<PAGE>
EBITDA: shall mean, for any period of determination, an amount equal
------
to the sum of (without duplication) (a) Net Income for such period, after
deduction of (i) all items which should be classified as extraordinary, all
determined in accordance with GAAP; (ii) all insurance proceeds (other than
proceeds of business interruption insurance) received during such period to the
extent, if any, included in Net Income and (iii) tax adjusted gains (or
inclusion of tax adjusted losses) incurred in connection with the disposition of
capital assets, plus (b) all amounts deducted in computing such Net Income in
respect of (i) Interest Expense (after giving effect to all Hedging Agreements
and payments and receipts thereunder), (ii) noncash amortization expense
(including amortization of financing costs, noncurrent assets and non-cash
charges), (iii) depreciation, (iv) income taxes and (v) all other non-cash
expenses.
Effective Date: the date on which all the conditions set forth in
--------------
Section 5.1 are satisfied or waived.
Eligible Assignee: any Person who is either an accredited investor
-----------------
(as defined in Rule 501 under the Securities Act) or a Qualified Institutional
Buyer (as defined in Rule 144A under the Securities Act) and is (a) a commercial
bank having total assets in excess of $250,000,000, an insurance company or
other similar financial institution, (b) any other entity which is (or which is
managed by a manager which manages funds which are) primarily engaged in making,
purchasing or otherwise investing in commercial loans or extending, or investing
in extensions of, credit for its own account in the ordinary course of its
business, which has total assets in excess of $250,000,000, (c) a fund
principally engaged in investing in commercial loans, debt securities or other
extensions of credit or (d) a Person which is not a Competitor and has total
assets in excess of $250,000,000.
Equipment Subsidiary: TeleCorp Equipment Leasing L.P. and/or any
--------------------
other Wholly-Owned Subsidiary of the Company designated as an Equipment
Subsidiary under the Credit Agreement.
Equity Issuance: the issuance after the Initial Series A Closing Date
---------------
of any Capital Stock or the receipt of any capital contribution (other than
capital contributions in an aggregate amount equal to $133,000,000 pursuant to
the Securities Purchase Agreement, $32,300,000 in connection with the
acquisition of certain C Block Licenses by Viper Wireless, Inc., $79,900,000 in
connection with the San Juan Acquisition (as defined in the Credit Agreement)
and other than any private placement of Capital Stock of the Company the
proceeds of which are applied substantially concurrently to acquire assets or
Capital Stock of a Permitted Business as defined in clause (i) or (ii) of the
definition thereof, or to pay or reimburse costs incurred in connection
therewith) by the Company.
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
Event of Default: the meaning specified in section 12.
----------------
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<PAGE>
Exchange Act: the Securities Exchange Act of 1934.
------------
Exchangeable Stock: any Capital Stock which is exchangeable or
------------------
convertible into a debt security of the issuer or any of its subsidiaries.
Existing Note Agreement: the meaning specified in the introduction.
-----------------------
Expansion Areas: the meaning specified in section 28.
---------------
Expansion Notes: the meaning specified in section 28.
---------------
Fair Value: with respect to any asset or property, the price that
----------
could be negotiated in an arm's-length transaction, for cash, between a willing
seller and a willing buyer, neither of whom is under pressure or compulsion to
complete the transaction. Unless otherwise specified in this Agreement, Fair
Value shall be determined by the Board acting in good faith.
FCC: The Federal Communications Commission or any successor thereto.
---
Financial Statements: the meaning specified in section 6.4(a).
--------------------
Financing Transactions: the meaning specified in the introduction.
----------------------
Five-Year No-Call: the meaning specified in section 24(c).
-----------------
Funded Debt: all Debt of the Company and its Subsidiaries other than
-----------
Debt that ranks pari passu or junior to the Notes.
Funded Debt Documents: any loan or credit agreement, note, security
---------------------
document or other agreement or instrument evidencing, setting forth the terms
of, or creating a lien on or security interest in property or assets which
secures any Funded Debt of a Person.
GAAP: shall mean generally accepted accounting principles in the
----
United States of America consistent with those utilized in preparing the audited
financial statements referred to in section 8.1.
General Agreement: the meaning specified in the introduction.
-----------------
Governing Documents: as to any Person, its articles or certificate of
-------------------
incorporation and by-laws, its partnership agreement, its certificate of
formation and operating agreement, or the other organizational or governing
documents of such Person.
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<PAGE>
Governmental Authority: any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Guaranty: as applied to any Person, any direct or indirect liability,
--------
contingent or otherwise, of such Person with respect to any indebtedness, lease,
dividend or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business) or discounted or sold
with recourse by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation in effect guaranteed by such Person through any agreement (contingent
or otherwise) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of such
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), or to maintain the solvency or any balance sheet or
other financial condition of the obligor of such obligation, or to make payment
for any products, materials or supplies or for any transportation or services
regardless of the non-delivery or nonfurnishing thereof, in any such case if the
purpose or intent of such agreement is to provide assurance that such obligation
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected against
loss in respect thereof. The amount of any Guaranty shall be equal to the
outstanding principal amount of the obligation guaranteed.
Hedging Agreements: (a) any interest rate protection agreement,
------------------
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement under which the Company or any
Subsidiary is a party or a beneficiary and (b) any other agreement or
arrangement designed to limit or eliminate the risk and/or exposure of the
Company or any Subsidiary to fluctuations in currency exchange rates.
High Yield Debt: any Debt issued pursuant to a High Yield Offering.
---------------
High Yield Offering: an offering, either in a registered public
-------------------
offering or a private placement, of notes, bonds or other securities that are
senior to the Notes but shall not include (a) any private placement (other than
pursuant to Rule 144(a) of the Securities Act) of such notes, bonds or other
securities to be issued in connection with the financing of an Expansion Area or
(b) any note issued pursuant to the Credit Agreement or any replacement credit
facility which is utilized to refinance the Debt under the Credit Agreement.
Indemnified Party: the meaning specified in section 22.
-----------------
Indenture: the meaning specified in the introduction.
---------
Indenture Act: The Trust Indenture Act of 1939, as amended from time
-------------
to time.
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<PAGE>
Initial Series A Closing Date: June 16, 1998.
-----------------------------
Initial Series B Closing: the meaning specified in section 3.2(a).
------------------------
Initial Series B Closing Date: the date on which the conditions
-----------------------------
contained in section 5.2 have been satisfied or waived by you.
Initial Series B Commitment: your commitment to purchase Initial
---------------------------
Series B Notes in an original aggregate principal amount equal to $40,000,000.
Initial Series B Notes: the meaning specified in the introduction.
----------------------
Interest Expense: for any period, the sum of (a) all interest in
----------------
respect of all Funded Debt of the Company and its Subsidiaries accrued or
capitalized during such period (whether or not actually paid during such period)
plus (b) the net amount payable (or minus the net amount receivable) under
- ----
Hedging Agreements accrued during such period plus (c) all financing or
----
commitment fees in respect of Debt (exclusive of any transaction or "up front"
fees incurred in establishing or entering into any such Hedging Agreement) of
the Company and its Subsidiaries accrued or capitalized during such period
(whether or not actually paid during such period).
IPO: the issuance by the Company in an initial registered public
---
offering under the Securities Act (other than a registration statement on form
S-8 or any successor form) of shares of its Capital Stock.
Investment: with respect to any Person, 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, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person.
Lenders: the banks and other financial institutions listed as lenders
-------
from time to time under the Credit Agreement.
License: any broadband personal communications license issued by the
-------
FCC in connection with the operation of a System.
License Purchase Agreement: the License Purchase Agreement dated
--------------------------
January 23, 1998 between AT&T and the Company.
Lien: any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any
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<PAGE>
Capital Lease having substantially the same economic effect as any of the
foregoing), and the filing of any financial statement under the Uniform
Commercial Code or comparable law of any jurisdiction in respect of any of the
foregoing.
Lucent Competitor: any Person significantly engaged directly or
-----------------
indirectly in the development, manufacture and sale of telecommunications
equipment and related services.
Management Agreement: the Management Agreement between the Company
--------------------
and TeleCorp Management Corp. dated as of July 17, 1998 as amended by Amendment
No. 1 thereto dated as of May 25, 1999.
Management Stockholders: Gerald T. Vento and Thomas H. Sullivan.
-----------------------
Material Adverse Effect: a material adverse effect on (a) the
-----------------------
business, operations, affairs, condition (financial or otherwise), properties,
assets of the Company and its Subsidiaries taken as a whole, (b) the ability of
the Company or any of its Subsidiaries to perform its obligations under any of
the Transaction Documents to which it is a party and (c) the validity or
enforceability of this Agreement or the rights or remedies of the holders of
Notes.
Material Subsidiary: any Restricted Subsidiary of the Company that
-------------------
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date hereof.
Maximum Rate: (a) in the case of the Series A Notes, 12% and (b) in
------------
the case of the Series B Notes, 12%.
Mercury License Agreement: the License Acquisition Agreement dated as
-------------------------
of May 15, 1998 between Digital PCS, formerly known as Mercury PCS II, LLC, and
the Company.
MTA: a Major Trading Area as defined in 47 C.F.R. 24.202, as amended
---
from time to time.
Multiemployer Plan: any Plan which is a multiemployer plan (as such
------------------
term is defined in section 4001(a)(3) of ERISA).
Net Debt Proceeds: with respect to any High Yield Offering by the
-----------------
Company or any Subsidiary after the Initial Series B Closing Date, the excess
of: (a) the gross cash proceeds received by the Company or such Subsidiary from
such Offering, over (b) all reasonable fees and expenses incurred in connection
with such offering (including customary underwriting commissions and legal,
investment banking, brokerage and accounting, trustee fees and other
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<PAGE>
professional fees, sales commission and disbursements) which have not been paid
to Affiliates of the Company in connection therewith.
Net Income: for any period, net income (or deficit) of the Company
----------
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.
Net Securities Proceeds: with respect to any Equity Issuance by the
-----------------------
Company or any Subsidiary after the Initial Series A Closing Date, the excess
of: (a) the gross cash proceeds received by the Company or such Subsidiary from
such Issuance over (b) all reasonable fees and expenses incurred in connection
with such Issuance (including customary underwriting commissions and legal,
investment banking, brokerage and accounting fees and other professional fees,
sales commission and disbursements) which have not been paid to Affiliates of
the Company in connection therewith.
Network Membership License Agreement: the Network Membership License
------------------------------------
Agreement between AT&T and the Company dated July 17, 1998 as amended by
Amendment No. 1 thereto dated as of March 30, 1999.
Non-Excluded Taxes: the meaning specified in section 16.1(a).
------------------
Notes: the meaning specified in section 1.
-----
Offering: any public offering or private placement of Notes or
--------
Refinancing Securities, in each case, that is underwritten for resale pursuant
to Rule 144A, Regulation S or otherwise under the Securities Act to 10 or more
beneficial holders.
Officer's Certificate: with respect to the Company, a certificate
---------------------
executed on behalf of the Company by the Chairman of the Board of Directors (if
an officer) or its President or one of its Vice Presidents and its Treasurer or
one of its Assistant Treasurers.
Participants: the meaning specified in section 23.2.
------------
Payment Blockage Period: the meaning specified in section 14.3.
-----------------------
Payment Dates: the collective reference to the Series A Payment Dates
-------------
and the Series B Payment Dates.
PBGC: the Pension Benefit Guaranty Corporation or any governmental
----
authority succeeding to any of its functions.
PCS: the meaning specified in the introduction.
---
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<PAGE>
Permit: any permit, approval, authorization, certificate, license,
------
variance, filing or permission required by or from any Governmental Authority.
Permitted Business: (i) the delivery or distribution of
------------------
telecommunications, voice, data or video services;
(ii) any business or activity reasonably related or ancillary
thereto, including, without limitation, any business conducted by the
Company or any Restricted Subsidiary on the date of this Agreement and the
acquisition, holding or exploitation of any license relating to the
delivery of the services described in clause (i) above; or
(iii) any other business or activity in which the Company (and the
Restricted Subsidiaries) are expressly contemplated to be engaged pursuant
to the provisions of the certificate of incorporation and by-laws of the
Company (and the Restricted Subsidiaries) as in effect on the date of this
Agreement.
Permitted Holder: (i) each of AT&T Corp., TWR, the Cash Equity
----------------
Investors, the Management Stockholders, 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 (ii) any "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) controlled by one or more Persons identified in clause (i) above; provided
--------
that in no event shall a Permitted Holder be, directly or through any Affiliate,
a Lucent Competitor.
Person: an individual, a partnership, an association, a joint
------
venture, a corporation, a limited liability Company, a business, a trust, an
unincorporated organization or a government or any department, agency or
subdivision thereof.
Plan: any employee benefit plan which is covered by ERISA and in
----
respect of which the Company or any Subsidiary is an "employer" as defined in
Section 3(5) of ERISA other than a Multiemployer Plan.
Plan of Liquidation: with respect to any Person, a plan (including
-------------------
by operation of law) that provides for, contemplates or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously) (i) the sale, lease, conveyance or other disposition of all
or substantially all the assets of such Person and (ii) the distribution of all
or substantially all the proceeds of such sale, lease, conveyance or other
disposition and all or substantially all the remaining assets of such Person to
holders of Capital Stock of such Person.
POPs: as of any date, with respect to any BTA or MTA, the population
----
of such BTA or MTA as such number is published in the then most recently issued
retail marketing reports by Claritas, Inc. of Arlington, Virginia, or if
Claritas, Inc. is not reasonably acceptable to
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<PAGE>
the Vendor or the Company, another Person mutually acceptable to the Vendor and
the Company; provided, that if the definition of POPs in the Credit Agreement is
amended to designate Kagan Guide, the Vendor shall amend this Agreement
accordingly.
Potential Event of Default: any condition or event which, with notice
--------------------------
or lapse of time or both, would become an Event of Default.
Proceeds Redemption Amount: the meaning specified in section 10.4.
--------------------------
Proceeding: the meaning specified in section 14.2.
----------
Procurement Contract: the meaning specified in the introduction and
--------------------
shall include any assignment thereof pursuant to the terms of such Agreement.
Puerto Rico Stock Purchase Agreement: the Stock Purchase Agreement
------------------------------------
dated as of March 30, 1999 among the cash equity investors named therein, the
management stockholders named therein, Puerto Rico Acquisition Corp., a Delaware
corporation, and the Company.
Qualifying High Yield Offering: a High Yield Offering that results in
------------------------------
Net Debt Proceeds to the Company of at least $100,000,000.
Real Property Subsidiary: TeleCorp Realty L.L.C., TeleCorp Puerto
------------------------
Rico Realty, Inc. and/or any other Wholly-Owned Subsidiary of the Company
designated by the Company as a Real Property Subsidiary under the Credit
Agreement.
Redeemable Stock: any Capital Stock that by its terms or otherwise is
----------------
required to be redeemed prior to the maturity of the Notes or is redeemable at
the option of the holder thereof at any time prior to maturity of the Notes.
Refinancing Securities: securities issued by the Company which are
----------------------
exchanged by the Company for Notes held by you upon your request in connection
with a Remarketing Transfer involving at least 50% of then outstanding aggregate
principal amount of the Notes and are issued pursuant to an indenture reasonably
satisfactory to the Company and you.
Register: the meaning specified in section 23.4.
--------
Related Agreements: the collective reference to the Resale Agreement,
------------------
Management Agreement, Roaming Agreement, Roaming Administration Agreement,
Network Membership License Agreement, License Purchase Agreement and
Stockholders Agreement.
Remarketing Notice: the meaning specified in section 24(b).
------------------
Remarketing Transfer: the meaning specified in section 24(b).
--------------------
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<PAGE>
Required Holders: at any time, (a) until the first date upon which
----------------
you hold Notes and Unused Commitments in an aggregate amount less than 50% of
the aggregate Notes and Unused Commitments then outstanding, you and (b)
thereafter, holders of Notes and Unused Commitments in an aggregate amount equal
to at least a majority of the aggregate amount of Notes and Unused Commitments
then outstanding.
Requirement of Law: as to any Person, the Governing Documents of such
------------------
Person, and any law, treaty, rule, regulation or Permit or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
Resale Agreement: the form of Resale Agreement between the Company
----------------
and AT&T.
Responsible Officer: the chief executive officer and the president of
-------------------
the Company or, with respect to financial matters, the chief financial officer
or treasurer of the Company.
Restricted Payment: (a) any dividend or other distribution, direct or
------------------
indirect, on account of any shares of any class of stock of the Company or any
Subsidiary now or hereafter outstanding, except a dividend payable solely in
shares of Common Stock of the Company; (b) any redemption, retirement, purchase
or other acquisition, direct or indirect, of any shares of any class of stock of
the Company or any Subsidiary now or hereafter outstanding, or of any warrants,
rights or options to acquire any such shares, except to the extent that the
consideration therefor consists of shares of stock of the Company; and (c) any
payment of any interest on or principal or premium of, and any redemption,
retirement, purchase or other acquisition, direct or indirect, of, any Debt of
the Company or any Subsidiary which ranks pari passu with or junior to the
Notes.
Restricted Subsidiary: of a Person means any Subsidiary of such
---------------------
Person that is not an Unrestricted Subsidiary.
Revocation: the meaning specified in section 11.9.
----------
Roaming Agreement: the Intercarrier Roamer Services Agreement between
-----------------
the Company and AT&T Wireless Services, Inc. dated as of July 17, 1998 as
amended by Amendment No. 1 thereto dated as of May 25, 1999.
Roaming Administration Agreement: the Roaming Administration Service
--------------------------------
Agreement dated as of July 17, 1998 between AT&T Wireless Services, Inc. and the
Company.
Securities Act: the Securities Act of 1933.
--------------
Securities Payment: the meaning specified in section 14.2(a).
------------------
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<PAGE>
Securities Purchase Agreement. Securities Purchase Agreement dated as
-----------------------------
of January 23, 1998 among AT&T, TWR, the Cash Equity Investors, the investors
referred to on Schedule II.A thereto, the investors referred to on Schedule II.B
thereto and the Company.
Senior Debt: (a) all Debt of the Company for money borrowed,
-----------
including principal, premium, if any, interest thereon (including, without
limitation, any interest accruing subsequent to the filing of a petition of
other action concerning bankruptcy or other similar proceedings), reimbursements
and indemnification amounts, fees, expenses or other amounts relating to such
Debt (other than any such Debt which by its terms is stated to be subordinate to
or pari passu with the Notes); and (b) all renewals, extensions, refundings,
restructurings, amendments and modifications of any of the foregoing Debt.
Senior Nonmonetary Default: the meaning specified in section 14.3.
--------------------------
Senior Payment Default: the meaning specified in section 14.3.
----------------------
Series A Closing: the meaning specified in section 3.1.
----------------
Series A Closing Date: the meaning specified in section 3.1.
---------------------
Series A Coupon Rate: the meaning specified in section 4.2.
--------------------
Series A Final Maturity Date: October 23, 2009.
----------------------------
Series A Note Commitment: your commitment to purchase Series A Notes
------------------------
in an original aggregate principal amount not to exceed $52,500,000 which amount
shall be decreased on a dollar for dollar basis to the extent the Company
receives Net Securities Proceeds from Equity Issuances in an aggregate amount
which exceeds $198,000,000 subject to section 28.
Series A Note Commitment Termination Date: The earlier to occur of
-----------------------------------------
(a) June 30, 2001 or (b) such earlier date on which the Series A Note Commitment
shall terminate pursuant to the terms of the Agreement.
Series A Notes: the meaning specified in section 1.
--------------
Series A Payment Date: the meaning specified in section 4.2.
---------------------
Series B Availability Period: the period commencing on October 29,
----------------------------
1999 and continuing to but excluding June 30, 2001
Series B Closing: the meaning specified in section 3.2(b).
----------------
Series B Closing Date: the meaning specified in section 3.2(b).
---------------------
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<PAGE>
Series B Coupon Rate: as defined in section 4.3.
--------------------
Series B Final Maturity Date: October 23, 2009.
----------------------------
Series B Notes: the meaning specified in section 1.
--------------
Series B Note Commitment: your commitment to purchase Series B Notes
------------------------
in an original aggregate principal amount equal to $12,500,000 subject to
section 28.
Series B Note Commitment Termination Date: June 30, 2001 or such
-----------------------------------------
earlier date on which the Series B Note Commitment shall terminate pursuant to
the terms of this Agreement.
Series B Payment Date: the meaning specified in section 4.3.
---------------------
SLE Expansion Areas: the meaning specified in the introduction.
-------------------
SLE Expansion Areas Transaction Documents: the collective reference
-----------------------------------------
to the AT&T Stock Purchase Agreement, the Viper Stock Purchase Agreement, the
Puerto Rico Stock Purchase Agreement, the Asset Purchase Agreement, the Mercury
License Agreement and the Wireless 2000 License Agreement.
Stockholders' Agreement: the Stockholders' Agreement dated as of July
-----------------------
17, 1998, among AT&T PCS, TWR, the Cash Equity Investors, the Management
Stockholders and the Company, as such agreement may be amended from time to time
in accordance with the provisions of such agreement, so long as the terms of any
such amendment are no less favorable to the holders of the Notes than the terms
of the Stockholders' Agreement in effect on the date of the Indenture.
Subsidiary: with respect to any Person, any corporation or other
----------
entity at least 50% (by number of votes) of the Voting Stock or voting power of
which is at the time owned by such Person or by one or more Subsidiaries or by
such Person and one or more Subsidiaries. Unless otherwise indicated, all
references to Subsidiaries shall be deemed references to the Company's
Subsidiaries.
System: as to any Person, assets constituting a radio communications
------
system authorized under the rules for wireless communications services
(including any license and the network, marketing, distribution, sales, customer
interface and operations functions relating thereto) owned and operated by such
Person.
Telecommunications Act: The Telecommunication Act of 1996 and the
----------------------
rules and regulations promulgated thereunder, as amended from time to time.
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<PAGE>
TeleCorp Holdings: TeleCorp Holding Corp., Inc., a Delaware
-----------------
corporation.
Transaction Documents: the collective reference to the Securities
---------------------
Purchase Agreement, the Related Agreements, the Procurement Contract, the Credit
Agreement, the SLE Expansion Area Transaction Documents and each of the other
agreements, instruments or other documents delivered by the Company or any other
Person in connection with the consummation of the Financing Transactions.
Transferee: the meaning specified in section 23.5.
----------
TWR: TWR Cellular, Inc., a Maryland corporation.
---
Unrestricted Subsidiary: means any Subsidiary of the Company (other
-----------------------
than the Equipment Subsidiary or Real Property Subsidiary) designated after the
Effective Date as such pursuant to and in compliance with Section 11.9. Any
such designation may be revoked by a resolution of the Board delivered to you,
subject to the provisions of Section 11.9. An Unrestricted Subsidiary shall not
be permitted to hold any FCC licenses other than licenses in respect of cellular
communication, that cover an area that has been built out and is on the date
such Subsidiary is so designated actively and continuously in operation.
Unused Commitment: at any time as to any holder, an amount equal to
-----------------
the excess, if any, of (a) the amount of the Commitments of such holder over (b)
the aggregate principal amount of Notes purchased by such holder, and in each
case excluding Additional Notes.
Vendor: the meaning specified in the introduction.
------
Viper Stock Purchase Agreement: the Stock Purchase Agreement dated as
------------------------------
of March 1, 1999 among Viper Wireless, Inc., a Delaware corporation, TeleCorp
Holdings and the Company.
Voting Stock: with reference to any corporation, stock of any class
------------
or classes (or equivalent interests), if the holders of the stock of such class
or classes (or equivalent interests) are ordinarily, in the absence of
contingencies, entitled to vote for the election of the directors (or Persons
performing similar functions) of such corporation, even though the right so to
vote has been suspended by the happening of such a contingency.
Wholly-Owned: as applied to any Subsidiary, a Subsidiary all the
------------
outstanding shares (other than, if required by law, directors' qualifying
shares) of every class of stock of which are at the time owned by the Company or
by one or more Wholly-Owned Subsidiaries or by the Company and one or more
Wholly-Owned Subsidiaries.
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<PAGE>
Wireless 2000: Wireless 2000, Inc., a Louisiana corporation.
-------------
"Wireless 2000 License Agreement": the License Acquisition Agreement
-------------------------------
dated as of December 2, 1998 between Wireless 2000 and the Company.
16. Tax Matters.
-----------
16.1 Taxes. (a) All payments made by the Company under this
-----
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise or overall
gross receipts taxes imposed on any holder (or Transferee) as a result of a
present or former connection between such holder (or Transferee) and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from such holder (or Transferee) having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement or the Notes). If any such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
------------------
required to be withheld from any amounts payable to any holder (or Transferee)
hereunder or under the Notes, the amounts so payable to such holder (or
Transferee) shall be increased to the extent necessary to yield to such holder
(or Transferee) (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes; provided that the Company shall not be required to
--------
increase any such amounts payable to any holder (or Transferee) that is not
organized under the laws of the United States of America or a state thereof if
such holder (or Transferee) fails to comply with the requirements of paragraph
(b) of this section. Whenever any Non-Excluded Taxes are payable by the
Company, as promptly as possible thereafter, the Company shall send to such
holder (or Transferee) a certified copy of an original official receipt received
by the Company showing payment thereof. If the Company fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
the holder (or Transferee) the required receipts or other required documentary
evidence, the Company shall indemnify such holder or (Transferee) for any
incremental taxes, interest or penalties that may become payable by any holder
or (Transferee) as a result of any such failure. The covenants in this section
shall survive the termination of this Agreement and the payment of the Notes and
payment of the Obligations hereunder.
(b) Each holder (or Transferee) of any Notes shall:
(iv) in the case of a holder (or Transferee) that is a "bank"
under Section 881(c)(3)(A) of the Code;
(A) on or before the date on which the first payment becomes
payable to it hereunder or under any Note (or in the case of a
Participant, on or before the
-53-
<PAGE>
date such Participant becomes a Participant hereunder) deliver to the
Company (1) in the case of a holder (or Transferee) that is not
incorporated under the laws of the United States or any State thereof,
two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case may be,
and an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, and (2) in the case of any other
holder (or Transferee), an Internal Revenue Service Form W-9, or
successor applicable form;
(B) deliver to the Company two further copies of any such form or
certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of
any event requiring a change in the most recent form previously
delivered by it to the Company, and
(C) obtain such extensions of time for filing and timely complete
and deliver such forms or certifications as may reasonably be
requested by the Company;
(v) in the case of a holder (or Transferee) that is not a "bank"
under Section 881(c)(3)(A) of the Code:
(A) on or before the date on which the first payment becomes
payable to it hereunder or under any Note (or, in the case of a
Participant, on or before the date such Participant becomes a
Participant hereunder) deliver to the Company (1) in the case of a
holder (or Transferee) that is not organized under the laws of the
United States or any state thereof, (I) a statement under penalties
of perjury that such holder (or Transferee) (x) is not a "bank" under
Section 881(c)(3)(A) of the Code, is not subject to regulatory or
other legal requirements as a bank in any jurisdiction, and has not
been treated as a bank for purposes of any tax, securities law or
other filing or submission made to any Governmental Authority, any
application made to a rating agency or qualification for any exemption
from tax, securities law or other legal requirements, (y) is not a 10-
percent shareholder of the Company within the meaning of Section
881(c)(3)(B) of the Code and (z) is not a controlled foreign
corporation receiving interest from a related person within the
meaning of Section 881(c)(3)(C) of the Code and (II) a properly
completed and duly executed Internal Revenue Service Form W-8 or
applicable successor form, and where applicable, an Internal Revenue
Form W-9 or applicable successor form, and (2) in the case of any
other holder (or Transferee), an Internal Revenue Service Form W-9 or
successor applicable form.
(B) deliver to the Company two further properly completed and
duly executed copies of said form or certification or any successor
applicable form or certification on or before the date that any such
form or certification expires or
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<PAGE>
becomes obsolete or after the occurrence of any event requiring a
change in the most recent form or certification previously delivered
by it to the Company or upon the request of the Company; and
(C) obtain such extensions of time for filing and timely complete
and deliver such forms or certifications as may be reasonably
requested by the Company;
unless in any such case any change in treaty, law or regulation has occurred
subsequent to the date such holder (or Transferee) became a party to this
Agreement (or, in the case of a Participant, the date such Participant became a
Participant hereunder) which renders all such forms inapplicable or which would
prevent such holder from properly completing and executing any such form with
respect to it and such holder (or Transferee) so advises the Company in writing
no later than 15 calendar days before any payment hereunder or under any Note is
due. Each such holder (and each Transferee) shall certify (i) in the case of a
Form 1001 or 4224 or in the case of a holder providing certification pursuant to
section 16.1(b)(ii), that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9 delivered pursuant to section
16.1(b), that it is entitled to an exemption from United States backup
withholding tax. Each Person that shall become a holder or a Participant
pursuant to section 23 shall, upon the effectiveness of the related transfer,
provide all of the forms and statements required pursuant to this section;
provided that, in the case of a Participant, such Participant shall furnish all
- --------
such required forms and statements to the holder from which the related
participation shall have been purchased.
(c) Notwithstanding the foregoing paragraphs (a) and (b) of this
section 16.1, the Company shall only be required to pay any additional amounts
to any holder (or Transferee) in respect of any amounts pursuant to such
paragraph (a) if such holder (or Transferee), in addition to complying with the
requirements of paragraph (b), shall have taken such other steps as such holder
or Transferee may determine in the exercise of its business judgment (utilizing
criteria it determines to be appropriate) are reasonably available to it under
applicable laws and any applicable tax treaty or convention to obtain an
exemption from, or reduction (to the lowest applicable rate) of, such tax (it
being understood that no holder shall be required to take any action that it
concludes could subject it to heightened audit scrutiny or extend the period
that such holder's tax returns remain open for review by any taxing authority).
(d) Any claim by a holder (or Transferee) for payment from the Company
of any amounts under this section 16.1 shall be made within ninety (90) days
after such holder (or Transferee) determines the exact amount of any such claim.
17. Notes held by Company, etc., Deemed Not Outstanding. For the
---------------------------------------------------
purposes of determining whether the holders of the Notes of the requisite
principal amount at the time outstanding have taken any action authorized by
this Agreement with respect to the giving of
-55-
<PAGE>
consents or approvals or with respect to acceleration upon an Event of Default,
any Notes directly or indirectly owned by any of the Company or any Subsidiary
or Affiliates shall be disregarded and deemed not to be outstanding.
18. Payments on Notes.
-----------------
18.1 Place of Payment. Payments of principal, premium, if any, and
----------------
interest becoming due and payable on the Notes shall be made at the principal
office of Chase Manhattan Bank, in the Borough of Manhattan, the City and State
of New York, unless the Company, by written notice to each holder of any Notes,
shall designate the principal office of another bank or trust company in such
Borough as such place of payment, in which case the principal office of such
other bank or trust company shall thereafter be such place of payment.
18.2 Home Office Payment. So long as you or your nominee shall be
-------------------
the holder of any Note, and notwithstanding anything contained in section 18.1
or in such Note to the contrary, the Company, at its election, shall pay all
sums becoming due on such Note for principal, premium, if any, and interest
(including pay-in-kind interest) by the method and at the address specified for
such purpose in Schedule A, or by such other method or at such other address as
you shall have from time to time specified to the Company in writing for such
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that any Note paid or prepaid in full shall be
surrendered to the Company at its principal office or at the place of payment
maintained by the Company pursuant to section 18.1 for cancellation. Prior to
any sale or other disposition of any Note held by you or your nominee you will,
at your election, either endorse thereon the amount of principal paid thereon
and the last date to which interest has been paid thereon or surrender such Note
to the Company in exchange for a new Note or Notes pursuant to section 23.7.
Each transferee of a Note, as a condition to completing such transfer shall
agree that the Company, at its election, may make payments to such transferee in
the manner contemplated in the first sentence hereof. The Company will afford
the benefits of this section 18.2 to any institutional investor which is the
direct or indirect transferee of any Note purchased by you under this Agreement
and which has made the same agreement relating to such Note as you have made in
this section 18.2.
18.3 Expenses, etc. Whether or not the transactions contemplated
--------------
by this Agreement shall be consummated, the Company will pay all reasonable
expenses in connection with such transactions and in connection with any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the Notes, including, without limitation: (a) the
cost and expenses of preparing and reproducing this Agreement and the Notes, of
furnishing all opinions by counsel for the Company (including any opinions
requested by your special counsel as to any legal matter arising hereunder) and
all certificates on behalf of the Company, and of the Company's performance of
and compliance with all agreements and conditions contained herein on its part
to be performed or complied with; (b) the cost of delivering to your principal
office, insured to your satisfaction, the Notes sold to you hereunder and any
Notes delivered to you upon any substitution of Notes pursuant to section 23 of
this
-56-
<PAGE>
Agreement, and of your delivering any Notes, insured to your satisfaction, upon
any such substitution; (c) the reasonable expenses and disbursements of special
counsel for the holders of the Notes in connection with such transactions and
any such amendments or waivers; and (d) the reasonable out-of-pocket expenses
incurred by you in connection with such transactions and any such amendments or
waivers. The Company also will pay, and will save you and each holder of any
Notes harmless from, all claims in respect of the fees, if any, of brokers and
finders and, subject to section 16, any and all liabilities with respect to any
taxes (including interest and penalties but excluding taxes measured by or
payable with respect to gross or net income) which may be payable in respect of
the execution and delivery of this Agreement, the issue of the Notes and any
amendment or waiver under or in respect of this Agreement and the Notes. The
obligation of the Company under this section 18.3 shall survive any disposition
or payment of the Notes and the termination of this Agreement.
19. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained in this Agreement or made in writing by or on behalf of
the Company in connection with the transactions contemplated by this Agreement
shall survive the execution and delivery of this Agreement, any investigation at
any time made by you or on your behalf, the purchase of the Notes by you under
this Agreement and any disposition or payment of the Notes. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant to this Agreement shall be deemed representations and
warranties of the Company under this Agreement.
20. Amendments and Waivers. Any term of this Agreement or of the
----------------------
Notes may be amended and the observance of any term of this Agreement or of the
Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company
and the Required Holders (subject to section 17); provided that, without the
--------
prior written consent of the holders of all the Notes at the time outstanding
(subject to section 17), no such amendment or waiver shall (a) change the
maturity or the principal amount of, or reduce the rate or change the time of
payment of interest on, or change the amount or the time of payment of any
principal or premium payable on any prepayment of, any Note, (b) reduce the
percentage of the principal amount of the Notes the holders of which are
required to consent to any such amendment or waiver, or (c) change the
percentage of the principal amount of the Notes the holders of which may declare
the Notes to be due and payable as provided in section 12. Any amendment or
waiver effected in accordance with this section 20 shall be binding upon each
holder of any Note at the time outstanding, each future holder of any Note and
the Company.
21. Notices, etc. Except as otherwise provided in this Agreement,
-------------
notices and other communications under this Agreement shall be in writing and
shall be delivered by hand or courier service, or mailed by registered or
certified mail, return receipt requested, addressed, (a) if to you, at the
address set forth in Schedule A or at such other address as you shall have
furnished to the Company in writing, except as otherwise provided in section 18
with respect to payments on Notes held by you or your nominee, or (b) if to any
other holder of any Note, at
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<PAGE>
such address as such other holder shall have furnished to the Company in
writing, or, until any such other holder so furnishes to the Company an address,
then to and at the address of the last holder of such Note who has furnished an
address to the Company, or (c) if to the Company, at its address set forth at
the beginning of this Agreement, to the attention of General Counsel and Chief
Financial Officer, with copies to McDermott, Will & Emery, 28 State Street,
Boston, Massachusetts, Attention: John B. French, Esq. or at such other address,
or to the attention of such other officer, as the Company shall have furnished
to you and each such other holder in writing. Any notice so addressed and
delivered by hand or courier shall be deemed to be given when received, and any
notice so addressed and mailed by registered or certified mail shall be deemed
to be given three Business Days after being so mailed.
22. Indemnification. The Company will indemnify and hold harmless
---------------
each holder of Notes and each person who controls a holder within the meaning of
the Securities Act or the Exchange Act and each of the holder's subsidiaries and
each holder's respective directors, officers, employees, agents and advisors
(any and all of whom are referred to as the "Indemnified Party") from and
against any and all losses, claims, damages and liabilities, whether joint or
several (including all legal fees or other expenses reasonably incurred by
counsel for any Indemnified Party in connection with the preparation for or
defense of any pending or threatened third party claim, action or proceeding,
whether or not resulting in any liability), to which such Indemnified Party may
become subject (whether or not such Indemnified Party is a party thereto) under
any applicable federal or state law or otherwise, caused by or arising out of,
the Financing Transactions, or this Agreement or any transaction contemplated
hereby or thereby (including, without limitation, any of the foregoing relating
to the violation of, non-compliance with or liability under any Environmental
Law applicable to the operations of the Company or its Subsidiaries), other
than, with respect to any Indemnified Party, losses, claims, damages or
liabilities that are the result of the gross negligence or willful misconduct of
such Indemnified Party.
Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the Company of such
claim or the commencement of such action or proceeding; provided that the
--------
failure of an Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this section 22 with respect to
such Indemnified Party, except to the extent that the Company is actually
prejudiced by such failure. The Company will assume the defense of such claim,
action or proceeding and will employ counsel reasonably satisfactory to the
Indemnified Party and will pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, the Indemnified Party will be entitled,
at the expense of the Company, to employ counsel separate from counsel for the
Company and for any other party in such action if the Indemnified Party
reasonably determines that a conflict of interest or other reasonable basis
exists which makes representation by counsel chosen by the Company not
advisable, but the Company will not be obligated to pay the fees and expenses of
more than one counsel for all Indemnified Parties.
-58-
<PAGE>
The agreements in this section shall survive repayment of the Notes
and all other amounts payable hereunder.
23. Successors and Assigns; Participations; Assignments; Replacement
----------------------------------------------------------------
of Notes.
- --------
23.1 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the Company, the holders and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each holder.
23.2 Participations. Subject to section 24, any holder may, in
--------------
accordance with applicable law, including compliance with applicable federal and
state securities and "blue sky" laws and regulations, at any time sell to one or
more Eligible Assignees ("Participants") participating interests in any Note
owned by such holder, the Commitments of such holder or any other interest of
such holder hereunder. In the event of any such sale by a holder of a
participating interest to a Participant, such holder's obligations under this
Agreement to the Company and any other holder shall remain unchanged, such
holder shall remain solely responsible for the performance thereof, such holder
shall remain the holder of any such Note for all purposes under this Agreement,
and the Company shall continue to deal solely and directly with such holder in
connection with such holder's rights and obligations under this Agreement. No
holder shall be entitled to create in favor of any Participant, in the
participation agreement pursuant to which such Participant's participating
interest shall be created or otherwise, any right to vote on, consent to or
approve any matter relating to this Agreement except for those specified in
clauses (a) and (b) of section 20. The Company also agrees that each
Participant shall be entitled to the benefits of section 16 with respect to its
participation in the Commitments and the Notes outstanding from time to time as
if it were a holder; provided that, in the case of section 16, such Participant
--------
shall have complied with the requirements of such section and provided,
--------
further, that no Participant shall be entitled to receive any greater amount
- -------
pursuant to such section than the transferor holder would have been entitled to
receive in respect of the amount of the participation transferred by such
transferor holder to such Participant had no such transfer occurred.
23.3 Assignments. Subject to section 24, any holder may, in
-----------
accordance with applicable law, including compliance with applicable federal and
state securities and "blue sky" laws and regulations, at any time and from time
to time assign to any other holder or to an Eligible Assignee (an "Assignee")
all or any part of its Notes and Commitments pursuant to an assignment and
acceptance executed by such Assignee and such assigning holder and delivered to
the Company for acceptance and recording in the Register (an "Assignment and
Acceptance"); provided that, in the case of any such assignment to an Eligible
--------
Assignee, the sum of the aggregate principal amount of the Notes and the
aggregate amount of Unused Commitment being assigned is not less than
$5,000,000 (or such lesser amount as constitutes the assigning holder's entire
aggregate principal amount of Notes and Unused Commitment) and, if such
assignment is
-59-
<PAGE>
of less than all the Notes and Commitments of the assigning holder, the sum of
the aggregate principal amount of the assigning holder's remaining Notes and the
aggregate amount of Unused Commitment is not less than $5,000,000 (or such
lesser amount as may be agreed to by the Company). Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (i) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a holder hereunder, and (ii) the assigning
holder thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning holder's rights and obligations under this Agreement, such assigning
holder shall cease to be a party hereto but shall be entitled to the benefits of
section 16 in respect of the period prior to such assignment).
23.4 Register. The Company shall maintain a copy of each Assignment
--------
and Acceptance delivered to it and a register (the "Register") for the
recordation of the names and addresses of the holders, the registered owners of
the Obligations evidenced by the Notes and the principal amount of the Notes
owing to each holder from time to time. The entries in the Register shall be
prima facie evidence of the accuracy thereof, and the Company and the holders
shall treat each Person whose name is recorded in the Register as the owner of a
Note hereunder as the owner thereof for all purposes of this Agreement,
notwithstanding any notice to the contrary. Any assignment or transfer of all or
part of any Note shall be registered on the Register only upon surrender for
registration of assignment or transfer of such Note, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the holder thereof, and thereupon one or more new Note(s) in the same aggregate
principal amount shall be issued to the designated Assignee(s) and the old Note
shall be returned to the Company marked "canceled". The Register shall be
available for inspection by any holder at any reasonable time and from time to
time upon reasonable prior notice.
23.5 Disclosure of Information in Connection with a Transfer. The
-------------------------------------------------------
Company authorizes each holder to disclose to any Participant or Assignee (each,
a "Transferee") and any prospective Transferee and its advisers and agents, any
and all information in such holder's possession concerning the Company and its
Subsidiaries which has been delivered to such holder by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such holder by
or on behalf of the Company in connection with such holder's credit evaluation
of the Company and its Subsidiaries prior to becoming a party to this Agreement;
provided that no such disclosure may be made unless such Transferee or
- --------
prospective Transferee and its advisers and agents shall have executed and
delivered to the Company an agreement reasonably acceptable to the Company to
keep such information confidential.
23.6 Assignment to Federal Reserve Bank. Nothing contained herein
----------------------------------
shall prohibit assignments creating security interests, including, without
limitation, any pledge or assignment by a holder of any Note to any Federal
Reserve Bank in accordance with applicable law.
-60-
<PAGE>
23.7 Replacement of Notes. Upon receipt of evidence reasonably
--------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, in the case of any such loss, theft or destruction of any Note, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine (or, in the case of any Note held by you or another institutional
holder or your or its nominee, of an indemnity agreement from you or such other
holder) or, in the case of any such mutilation, upon the surrender of such Note
for cancellation to the Company at its principal office, the Company at its
expense will execute and deliver, in lieu thereof, a new Note in the unpaid
principal amount of such lost, stolen, destroyed or mutilated Note, dated so
that there will be no loss of interest on such Note and otherwise of like tenor.
Any Note in lieu of which any such new Note has been so executed and delivered
by the Company shall not be deemed to be an outstanding Note for any purpose of
this Agreement.
24. Remarketing
-----------
(a) You shall not engage in any remarketing efforts (i) prior to
October 23, 1999, with respect to any assignment of any Unused Commitment
related to the Series A Note Commitment or any Series A Notes and (ii) prior to
October 23, 1999, with respect to any assignment of any Unused Commitment
related to the Series B Note Commitment or any Series B Notes except as provided
in this section. Prior to such time, you may request that the Company shorten
the period in which you are restricted from remarketing the Notes. The Company
will consider any such request and will not object to any such request if it
concludes (in the exercise of its business judgement based on such criteria as
it considers appropriate) that any such remarketing will not impair the ability
of the Company to any High Yield Offering. The restrictions set forth in this
section 24 shall not apply to any remarketing of the Notes to any of your
Affiliates.
(b) You shall provide the Company at least with 60 days prior written
notice (a "Remarketing Notice") if you wish the Company to assist in any
transfer or assignment of any amount of the Commitments or the Notes or if the
Five-Year No-Call (as defined below) will be applicable to the Notes being so
assigned (a "Remarketing Transfer"). Upon receipt of a Remarketing Notice, the
Company and its Subsidiaries shall cooperate with you and your underwriters or
agents in each remarketing effort undertaken by you. Such cooperation shall
include, if requested by you, (i) the Company providing customary information in
respect of the Company and its Subsidiaries and making customary representations
and warranties with respect to such information in connection with any Offering
and, if required by the Securities Act, the Company acting as co-registrant,
issuer or co-issuer of such Offering, (ii) senior officers of the Company and
its Subsidiaries participating to a reasonable degree and upon reasonable prior
notice, in the "road show" for any Offering or in meetings with prospective
transferees or assignees of the Notes and, (iii) appropriate personnel from the
Company and its Subsidiaries assisting in the drafting of a registration
statement or offering circular used in marketing of any Offering; provided that
--------
the Company may elect to combine the registration of such Offering with the
registration of any of the Company's other High Yield Debt. The Company will
promptly
-61-
<PAGE>
after delivery of a Remarketing Notice, upon your request, direct its counsel
(i) to prepare required documentation for Refinancing Securities and/or any
required amendments to this Agreement to permit a Remarketing Transfer or (ii)
to review any such documentation prepared by your counsel, and the Company will
work diligently with you to finalize such documentation and issue such
Refinancing Securities in the manner you request.
(c) In connection with any Remarketing Transfer involving a sale of
Notes, the holders of the Notes or Refinancing Securities that are the subject
of such Remarketing Transfer shall, if you so request, be granted the right to
decline any optional or mandatory prepayments of such Notes or Refinancing
Securities (excluding regularly scheduled installments of principal) for a
period of up to five years from the date of consummation of such Remarketing
Transfer (the "Five-Year No-Call").
(d) If you have not completed a Remarketing Transfer for all the
Series A Notes and the Series B Notes then outstanding prior to January 1, 2003,
then the Company will pay you up to 3% of the then outstanding principal amount
of all Notes to defray any actual marketing and other distribution costs
incurred by you in connection with any such remarketing.
(e) At any time after the earlier to occur of (i) the disposition by
you of more than 50% of the aggregate principal amount of the Series A Notes or
Series B Notes then outstanding and (ii) January 1, 2001, you or the Required
Holders may request the issuance of Refinancing Securities in place of such
Series A Notes or Series B Notes, as applicable.
25. Adjustments. If any holder (a "Benefitted Holder") shall at
-----------
any time receive any payment of all or part of its Notes, or interest thereon,
(whether voluntarily or involuntarily) in a greater proportion than any such
payment to any other holder, if any, in respect of such other holder's Notes, or
interest thereon, such Benefitted Holder shall purchase for cash from the other
holders a participating interest in such portion of each such other holder's
Notes, Notes as shall be necessary to cause such Benefitted Holder to share the
excess payment ratably with each of the other holders; provided, that if all or
--------
any portion of such excess payment is thereafter recovered from such Benefitted
Holder, such purchase shall be rescinded, and the purchase price returned, to
the extent of such recovery, but without interest.
26. Miscellaneous. This Agreement shall be binding upon and inure
-------------
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not, and, in particular, shall inure
to the benefit of and be enforceable by any holder or holders at the time of the
Notes or any part thereof. Except as stated in section 19, this Agreement
embodies the entire agreement and understanding between you and the Company and
supersedes all prior agreements and understandings relating to the subject
matter hereof. This Agreement and the Notes shall be construed and enforced in
accordance with and governed by the law of the State of New York. The headings
in this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed
-62-
<PAGE>
in any number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
27. Submission To Jurisdiction; Waivers. The Company hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, and the Notes, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Company at its
address set forth in section 18 or at such other address of which you shall have
been notified pursuant thereto;
(d) agrees that nothing contained herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to in
this section any special, exemplary, punitive or consequential damages.
28. Expansion Notes. If the Company obtains the right to develop
---------------
or operate PCS networks serving BTAs or MTAs in addition to those contained in
the Designated Areas (such additional BTAs or MTAs, the "Expansion Areas"), you
agree to provide financing related to such Expansion Areas through the purchase
of Notes having the same terms and conditions as the Series A Notes and Series B
Notes (such Notes, the "Expansion Notes") in an aggregate principal amount
representing 30% of the software, hardware and services to be provided by the
Vendor for such Expansion Area as set forth in a definitive business plan with
respect to such Expansion Area as approved by the board of directors of the
Company (the "Base Case"). Fifty percent of the Notes purchased by you shall
have the same terms as the Series A Notes and the remainder shall have the same
terms as the Series B Notes; provided that (i) you shall not be obligated to
--------
purchase more than an aggregate principal amount of $50,000,000 of Expansion
Notes (exclusive of the additional Series A Notes in an initial aggregate
principal amount of $12,500,000 and the Series B Notes in an initial aggregate
principal amount of $12,500,000 to be
-63-
<PAGE>
issued and purchased by you pursuant to this Agreement) and (ii) such
$50,000,000 aggregate principal amount shall be decreased on a dollar for dollar
basis up to a maximum reduction of $20,000,000 to the extent that you provide
any Commitments for Expansion Term Loans (as such terms are defined in the
Credit Agreement) (it being understood that you have agreed to provide
$35,000,000 of such Commitments which shall not be utilized to decrease such
$50,000,000 aggregate principal amount). The expiration date for the Expansion
Notes issued to finance a particular Expansion Area shall be October 23, 2009.
The Company acknowledges that your obligation to purchase Expansion Notes is
contingent on:
(a) the Company irrevocably committing to purchase one mobile switching
center and fifty base stations for such Expansion Area from the Vendor
either pursuant to the Procurement Contract or under a new procurement
contract acceptable to the Company and the Vendor;
(b) the Company having entered into one or more agreements with AT&T and
AT&T PCS on terms substantially equivalent, in your determination, as those
entered into with AT&T, AT&T PCS and TWR with respect to the Designated
Areas which relate to the use of the AT&T brand name, trademarks and
service marks, roaming, access to the AT&T network with seamless
integration for customers;
(c) an agreement among AT&T PCS, TWR and the other parties to the
Stockholders' Agreement (in each case together with the Affiliated
Successors (as defined in the Stockholders' Agreement) that none of them
will offer any Company Communications Services (as defined in the
Stockholders' Agreement) in such Expansion Area (other than the right of
AT&T PCS to offer resale services similar to those set forth in Section 8.6
of the Stockholders' Agreement);
(d) the Company having received either cash equity contributions or
irrevocable commitments to provide, over a time frame acceptable to you,
cash equity contributions, per POP in such Expansion Area in an amount of
not less than $10;
(e) the Company having Licenses covering such Expansion Area that (i) are
in full force and effect with no pending appeal, and (ii) are not subject
to any pending or, to the knowledge of the Company, threatened revocation
or termination proceeding or action;
(f) the Company being in compliance with all Licenses covering such
Expansion Area in all material respects; and
(g) the Company and the Vendor having into a new procurement contract or
amendment of the Procurement Contract, as described above.
-64-
<PAGE>
Your exclusivity rights under the Procurement Contract with respect to the
Expansion Area shall not terminate if any of these conditions are not satisfied
and as a result you do not purchase any Expansion Notes. The Company's and your
obligations under this section 28 shall expire June 30, 2001.
In connection with any such purchase of Expansion Notes for an Expansion Area,
the Company and you will agree to:
(i) modify the threshold amount of Net Securities Proceeds under section
10.4 to an amount not to exceed the product of (X) $198,000,000 multiplied
by (Y) a fraction the numerator of which is the sum of (A) 16,800,000 plus
(B) the number of POPs in Expansion Areas for which Expansion Notes have
been or concurrent therewith are being issued and the denominator of which
is 16,800,000; and
(ii) enter into an agreement and/or an amendment to this Agreement related
to the purchase of the Expansion Notes.
29. Waivers of Jury Trial. THE COMPANY AND YOU HEREBY IRREVOCABLY
---------------------
AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR, THE NOTES AND FOR ANY COUNTERCLAIM THEREIN.
30. Series B Notes. The parties hereto intend that as promptly as
--------------
practicable after the date hereof, this Agreement (including the form of Series
B Notes issued under this Agreement) shall be modified to provide that the
Series B Notes shall have the same covenants (other than Section 4.02, Section
4.08, Section 4.09, Section 4.10 and Section 4.11 as to which the corresponding
provisions of this Agreement, if any, shall apply) as those contained in Article
4 and Article 5 of the Indenture (including, to the extent applicable and solely
for the purposes of applying and interpreting such covenants, all defined terms
contained therein) and the same events of default as those contained in Article
6 of the Indenture (including, to the extent applicable and solely for the
purposes of applying and interpreting such provisions, all defined terms
contained therein), in each case, with such conforming changes as may be
necessary or appropriate to reflect that the Series B Notes are not being issued
under the Indenture and do not have the benefit of any guarantees by the
Subsidiaries and with such other modifications as the parties may agree.
31. Existing Events of Default; Effectiveness. Prior to the date
-----------------------------------------
hereof, the Company has delivered a Series A Note in the principal amount of
$1,583,479.16 representing all Additional Notes due and owing under the Existing
Note Agreement and has delivered all financial and other information required to
be delivered under section 8.1(a) and 8.1(d). You have agreed to waive late
delivery of such Note and such financial and other information as required under
the Existing Note Agreement. On the Effective Date, the Existing Note Agreement
shall be amended and restated in its entirety by this Agreement and the Existing
Note
-65-
<PAGE>
Agreement shall thereafter be of no further force and effect. Notwithstanding
any provision of this Section 31 to the contrary, any obligations of the Company
which accrued on or prior to the Effective Date under the Existing Note
Agreement shall not be released or terminated by the effectiveness of this
Agreement. The terms and conditions of this Agreement and your rights and
remedies under this Agreement, shall apply to all the obligations incurred under
the Existing Note Agreement. It is expressly understood and agreed by the
parties hereto that (a) this Agreement is in no way intended to constitute a
novation of the obligations and liabilities existing under the Existing Note
Agreement or evidence payment of all or any of such obligations and liabilities
and (b) the obligations and liabilities under the Notes evidence obligations and
liabilities incurred under the Existing Note Agreement.
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter and return one of the
same to the Company, whereupon this letter shall become a binding agreement
between you and the Company.
Very truly yours,
TELECORP PCS, INC.
By: /s/ Thomas H. Sullivan
----------------------------
Title: Executive Vice President
The foregoing Agreement is
hereby agreed to as of the
date thereof.
LUCENT TECHNOLOGIES INC.
By: /s/ Leslie L. Rogers
----------------------
Title: Managing Partner
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<PAGE>
SCHEDULE A
PURCHASER INFORMATION
---------------------
Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
<PAGE>
SCHEDULE B
DISCLOSURE SCHEDULE
-------------------
Revised Disclosure Schedules pursuant to Section 5 of the Note Purchase
Agreement by and between TeleCorp PCS, Inc. and Lucent Technologies, Inc.
Revised as of October 29, 1999
Schedule 6.5 Changes.
- --------------------
The Company has certain financial obligations under the Company's 11 5/8 %
Senior Subordinated Discount Notes due 2009 issued in the aggregate principal
amount of $575,000,000.
Section 6.8 Capital Stock and Related Matters.
- ----------------------------------------------
(a) The Company's capitalization is as follows:
<TABLE>
<CAPTION>
Type of Stock, $.01 par value Shares Authorized Shares Issued and Outstanding
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Series A Convertible Preferred 100,000 97,472.84
Stock
("Series A Preferred Stock")
- -----------------------------------------------------------------------------------------------
Series B Convertible Preferred 200,000 0
Stock
- -----------------------------------------------------------------------------------------------
Series C Preferred Stock 215,000 210,608.09
- -----------------------------------------------------------------------------------------------
Series D Preferred Stock 50,000 49,416.98
- -----------------------------------------------------------------------------------------------
Series E Preferred Stock 30,000 24,979.70
- -----------------------------------------------------------------------------------------------
Series F Preferred Stock 5,000,000 4,826,141.20
- -----------------------------------------------------------------------------------------------
Senior Common Stock 7,000,000 0
- -----------------------------------------------------------------------------------------------
Class A Voting Common Stock 95,000,000 23,907,399
("Class A Common Stock")
- -----------------------------------------------------------------------------------------------
Class B Non-Voting Common Stock 95,000,000 0
- -----------------------------------------------------------------------------------------------
Class C Common Stock 100,000 91,846
- -----------------------------------------------------------------------------------------------
Class D Common Stock 300,000 275,539
- -----------------------------------------------------------------------------------------------
Voting Preference Common Stock 1,000 1,000
- -----------------------------------------------------------------------------------------------
</TABLE>
See (c) below
<PAGE>
(b) The capitalization of each of the Company's corporate Subsidiaries is as
follows:
<TABLE>
<CAPTION>
Subsidiary Shares Authorized Shares Issued and
Outstanding
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
TeleCorp Holding Corp., Inc. 1,000 of common stock, no par 100
value
- ------------------------------------------------------------------------------------------------
TeleCorp Communications, Inc. 1,000 of common stock, no par 100
value
- ------------------------------------------------------------------------------------------------
TeleCorp Limited Holdings, Inc. 1,000 of common stock, no par 100
value
- ------------------------------------------------------------------------------------------------
TeleCorp Realty Holdings, Inc. 1,000 of common stock, no par 100
value
- ------------------------------------------------------------------------------------------------
Viper Wireless, Inc. 15,000 of class A common 7,500 class A common
stock, $.01 par value, 85,000 42,500 class B common
of class B common stock, $.01 71,274 series A preferred
par value, 100,000 of series A
preferred stock, $.01 par value
- ------------------------------------------------------------------------------------------------
TeleCorp of Puerto Rico, Inc. 100,000 of common stock, 100
$.01 par value
- ------------------------------------------------------------------------------------------------
TeleCorp Puerto Rico Realty, Inc. 100,000 of common stock, $.01 1,000
par value
- ------------------------------------------------------------------------------------------------
</TABLE>
(c)
1. Stock Option Plan. As of October 19, 1999, the Company has granted to
-----------------
certain of its employees and directors options to purchase 178,735 shares of its
Class B Common Stock pursuant to its 1999 Stock Option Plan. Upon the
completion of a qualified initial public offering, the Company will exchange the
options to purchase Class B Common Stock for options to purchase Class A Common
Stock. These options are subject to a three or four year vesting schedule,
during which time the Company is obligated to issue shares of its Class A (or
Class B) Common Stock to employees and/or directors who exercise any of their
vested shares.
2. Restricted Stock Plan. As of October 19, 1999 the Company has issued 6,678
---------------------
shares of Series E Preferred Stock and 1,229,719 shares of Class A Common Stock
to certain employees pursuant to the Company's 1998 Restricted Stock Plan, as
amended. Each award is subject to a five or six year vesting schedule, and the
Company is obligated to repurchase certain amounts of such granted shares for
$0.01 per share if any employee holding restricted shares terminates his/her
employment with the Company.
3. LMDS Transaction. The Company shall issue to OneLiberty Fund IV, L.P.,
----------------
Northwood Ventures LLC and Northwood Capital Partners LLC (the "LMDS Investors")
an aggregate of 2,700 shares of Series C Preferred Stock and to the LMDS
Investors, Gerald T. Vento and
<PAGE>
Thomas H. Sullivan, an aggregate of 270,000 shares of Class A Voting Common
Stock, upon the closing of the transaction contemplated by the Stock Purchase
Agreement by and among the Company, TeleCorp Holding Corp., Inc., Gerald T.
Vento and Thomas H. Sullivan, and the LMDS Investors, dated as of October 18,
1999.
4. Viper Transaction. The Company shall (i) issue 64,535 shares of Voting
-----------------
Common Stock and 493.33 shares of Series E Preferred Stock to Gerald T. Vento,
(ii) issue 40,116 shares of Voting Common Stock and 306.67 shares of Series E
Preferred Stock to Thomas H. Sullivan and (iii) fund into its 1998 Restricted
Stock Plan 58,140 shares of Class A Common Voting Stock and 311.11 shares of
Series E Preferred Stock, upon the closing of the transaction contemplated by
the Plan of Reorganization and Agreement of Merger by and among the Company,
TeleCorp Holding Corp., Inc., Viper Wireless, Inc., Gerald T. Vento and Thomas
H. Sullivan, dated as of October 18, 1999.
5. Initial Public Offering. On October 20, 1999 the Company filed an S-1
-----------------------
registration statement with the Securities and Exchange Commission registering
shares of its Class A Common Stock for sale to the public. The aggregate
offering price including the underwriters overallotment is $143,520,000.
6. Management Agreement. Pursuant to a Management Agreement between the
--------------------
Company and TeleCorp Management Corp., dated July 17, 1998, as amended,
following the termination of the Management Agreement for any reason, the
Company is obligated to repurchase from Gerald Vento and Thomas Sullivan up to
1,865,600 unvested shares of Class A Common Stock and up to 18,219 unvested
shares of Series E Preferred Stock.
Section 6.9 Debt.
- ----------------
1. The Company has certain financial obligations under the following:
(a) Credit Agreement, dated as of July 17, 1998, by and among TeleCorp PCS,
Inc., The Chase Manhattan Bank, TD Securities (USA) Inc., and Bankers
Trust Company, and all agreements related thereto;
(b) Increasing Rate Subordinated Notes (Series A) issued to Lucent by the
Company under the Series A and B Note Purchase Agreement plus any interest
accrued thereon;
(c) Certain Letters of Credit in an aggregate amount of approximately
$1,500,000; and
(d) The Company's 11 5/8% Senior Subordinated Discount Notes Due 2009.
2. TeleCorp Holding Corp., Inc. is obligated to pay certain debt to the United
States Department of Treasury in the outstanding principal amount of
approximately $20,700,000 with respect to certain F and C Block licenses it
holds.
<PAGE>
Section 6.11 Litigation. None
- -----------------------
Section 6.20 Broker's Fee. None
- -------------------------
Section 6.23 Subsidiaries.
- -------------------------
In addition to TeleCorp Holding Corp., Inc. and TeleCorp PCS, L.L.C., the
Company has the following Subsidiaries:
1. TeleCorp Communications, Inc.
2. TeleCorp Limited Holdings, Inc.
3. TeleCorp Realty Holdings, Inc.
4. TeleCorp Realty, L.L.C. (managing member is TeleCorp Communications, Inc.)
5. TeleCorp Equipment Leasing, L.P. (the general partner is TeleCorp Limited
Holdings, Inc. and the limited partner is TeleCorp Communications, Inc.)
6. TeleCorp of Puerto Rico, Inc.
7. TeleCorp Puerto Rico Realty, Inc.
8. Viper Wireless, Inc.
9. Affiliate License Co., L.L.C. (The Company is a 1/3 owner)
<PAGE>
SCHEDULE 6.23
SUBSIDIARIES
------------
See Schedule B.
<PAGE>
EXHIBIT A
FORM OF INCREASING RATE SUBORDINATED NOTE (SERIES A)
----------------------------------------------------
$___________________ [ issue date ]
---------------
FOR VALUE RECEIVED, TeleCorp PCS, Inc., a Delaware corporation ( the
"Company"), promises to pay to the order of Lucent Technologies Inc.("Payee"),
on October 23, 2009 or such earlier date as may be provided pursuant to the
Purchase Agreement referred to below, the principal amount of
_________________________ ($___________).
The Company also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid in full at a rate equal to 8.50%
per annum (the "Initial Rate"). If the Series A Notes (as defined in the
Purchase Agreement referred to below) are not redeemed in their entirety by
January 1, 2001, the Initial Rate will increase for the calendar year 2001,
commencing January 1, 2001, to a rate per annum equal to 10.0%; the Initial Rate
will increase for the calendar year 2002, commencing January 1, 2002, to a rate
per annum equal to 11.5%; and the Initial Rate will increase for the calendar
year 2003 and for all times thereafter, commencing January 1, 2003, to a rate
per annum equal to 12.125%. Interest shall be payable semiannually on June 16
and December 16 of each year; provided that during the period from the date
--------
hereof to May 11, 2004, the Company may pay the interest on any interest payment
date during such period by issuing to the Payee an additional Note, identical to
this Note (other than the date thereof, which shall be the date such interest
payment is due) in the principal amount of the interest payable on such payment
date. Commencing May 12, 2004 and at all times thereafter, interest shall be
payable in cash unless there exists at the time such interest payment is due
restrictions on such cash interest payment in any document evidencing Senior
Debt.
This Note is issued pursuant to and entitled to the benefits of the
Amended and Restated Note Purchase Agreement dated as of October 29, 1999, as
the same may at any time be amended, modified or supplemented and in effect (the
"Purchase Agreement") between the Company and the Payee, to which reference is
hereby made for a more complete statement of the terms and conditions under
which the Notes were purchased and are to be repaid. Capitalized terms used
herein without definition shall have the meanings set forth in the Purchase
Agreement.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in same day funds to
Payee at the office of Chase Manhattan Bank in the Borough of Manhattan, the
City and State of New York or at such other place as shall be designated in
writing for such purpose in accordance with the terms of the Purchase Agreement.
Each of Payee and any subsequent holder of this Note agrees, by its
<PAGE>
acceptance hereof, that before disposing of this Note or any part hereof it will
make a notation hereon of all principal payments previously made hereunder and
of the date to which interest hereon has been paid; provided, however, that the
failure to make a notation of any payment made on this Note shall not limit or
otherwise affect the obligation of the Company hereunder with respect to
payments of principal or interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to prepayment at the option of the Company as
provided in subsection 10.1 of the Purchase Agreement. The Company is obligated
to prepay or make an offer to purchase all or part of this Note under the
circumstances described in subsections 10.2 and 10.4 of the Purchase Agreement.
This Note is subordinated in right of payment to Senior Debt as and to
the extent provided in Section 14 of the Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued but unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Purchase Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Purchase Agreement.
No reference herein to the Purchase Agreement and no provisions of
this Note or the Purchase Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The Company promises to pay all costs and expenses, including all
reasonable attorneys' fees, expenses and disbursements, incurred in the
collection and enforcement of this Note. The Company and endorsers of this Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered by its duly authorized officer, as of the day and year and at the
place first above written.
TELECORP PCS, INC.
By:_________________________________
Title:
<PAGE>
EXHIBIT B
FORM OF INCREASING RATE SUBORDINATED NOTE (SERIES B)
----------------------------------------------------
$___________ __________, 1999
FOR VALUE RECEIVED, Telecorp PCS, Inc., a Delaware corporation ( the
"Company"), promises to pay to the order of Lucent Technologies Inc.("Payee"),
on October 23, 2009 or such earlier date as may be provided pursuant to the
Purchase Agreement referred to below, the principal amount of _____________
Dollars ($__________).
The Company also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid in full at a rate equal to 10% per
annum (the "Initial Rate"). If the Series B Notes (as defined in the Purchase
Agreement referred to below) are not redeemed in their entirety by January 1,
2000, the Initial Rate will increase for the calendar year 2000, commencing
January 1, 2000, to a rate per annum of 11.5%; the Initial Rate will increase
for each calendar year thereafter, commencing January 1, 2001, to a rate per
annum equal to 12.125%. Interest shall be payable semiannually on _________ and
_________ of each year, commencing on ________; provided that during the period
--------
from the date hereof to May 11, 2004, the Company may pay the interest on any
interest payment date during such period by issuing to the Payee an additional
Note, identical to this Note (other than the date thereof, which shall be the
date such interest payment is due)in the principal amount of the interest
payable on such payment date. After May 11, 2004, interest shall be payable in
cash unless there exists at the time such interest payment is due restrictions
on such cash interest payment in any document evidencing Senior Debt.
This Note is issued pursuant to and entitled to the benefits of the
Amended and Restated Note Purchase Agreement dated as of October 29, 1999, as
the same may at any time be amended, modified or supplemented and in effect (the
"Purchase Agreement") between the Company and the Payee, to which reference is
hereby made for a more complete statement of the terms and conditions under
which the Notes were purchased and are to be repaid. Capitalized terms used
herein without definition shall have the meanings set forth in the Purchase
Agreement.
<PAGE>
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in same day funds to
Payee at the office of Chase Manhattan Bank in the Borough of Manhattan, the
City and State of New York or at such other place as shall be designated in
writing for such purpose in accordance with the terms of the Purchase Agreement.
Each of Payee and any subsequent holder of this Note agrees, by its acceptance
hereof, that before disposing of this Note or any part hereof it will make a
notation hereon of all principal payments previously made hereunder and of the
date to which interest hereon has been paid; provided, however, that the failure
to make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of the Company hereunder with respect to payments of
principal or interest on this Note.
Whenever any payment on this Note shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to prepayment at the option of the Company as
provided in subsection 10.1 of the Purchase Agreement. The Company is obligated
to prepay or make an offer to purchase all or part of this Note under the
circumstances described in subsections 10.2 and 10.5 of the Purchase Agreement.
This Note is subordinated in right of payment to Senior Debt as and to
the extent provided in Section 14 of the Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued but unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Purchase Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Purchase Agreement.
No reference herein to the Purchase Agreement and no provisions of
this Note or the Purchase Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The Company promises to pay all costs and expenses, including all
reasonable attorneys' fees, expenses and disbursements, incurred in the
collection and enforcement of this
<PAGE>
Note. The Company and endorsers of this Note hereby consent to renewals and
extensions of time at or after the maturity hereof, without notice, and hereby
waive diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered by its duly authorized officer, as of the day and year and at the
place first above written.
TELECORP PCS, INC.
BY:____________________________________
Title:
<PAGE>
ANNEX I
DESIGNATED AREAS
----------------
Little Rock, Arkansas MTA and the following BTAs:
Blytheville, AR;
Dyersburg-Union City, TN;
Memphis, TN;
Jackson, TN;
Baton Rouge, LA;
Lafayette New Iberia, LA;
New Orleans, LA;
Houma & Hammond, LA;
Beaumont, TX;
Cape Girardeau-Sikeston, MO;
Columbia, MO;
Jefferson City, MO;
Kirksville, MO;
Poplar Bluff, MO;
Rolla, MO;
Springfield (excluding Springfield MSA & MA 14 Barton 1v), MO;
West Plains, MO;
Carbondale-Marion, IL;
Mt. Vernon-Centralia, IL;
Quincy, IL-Hannibal, MO;
Boston, MA;
Hyannis, MA;
Manchester-Nashua-Concord, NH;
Worcester, MA; and
San Juan, Puerto Rico
<PAGE>
ANNEX II
--------
SLE EXPANSION AREAS
-------------------
San Juan Expansion Area
- -----------------------
San Juan, Puerto Rico MTA
Lake Charles Expansion Area
- ---------------------------
Lake Charles, Louisiana BTA
Monroe, Louisiana BTA
Alexandria, Louisiana BTA
Beaumont, Texas BTA
Indiana Expansion Area
- ----------------------
Evansville, Indiana BTA
Paducah, Kentucky BTA
<PAGE>
Exhibit 10.5.3
AMENDMENT NO. 2 TO
MANAGEMENT AGREEMENT
Between
TELECORP MANAGEMENT CORP.
and
TELECORP PCS, INC.
Dated as of October 18, 1999
<PAGE>
AMENDMENT NO. 2 TO
------------------
MANAGEMENT AGREEMENT
--------------------
This Amendment No. 2 to Management Agreement (the "Amendment") is entered
into as of October 18, 1999 by and between TELECORP MANAGEMENT CORP., a Delaware
corporation ("Manager"), and TELECORP PCS, INC., a Delaware corporation (the
"Company"), and is effective only upon the IPO Date.
WITNESSETH:
WHEREAS, the Company and Manager entered into that certain Management
Agreement dated as of July 17, 1998, which was amended on May 25, 1999 by
Amendment No. 1 to Management Agreement (as amended, the "Management
Agreement");
WHEREAS, the Company and Manager wish to amend the Management Agreement in
order to remove certain repurchase provisions;
NOW, THEREFORE, for and in consideration of the premises, the covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged by the execution and delivery
hereof, the parties agree as follows:
Amendment 1. Sections 7(a) and 7(b) of the Management Agreement are
-----------
hereby amended and restated in their entirety as follows:
"Section 7. Vesting and Repurchase of Restricted Shares, Etc.
-------------------------------------------------
(a) General. Each of Vento and Sullivan hereby agrees that the Shares
-------
shall be subject to the vesting schedules set forth on Schedule B, and are
subject to repurchase by the Company at a repurchase price of $.01 per
share in accordance with the terms of this Section 7. As used in this
Section 7, the following terms have the following meanings:
(i) "Extraordinary Event Shares" means a number of Shares
equal to 466,392 shares of Class A Voting Common Stock.
(ii) "Restricted Holder" means each of Vento and Sullivan.
(b) Repurchase of Shares Upon Termination. Following the termination
-------------------------------------
of this Agreement for any reason, each Restricted Holder shall sell to the
Company, and the Company shall purchase from each Restricted Holder: (x) first,
such Restricted Holder's Shares that have not theretofore vested pursuant to
Schedule B and (y) second, the number of shares of Series E Preferred Stock and
Class A Common Stock subject to repurchase pursuant to Sections 5(f) and 6(e).
The Shares repurchased pursuant to this Section 7(b) are sometimes referred to,
collectively, as the "Repurchased Shares."
<PAGE>
Amendment 2. Schedule A to the Management Agreement is hereby amended
-----------
and restated in its entirety as attached hereto.
Amendment 3. Schedule B to the Management Agreement is hereby amended
-----------
and restated in its entirety as attached hereto.
All other terms and conditions of the Management Agreement shall remain in
full force and effect.
Capitalized terms used herein, but not otherwise defined herein, shall have
the meaning set forth in the Management Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands effective as of the
date first written above.
COMPANY:
TELECORP PCS, INC.
By: /s/ Thomas H. Sullivan
----------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President and Chief
Financial Officer
MANAGER:
TELECORP MANAGEMENT CORP.
By: /s/ Thomas H. Sullivan
----------------------------------
Name: Thomas H. Sullivan
Title: President
In order to induce the Company to execute and deliver the foregoing Amendment
No. 2 to Management Agreement, by their execution in the spaces provided below
each of the undersigned hereby agrees to be bound by the provisions of
Amendments 1, 2 and 3 of this Amendment.
/s/ Gerald T. Vento
- --------------------------
Gerald Vento
/s/ Thomas H. Sullivan
- --------------------------
Thomas Sullivan
<PAGE>
SCHEDULE A
----------
Domestic Market Closing
-----------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Series E Preferred Class A Common Class C Common Voting Preference
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald Vento 8,729.40 1,077,982 33,983 500
- ----------------------------------------------------------------------------------------------------------
Thomas Sullivan 5,426.38 670,097 21,125 500
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Puerto Rico Market Closing
--------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Series E Preferred Class A Common Class C Common Voting Preference
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerald Vento 2,505.73 326,075 N/A N/A
- ----------------------------------------------------------------------------------------------------------
Thomas Sullivan 1,557.62 202,695 N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE B
----------
Vesting Schedule
----------------
Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares (in aggregate,
- -------------------------------------------------------------------------------
1,865,565 shares of Class A Common Stock and 18,219.13 shares of Series E
- -------------------------------------------------------------------------
Preferred Stock).
- -----------------
Vento's and Sullivan's non-Extraordinary Event Shares shall vest on the
Effective Date, the completion of the Minimum Build-Out Plan for each of the
Domestic and Puerto Rico markets and on the specified anniversaries of the
Effective Date as follows:
<TABLE>
<CAPTION>
Vesting Date Percent of Shares
------------ -----------------
<S> <C>
Effective Date (July 17, 1998) 20%
Second Anniversary (July 17, 2000) 15%
Third Anniversary (July 17, 2001) 15%
Fourth Anniversary (July 17, 2002) 15%
Fifth Anniversary (July 17, 2003) 15%
Completion of Year I and Year 2 of 10% of the Shares issued at the
Minimum Build-Out Plan of the Domestic Market Domestic Market Closing
Completion of Year 3 of Minimum 10% of the Shares issued at the
Build-Out Plan of the Domestic Market Domestic Market Closing
plus aggregate POP coverage of 60% of total POPs
in the Domestic Market (based on 1995 POPs,
as defined in the Stockholder's Agreement)
Completion of Year I and Year 2 of 10% of the Shares issued at the
Minimum Build-Out Plan of the Puerto Rico Puerto Rico Market Closing
Market
Completion of Year 3 of Minimum 10% of the Shares issued at the
Build-Out Plan of the Puerto Rico Market Puerto Rico Market Closing
plus aggregate POP coverage of 60% of total POPs
in the Puerto Rico Market (based on 1995 POPs,
as defined in the Stockholder's Agreement)
Total 100%
</TABLE>
<PAGE>
Accelerated Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares.
- -----------------------------------------------------------------------------
In the event of a termination of the Management Agreement by Manager
pursuant to Section 5(b)(iii)(A), (B) or (C) or a termination by the Company
pursuant to Section 5(b)(ii)(B), (C) or (D), in addition to any of Vento's and
Sullivan's Shares that shall have theretofore vested in accordance with the
above "Vesting of Vento's and Sullivan's Non-Extraordinary Event Shares"
schedule, a number of each of Vento's and Sullivan's unvested non-Extraordinary
Event Shares determined as set forth below shall immediately vest (and shall not
be subject to repurchase by the Company):
(a) in the event that the date of termination is no more than six months
after the Effective Date or no more than six months after the most recent
Anniversary Date, a pro rata portion (based upon the actual number of days since
the Effective Date or the Anniversary Date) of the number of shares (if any)
that would have vested on the immediately following Anniversary Date; and
(b) in the event that the date of termination is more than six months after
the Effective Date or more than six months after the most recent Anniversary
Date, all of the shares (if any) that would have vested on the immediately
following Anniversary Date.
Vesting of Vento's and Sullivan's Extraordinary Event Shares.
- -------------------------------------------------------------
Vento's and Sullivan's Extraordinary Event Shares shall vest as follows:
Vesting Date Percent of Shares
------------ -----------------
*[IPO Date] 50%
[First Anniversary of IPO Date] 16-2/3%
[Second Anniversary of IPO DATE] 16-2/3%
[Third Anniversary of IPO DATE] 16-2/3%
-------
Total 100.00
* Actual date to be inserted when established
<PAGE>
EXHIBIT 10.8.9
EXECUTION COPY
EIGHTH AMENDMENT, dated as of October 25, 1999 (this "Amendment"), to the Credit
---------
Agreement, dated as of July 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among TELECORP PCS, INC., a
----------------
corporation organized under the laws of the State of Delaware (the "Borrower"),
--------
the several banks and other financial institutions and entities from time to
time parties thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as
-------
administrative agent (the "Administrative Agent") for the Lenders.
--------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make certain loans to the Borrower; and
WHEREAS the Borrower has requested that certain provisions of the
Credit Agreement be modified in the manner provided for in this Amendment, and
the Lenders are willing to agree to such modifications as provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein
--------------
shall have the meanings given to them in the Credit Agreement, as amended
hereby.
2. Amendment to the Credit Agreement.
----------------------------------
Section 2.18 of the Credit Agreement is hereby amended by deleting the
phrase:
"one or more banks or other financial institutions (any such bank
or other financial institution being called an 'Additional Lender')"
-----------------
and substituting the following therefor:
"one or more banks or other financial institutions or Lucent
Technologies, Inc. (any such bank or other financial institution or
Lucent
<PAGE>
Technologies, Inc. being called an 'Additional Lender'".
-----------------
3. No Other Amendments; Confirmation. Except as expressly amended,
----------------------------------
waived, modified and supplemented hereby, the provisions of the Credit Agreement
are and shall remain in full force and effect.
4. Representations and Warranties. The Borrower hereby represents
-------------------------------
and warrants to the Administrative Agent and the Lenders as of the date hereof:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any person (including any governmental
agency) in order to be effective and enforceable. The Credit Agreement as
amended by this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its
terms, subject only to the operation of the Bankruptcy Code and other
similar statutes for the benefit of debtors generally and to the
application of general equitable principles.
(c) All representations and warranties of the Borrower contained in
the Credit Agreement (other than representations or warranties expressly
made only on and as of the Effective Date) are true and correct as of the
date hereof.
5. Effectiveness. This Amendment shall become effective only upon
--------------
the satisfaction in full of the following conditions precedent:
(a) The Administrative Agent shall have received counterparts hereof,
duly executed and delivered by the Borrower, and the Required Lenders; and
(b) The Administrative Agent shall have received such opinions and
certificates from the Borrower and its counsel as it may reasonably request
in form reasonably satisfactory to its counsel.
6. Expenses. The Borrower agrees to reimburse the Administrative
---------
Agent for its out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
<PAGE>
7. Governing Law; Counterparts. (a) This Amendment and the rights
----------------------------
and obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to
this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
TELECORP, PCS, INC.
by /s/ Thomas H. Sullivan
-----------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
THE CHASE MANHATTAN BANK,
by /s/ William E. Rottino
-----------------------------------
Name: William E. Rottino
Title: Vice President
THE BANK OF NEW YORK,
by /s/ Gerry Granovsky
-----------------------------------
Name: Gerry Granovsky
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by /s/ Micheal Deadder
-----------------------------------
Name: Micheal Deadder
Title: Vice President
BANKBOSTON, N.A.,
by /s/ Shepard D. Rainie
-----------------------------------
Name: Shepard D. Rainie
Title: Managing Director
BANKERS TRUST COMPANY,
by /s/ Gregory Shefrin
-----------------------------------
Name: Gregory Shefrin
Title: Principal
CANADIAN IMPERIAL BANK OF COMMERCE,
by CIBC Oppenheimer Corp., as Agent,
by /s/ Michele E. Roller
-----------------------------------
Name: Michele E. Roller
Title: Executive Director CIBC World
Markets Corp. as Agent.
CAPTIVA III FINANCE, LTD., as advised by
Pacific Investment Management Company,
by
-----------------------------------
Name:
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
by /s/ J.E. Palmer
-----------------------------------
Name: J.E. Palmer
Title: Assistant Vice President
DEBT STRATEGIES FUND, INC.,
by
-----------------------------------
Name:
Title:
DELANO COMPANY, by Pacific Investment
Management Company as its Investment Advisor,
by
-----------------------------------
Name:
Title:
FLEET NATIONAL BANK,
by /s/ William Weiss
-----------------------------------
Name: William Weiss
Title: Assistant Vice President
FRANKLIN FLOATING RATE TRUST,
by
-----------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
by /s/ Mark E. Mylon
-----------------------------------
Name: Mark E. Mylon
Title: Manager-Operations
KZH APPALOOSA LLC,
by /s/ James Fevola
-----------------------------------
Name: James Fevola
Title: Authorized Agent
KZH IV LLC,
by
-----------------------------------
Name:
Title:
KZH PAMCO LLC,
by
-----------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.,
by /s/ Michele Swanson
-----------------------------------
Name: Michele Swanson
Title: Authorized Signatory
MERRILL LYNCH ASSET MANAGEMENT,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO,
INC.,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by
-----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
by /s/ John Kowalczuk
-----------------------------------
Name: John Kowalczuk
Title: Vice President
MOUNTAIN CLO TRUST,
by
-----------------------------------
Name:
Title:
PAMCO CAYMAN LTD., by Highland Capital
Management, L.P., as Collateral Manager,
by
-----------------------------------
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.,
by
-----------------------------------
Name:
Title:
SYNDICATED LOAN FUNDING TRUST, by Lehman
Commercial Paper Inc., not in its individual
capacity but soley as Asset Manager,
by /s/ Michele Swanson
-----------------------------------
Name: Michele Swanson
Title: Authorized Signatory
TORONTO DOMINION [TEXAS], INC.,
by /s/ Debbie A. Greene
-----------------------------------
Name: Debbie A. Greene
Title: Vice President
VAN KAMPEN PRIME RATE INCOME TRUST,
by /s/ Darvin D. Pierce
-----------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR FLOATING RATE FUND,
by /s/ Darvin D. Pierce
-----------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR INCOME TRUST,
by /s/ Darvin D. Pierce
-----------------------------------
Name: Darvin D. Pierce
Title: Vice President
SENIOR DEBT PORTFOLIO, by Boston Management and
Research, as Investment Advisor
by
-----------------------------------
Name:
Title:
ALLFIRST BANK,
by /s/ W. Blake Hampson
-----------------------------------
Name: W. Blake Hampson
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST CO.,
by
-----------------------------------
Name:
Title:
BANKERS TRUST COMPANY/DEUTSCHE BANK,
by
-----------------------------------
Name:
Title:
CAPTIVA III FINANCE, LTD.,
by
-----------------------------------
Name:
Title:
CAPTIVA IV FINANCE LTD.,
by
-----------------------------------
Name:
Title:
DELANO COMPANY,
by
-----------------------------------
Name:
Title:
FRANKLIN FLOATING RATE TRUST,
by
-----------------------------------
Name:
Title:
KZH APPALOOSA LLC,
by
-----------------------------------
Name:
Title:
KZH IV LLC,
by
-----------------------------------
Name:
Title:
KZH PAMCO LLC,
by
-----------------------------------
Name:
Title:
ML DEBT STRATEGIES FUND, INC.,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH DEBT,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES PORT.,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO,
by
-----------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND,
by -----------------------------------
Name:
Title:
MOUNTAIN CAPITAL CLO I, LTD.,
by /s/ Darren P. Riley
-----------------------------------
Name: Darren P. Riley
Title: Director
NATIONAL WESTMINSTER BANK, PLC,
by
-----------------------------------
Name:
Title:
OCTAGON INVESTMENT PARTNERS II, LLC,
by
-----------------------------------
Name:
Title:
SENIOR DEBT PORTFOLIO,
by
-----------------------------------
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.,
by
-----------------------------------
Name:
Title:
SYNDICATED LOAN FUNDINGTRUST,
by
-----------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
by
-----------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST,
by
-----------------------------------
Name:
Title:
VAN KAMPEN SENIOR FLOATING RATE FUND,
by
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10_8_10
EXECUTION COPY
NINTH AMENDMENT, dated as of October 26, 1999 (this "Amendment"), to the Credit
---------
Agreement, dated as of July 17, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among TELECORP PCS, INC., a
----------------
corporation organized under the laws of the State of Delaware (the "Borrower"),
--------
the several banks and other financial institutions and entities from time to
time parties thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as
-------
administrative agent (the "Administrative Agent") for the Lenders.
--------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make certain loans to the Borrower; and
WHEREAS the Borrower has requested that certain provisions of the
Credit Agreement be modified in the manner provided for in this Amendment, and
the Lenders are willing to agree to such modifications as provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein
--------------
shall have the meanings given to them in the Credit Agreement, as amended
hereby.
2. Amendments to the Credit Agreement.
-----------------------------------
(a) Section 1.01 of the Credit Agreement is hereby amended by:
(i) deleting clause (c) of the definition of "Prepayment Event" and
substituting the following therefor:
"(c) the issuance by the Borrower or any Restricted Subsidiary of
any equity securities, or the receipt by the Borrower or any
Restricted Subsidiary of any capital contribution, other than, in the
case of Borrower or any Restricted
<PAGE>
Subsidiary, any such issuance of equity securities to, or receipt of
any such capital contribution from the Borrower or a Restricted
Subsidiary; provided that none of the following shall constitute a
--------
Prepayment Event (i) the initial $128,000,000 (or, if the Supplemental
Closing (as defined in the Securities Purchase Agreement) occurs, the
initial $133,000,000) contribution and commitment of capital to the
Borrower pursuant to the Securities Purchase Agreement, (ii) the
issuance of $39,900,000 of Common Stock and Preferred Stock to AW and
$39,700,000 of Common Stock and Preferred Stock to certain of the
Equity Participants in connection with the San Juan Acquisition, (iii)
so long as no Default exists at the time thereof, the issuance of
equity securities of the Borrower to the extent used as consideration
for, or to finance, a substantially simultaneous acquisition otherwise
made in accordance with the terms of this Agreement, (iv) the issuance
by the Borrower of equity securities (x) in the Initial Public
Offering or (y) at any time after an Initial Public Offering so long
as a class of the Borrower's equity securities continues to be
publicly held and (v) any issuance or receipt by the Borrower if,
after giving effect to such issuance or receipt (x) Senior Leverage
would be less than 5.00 to 1.00 and (y) the Borrower would be in Pro
Forma Compliance; or"
(ii) deleting the phrase "(d) and (e)" from clause (a) of the
definition of "Prepayment Event" and substituting "(d), (e) and (f)"
therefor.
(iii) adding the following definitions in their appropriate
alphabetical order:
"'American Wireless Acquisition' means the purchase by the
-----------------------------
Borrower or a Restricted Subsidiary from American Wireless, L.L.C. of
15 MHz to 20 MHz of C Block PCS Licenses for each of the Harrison,
Arkansas and Jonesboro, Arkansas BTAs for approximately $702,000 in
cash; provided, that such acquisition is consummated on terms and
conditions satisfactory to the Administrative Agent.
<PAGE>
'Eldorado Communications Acquisition' means the purchase by the
-----------------------------------
Borrower or a Restricted Subsidiary from Eldorado Communications,
L.L.C. of 10 MHz of C Block PCS Licenses for each of the Hot Springs,
Arkansas and Fayettevile, Arkansas BTAs for approximately $1,020,000
in cash and in connection therewith the assumption of approximately
$38,000 of FCC Debt; provided, that such acquisition is consummated on
terms and conditions satisfactory to the Administrative Agent.
'Gulf Telecomm Acquisition' means the purchase by the Borrower or
-------------------------
a Restricted Subsidiary from Gulf Telecomm, LLC (successor to Wireless
2000, Inc.) of 15 MHz of C Block PCS Licenses for the Lake Charles,
Louisiana BTA for up to $1,000,000 in cash (or, at the Borrower's
option, the same amount of stock) and in connection therewith the
assumption of $2,345,000 of FCC Debt; provided, that such acquisition
is consummated on terms and conditions satisfactory to the
Administrative Agent.
'Industar Acquisition' means the acquisition by the Borrower or a
--------------------
Restricted Subsidiary of substantially all the assets of Industar,
Inc. d/b/a Industar Digital PCS ("Industar") for approximately
$29,326,000 in cash and $3,000,000 of Class A Voting Common Stock
(valued at the Public Offering Price if the Initial Public Offering
has occurred or the Midpoint of the Range if the Initial Public
Offering has not occurred) and, in connection therewith, the
assumption of approximately $61,000,000 of FCC Debt and approximately
$36,000,000 of other Indebtedness and microwave clearing obligations
of Industar and its subsidiaries; provided, that such acquisition is
consummated on terms and conditions satisfactory to the Administrative
Agent; and provided further, that the total amount of consideration
-------- -------
may be increased up to $140,000,000, and the portions thereof
consisting of cash, stock and assumed Indebtedness may differ from
those described above.
'Industar Loan' means a loan made by the Borrower or a Restricted
-------------
Subsidiary to Industar or
<PAGE>
one of its subsidiaries after the execution of definitive
documentation with respect to the Industar Acquisition in an aggregate
principal amount not to exceed $5,000,000;
'Initial Public Offering' means an offering of the Class A Voting
-----------------------
Common Stock of the Borrower to the public that is registered under
the Securities Act of 1933 and from which the Borrower receives gross
proceeds of at least $75,000,000.
'Midpoint of the Range' means the midpoint of the range set forth
---------------------
in the offering memorandum for the Initial Public Offering or of the
range under discussion with the underwriters if the Initial Public
Offering has not occurred.
'Public Offering Price' means the price at which the Class A
---------------------
Voting Common Stock of the Borrower is sold to the public in the
Initial Public Offering."
(iv) deleting the definition of "LMDS Merger" and substituting the
following therefor:
"'LMDS Merger' means the merger of TeleCorp LMDS, Inc. into THC
-----------
or another Restricted Subsidiary or the acquisition by the Borrower or a
Restricted Subsidiary of all of the Capital Stock of TeleCorp LMDS, Inc.,
and in connection therewith the issuance of up to $20 million of Common
Stock (valued at the Public Offering Price if the Initial Public Offering
has occurred and at the Midpoint of the Range if it has not) or Preferred
Stock (valued at the price of the Common Stock into which it may be
converted) to the existing shareholders of TeleCorp LMDS Inc. and the
acquisition by THC or another Restricted Subsidiary of 1150 MHz of Block A
or 150 MHz of Block B Licenses for the markets set forth in Part E of
Schedule 3.14 hereto; provided, that such acquisition is consummated on
terms and conditions satisfactory to the Administrative Agent."
(v) deleting the definition of Contributed Equity and substituting the
following therefor:
<PAGE>
"'Contributed Equity' means at any time or for any period, (x)
------------------
the sum (without duplication) of (a) $100,084,120, the agreed value of
the AW Licenses set forth on Schedule I to the Securities Purchase
Agreement, (b) cash proceeds from sales by the Borrower of Common
Stock and Preferred Stock less any payments made by the Borrower or
any Subsidiary with respect to Common Stock or Preferred Stock (other
than payments of additional Common Stock or Preferred Stock), (c) cash
proceeds from the sale to Lucent of the Series A Bonds (less any
payments made by the Borrower or any Subsidiary with respect to the
Series A Bonds (other than payments of additional Series A Bonds)),
(d) after consummation of the San Juan Acquisition, $39,900,000,
representing the agreed value of the stock of the Borrower acquired by
AW in connection with the San Juan Acquisition, (e) $7,347,750, the
agreed value of the equity interests in THC contributed to the
Borrower on the Closing Date pursuant to the Securities Purchase
Agreement, (f) after consummation of the THC San Diego Merger,
$4,800,000, representing the agreed value of the stock issued to the
existing shareholders of THC San Diego in connection with the THC San
Diego Merger, (g) after consummation of the Mercury Acquisition,
$2,332,645, representing the agreed value of the stock issued to
Mercury PCS in connection with the Mercury Acquisition, (h) after
consummation of the Wireless 2000 Acquisition, $880,000, representing
the agreed value of the stock issued to Wireless 2000, Inc. in
connection with the Wireless 2000 Acquisition, (i) after consummation
of the LMDS Merger, the fair value of the stock issued by the Borrower
in connection therewith (valuing the Common Stock at the Public
Offering Price if the Initial Public Offering has occurred and at the
Midpoint of the Range if it has not, and valuing Preferred Stock at
the value of the Common Stock into which it may be converted),
representing the agreed value of the stock of the Borrower issued to
the former shareholders of Telecorp LMDS, Inc. in connection with the
LMDS Merger, (j) after consummation of the Industar Acquisition,
$3,000,000, representing the agreed value of the stock issued to the
former shareholders of Industar, (k) after consummation of the Gulf
<PAGE>
Telecomm Acquisition, the fair value (not to exceed $1,000,000) of the
stock issued by the Borrower in connection therewith (valued at the
Public Offering Price if the Initial Public Offering has occurred and
at the Midpoint of the Range if it has not), representing the agreed
value of the stock of the Borrower issued in connection therewith and
(l) the fair market value as reasonably determined by the
Administrative Agent of any other assets contributed to the Borrower
in exchange for Capital Stock of the Borrower minus (y) any amounts
(including the fair market value of any transferred assets, as
reasonably determined by the Administrative Agent) invested by the
Borrower or any Restricted Subsidiary in an Unrestricted Subsidiary."
(b) Section 6.01(a) of the Credit Agreement is hereby amended by:
(i) deleting "350,000,000" from clause (ii) thereof and substituting
"375,000,000" therefor;
(ii) deleting clauses (viii) and (ix) thereof and substituting the
following therefor:
"(viii) FCC Debt assumed in connection with (a) the THC San Diego
Merger in the amount of $8,200,000, (b) the Mercury Acquisition in the
amount of $4,100,000, (c) the Wireless 2000 Acquisition in the amount
of $7,449,191, (d) the Industar Acquisition in an aggregate principal
amount of approximately $61,000,000, (e) the Eldorado Acquisition in
an aggregate principal amount of approximately $38,000 and (f) the
Gulf Telecomm Acquisition in an aggregate principal amount of
approximately $2,345,000.
(ix) existing Indebtedness (other than FCC Debt) of Industar and
its subsidiaries assumed in connection with the Industar Acquisition
and not created in contemplation thereof in an aggregate principal
amount not to exceed $36,000,000.
(x) Indebtedness other than Indebtedness permitted by clause
(viii) or clause (ix) of any Restricted Subsidiary acquired after the
date hereof; provided that (A) such Indebtedness exists
<PAGE>
at the time such Restricted Subsidiary is acquired and is not created
in contemplation of or in connection with such acquisition and (B) the
aggregate Indebtedness acquired in connection with all such
acquisitions does not exceed $20,000,000 at any time outstanding and
(C) the aggregate Indebtedness acquired which is not FCC Debt does not
exceed $5,000,000."
and sequentially relettering the subsequent clauses in Section 6.01(a).
(c) Section 6.02 is hereby amended by inserting after clause (vi)
thereof the following:
"(vii) Liens in favor of the FCC on Licenses securing FCC Debt
incurred in connection with the acquisition of such Licenses."
(d) Section 6.03 of the Credit Agreement is hereby amended by
deleting therefrom the following:
"the Net Proceeds of which are used to prepay Loans pursuant to
Section 2.09 (it being understood that, in calculating Net Proceeds, lease
and other related payments arising in connection with any such sale and
lease-back transaction shall not be deducted from the proceeds received
from the sale of any tower or towers that are the subject of such sale and
lease-back transaction)"
and substituting therefor the following:
"for gross proceeds not exceeding $70,000,000 in the aggregate".
(e) Section 6.05 of the Credit Agreement is hereby amended by
inserting after clause (k) thereof the following:
"(l) the American Wireless Acquisition;
(m) the Eldorado Communications Acquisition;
(n) the Gulf Telecomm Acquisition;
(o) the Industar Acquisition;
<PAGE>
(p) the Industar Loan;"
and sequentially relettering the remaining clauses in Section 6.05.
(f) Section 6.06 is hereby amended by inserting the following before
the "." at the end of clause (e) thereof:
"; and (f) sales of towers in connection with sale and lease-back
transactions permitted by this Agreement."
(g) Section 6.08(b) of the Credit Agreement is hereby amended by
inserting the following before "." at the end of clause (vii) thereof:
"; and (viii) prepayments of Indebtedness (other than FCC Debt)
assumed in connection with the Industar Acquisition."
(h) Section 6.12(l) is hereby deleted in its entirety and the
following substituted therefor:
"(l) Capital Expenditures. (1) The Borrower will not permit Capital
---------------------
Expenditures of the Borrower and its Restricted Subsidiaries for any period
set forth below that ends prior to the consummation of the Industar
Acquisition to exceed the sum set forth opposite such period:
Period Amount
------ ------
Date of formation through $320,000,000
December 31, 1998
January 1, 1999 - December 31, 1999 $180,000,000
January 1, 2000 - December 31, 2000 $250,000,000
January 1, 2001 - December 31, 2001 $115,000,000
January 1, 2002 - December 31, 2002 $ 70,000,000
January 1, 2003 and thereafter $ 50,000,000
; provided that any permitted amount which is not expended in any of the
--------
periods specified above may be carried over for expenditure in the
immediately subsequent period; and
(2) The Borrower will not permit Capital Expenditures of the Borrower
and its Restricted Subsidiaries for any period set forth below that ends
<PAGE>
subsequent to the consummation of the Industar Acquisition to exceed the
sum set forth opposite such period:
Period Amount
------ ------
Date of formation through $ 320,000,000
December 31, 1998
January 1, 1999 - December 31, 1999 $ 210,000,000/1/
January 1, 2000 - December 31, 2000 $ 275,000,000
January 1, 2001 - December 31, 2001 $ 125,000,000
January 1, 2002 - December 31, 2002 $ 75,000,000
January 1, 2003 and thereafter $ 50,000,000
; provided that any permitted amount which is not expended in any of the
--------
periods specified above may be carried over for expenditure in the
immediately subsequent period.
3. No Other Amendments; Confirmation. Except as expressly amended,
----------------------------------
waived, modified and supplemented hereby, the provisions of the Credit Agreement
are and shall remain in full force and effect.
4. Representations and Warranties. The Borrower hereby represents
-------------------------------
and warrants to the Administrative Agent and the Lenders as of the date hereof:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any person (including any governmental
agency) in order to be effective and enforceable. The Credit Agreement as
amended by this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its
terms, subject only to the operation of the Bankruptcy Code and other
similar statutes for the benefit of debtors generally and to the
application of general equitable principles.
- ----------------------
/1/ This amount includes approximately $30,000,000 of the Industar acquisition
price treated as a capital expenditure.
<PAGE>
(c) All representations and warranties of the Borrower contained in
the Credit Agreement (other than representations or warranties expressly
made only on and as of the Effective Date) are true and correct as of the
date hereof.
5. Effectiveness. This Amendment shall become effective only upon
--------------
the satisfaction in full of the following conditions precedent:
(a) The Administrative Agent shall have received counterparts hereof,
duly executed and delivered by the Borrower, and the Required Lenders;
(b) The Administrative Agent shall have received such opinions and
certificates from the Borrower and its counsel as it may reasonably request
in form reasonably satisfactory to its counsel; and
(c) The Borrower shall have paid to the Administrative Agent on
behalf of each Lender (other than Lucent Technologies, Inc.) that duly
executes and delivers a counterpart hereof on or prior to October 26, 1999
a fee equal to 0.15 percent of the aggregate amount of the outstanding
Loans and Commitments of such Lender under the Credit Agreement.
6. Expenses. The Borrower agrees to reimburse the Administrative
---------
Agent for its out-of-pocket expenses in connection with this Amendment,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
7. Governing Law; Counterparts. (a) This Amendment and the rights
----------------------------
and obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to
this Amendment on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
TELECORP PCS, INC.,
by /s/ Thomas H. Sullivan
-------------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
THE CHASE MANHATTAN BANK,
by /s/ William E. Rottino
-------------------------------------
Name: William E. Rottino
Title: Vice President
THE BANK OF NEW YORK,
by /s/ Gerry Granovsky
-------------------------------------
Name: Gerry Granovsky
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
by /s/ Michael Deadder
-------------------------------------
Name: Michael Deadder
Title: Vice President
BANKBOSTON, N.A.,
by /s/ Michael A. Ashton
-------------------------------------
Name: Michael A. Ashton
Title: Vice President
BANKERS TRUST COMPANY,
by /s/ Gregory Shefrin
-------------------------------------
Name: Gregory Shefrin
Title: Principal
CANADIAN IMPERIAL BANK OF COMMERCE,
by CIBC Oppenheimer Corp., as Agent,
by /s/ Laura Hom
-------------------------------------
Name: Laura Hom
Title: Executive Director CIBC World
Market As Agent
CAPTIVA III FINANCE, LTD., as advised by
Pacific Investment Management Company,
by
-------------------------------------
Name:
Title:
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
by /s/ J.E. Palmer
-------------------------------------
Name: J.E. Palmer
Title: Assistant Vice President
DEBT STRATEGIES FUND, INC.,
by
-------------------------------------
Name:
Title:
DELANO COMPANY, by Pacific Investment
Management Company as its Investment Advisor,
by
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK,
by
-------------------------------------
Name:
Title:
FRANKLIN FLOATING RATE TRUST,
by
-------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
by
-------------------------------------
Name:
Title:
KZH APPALOOSA LLC,
by
-------------------------------------
Name:
Title:
KZH IV LLC,
by
-------------------------------------
Name:
Title:
KZH PAMCO LLC,
by
-------------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.,
by
-------------------------------------
Name:
Title:
MERRILL LYNCH ASSET MANAGEMENT,
by
-------------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO, INC.,
by
-------------------------------------
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.,
by
-------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
by /s/ John Kowalczuk
-------------------------------------
Name: John Kowalczuk
Title: Vice President
MOUNTAIN CLO TRUST,
by
-------------------------------------
Name:
Title:
PAMCO CAYMAN LTD., by Highland Capital
Management, L.P., as Collateral Manager,
by
-------------------------------------
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.,
by
-------------------------------------
Name:
Title:
SYNDICATED LOAN FUNDING TRUST, by Lehman
Commercial Paper Inc., not in its individual
capacity but soley as Asset Manager,
by /s/ Michele Swanson
-------------------------------------
Name: Michele Swanson
Title: Authorized Signatory
TORONTO DOMINION [TEXAS], INC.,
by /s/ Lynn Chasin
-------------------------------------
Name: Lynn Chasin
Title: Vice President
VAN KAMPEN PRIME RATE INCOME TRUST,
by /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR FLOATING RATE FUND,
by /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
VAN KAMPEN SENIOR INCOME TRUST,
by /s/ Darvin D. Pierce
-------------------------------------
Name: Darvin D. Pierce
Title: Vice President
SENIOR DEBT PORTFOLIO, by Boston Management and
Research, as Investment Advisor
by
-------------------------------------
Name:
Title:
ALLFIRST BANK,
by /s/ W. Blake Hampson
-------------------------------------
Name: W. Blake Hampson
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST CO.,
by
-------------------------------------
Name:
Title:
BANKERS TRUST COMPANY/DEUTSCHE BANK,
by
-------------------------------------
Name:
Title:
CAPTIVA III FINANCE, LTD.,
by
-------------------------------------
Name:
Title:
CAPTIVA IV FINANCE LTD.,
by
-------------------------------------
Name:
Title:
DELANO COMPANY,
by
-------------------------------------
Name:
Title:
FRANKLIN FLOATING RATE TRUST,
by
-------------------------------------
Name:
Title:
KZH APPALOOSA LLC,
by
-------------------------------------
Name:
Title:
KZH IV LLC,
by
-------------------------------------
Name:
Title:
KZH PAMCO LLC,
by
-------------------------------------
Name:
Title:
ML DEBT STRATEGIES FUND, INC.,
by /s/ Gilles Marchand, CFA
-------------------------------------
Name: Gilles Marchand, CFA
Title: Authorized Person
MERRILL LYNCH DEBT,
by
-------------------------------------
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES PORT.,
by /s/ Gilles Marchand, CFA
-------------------------------------
Name: Gilles Marchand, CFA
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO,
by /s/ Gilles Marchand, CFA
-------------------------------------
Name: Gilles Marchand, CFA
Title: Authorized Person
MERRILL LYNCH SENIOR FLOATING RATE FUND,
by /s/ Gilles Marchand, CFA
-------------------------------------
Name: Gilles Marchand, CFA
Title: Authorized Person
MOUNTAIN CAPITAL CLO I, LTD.,
by /s/ Darren P. Riley
-------------------------------------
Name: Darren P. Riley
Title: Director
OCTAGON INVESTMENT PARTNERS II, LLC,
by /s/ Andrew D. Gordon
-------------------------------------
Name: Andrew D. Gordon
Title: Portfolio Manager
SENIOR DEBT PORTFOLIO,
by /s/ Scott H. Page
-------------------------------------
Name: Scott H. Page
Title: Vice President
SENIOR HIGH INCOME PORTFOLIO, INC.,
by /s/ Gilles
-------------------------------------
Name:
Title:
SYNDICATED LOAN FUNDINGTRUST,
by
-------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.,
by
-------------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST,
by
-------------------------------------
Name:
Title:
VAN KAMPEN SENIOR FLOATING RATE FUND,
by
-------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.17.3
AMENDMENT NO. 2
TO
STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT ("Amendment No. 2") dated
as of November 1, 1999, by and among AT&T WIRELESS PCS, LLC, a Delaware limited
liability company (together with its Affiliated Successors (as hereinafter
defined), "AT&T PCS"), TWR CELLULAR, INC., a Delaware corporation (together with
its Affiliated Successors, "TWR Cellular"), the investors listed under the
heading "Cash Equity Investors" on the signature pages hereto (individually,
each a "Cash Equity Investor" and, collectively, with any of its Affiliated
Successors, the "Cash Equity Investors"), the individuals listed under the
heading "Management Stockholders" on the signature pages hereto (individually,
each a "Management Stockholder" and, collectively, the "Management
Stockholders") and TELECORP PCS, INC., a Delaware corporation (the "Company").
Certain capitalized terms used herein and not otherwise defined have the meaning
assigned to such term in the Stockholders' Agreement (as amended) referred to
below.
WHEREAS, each of the parties hereto (other than the Company) are
stockholders of the Company;
WHEREAS, the parties hereto are parties to that certain Stockholders'
Agreement, dated as of July 17, 1998, as amended by that certain Amendment No. 1
to the Stockholders' Agreement dated March 30, 1999 (as amended, the
"Stockholders' Agreement"), pursuant to which, among other things, the parties
hereto entered into certain agreements regarding the operation of the Company's
business;
WHEREAS, the Stockholders desire to amend certain provisions of the
Stockholders' Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Amendments. From and after the Amendment Effectiveness Date (as
----------
hereinafter defined), without any further action on the part of the parties
hereto, the following amendments shall be effective and in full force and effect
as set forth below:
A. Section 3.1 of the Stockholders' Agreement shall be amended and
restated in its entirety as follows:
"3.1 Board of Directors Upon IPO Date. Effective upon the IPO Date, the
--------------------------------
Board of Directors shall consist of nine (9) directors; provided, however, that
-------- -------
the number of directors constituting the Board of Directors shall be reduced in
the circumstances set
1
<PAGE>
forth in this Section 3.1. Each of the Stockholders hereby agrees that it will
vote all of the shares of Class A Voting Common Stock and Voting Preference
Stock Beneficially Owned or held of record by it (whether now owned or hereafter
acquired), in person or by proxy, to cause the election of directors as follows:
(a) Two (2) individuals selected by holders of a Majority in Interest
of the Class A Voting Common Stock Beneficially Owned by the Cash Equity
Investors, in their sole discretion;
(b) Gerald Vento (so long as he is an officer of the Company and the
Management Agreement remains in full force and effect);
(c) Thomas Sullivan (so long as he is an officer of the Company and
the Management Agreement remains in full force and effect);
(d) One (1) individual nominated by AT&T PCS pursuant to the Restated
Certificate in its capacity as holder of Series A Preferred Stock (the "Series A
Preferred Director") so long as it and TWR Cellular has the right to nominate
one (1) director in accordance with the Restated Certificate;
(e) (i) Two (2) individuals selected by holders of the Voting
Preference Stock, which two (2) individuals shall be acceptable to holders of a
Majority in Interest of the Class A Voting Common Stock Beneficially Owned by
the Cash Equity Investors and AT&T PCS, in the reasonable discretion of such
Cash Equity Investors, on the one hand, and AT&T PCS on the other hand; (ii) one
(1) individual selected by the holders of Voting Preference Stock, who shall be
acceptable to holders of a Majority in Interest of the Class A Voting Common
Stock Beneficially Owned by the Cash Equity Investors, in the reasonable
discretion of such Cash Equity Investors; and (iii) one (1) individual selected
by the holders of Voting Preference Stock, who shall be acceptable to AT&T PCS,
in the reasonable discretion of AT&T PCS.
On the date that the holders of shares of Voting Preference Stock shall
vote as a class with holders of Class A Voting Common Stock, the Board of
Directors shall consist of seven (7) directors elected in accordance with
Section 3.1(a)-(d) and (e)(i).
In the event that Mr. Vento or Mr. Sullivan shall cease to be an officer of
the Company, or the Management Agreement shall cease to be in full force and
effect, such individuals shall resign (or the holders of the Voting Preference
Stock shall remove him) from the Board of Directors and the holders of the
Voting Preference Stock shall select a replacement or replacements who shall be
acceptable to a Majority in Interest of the Cash Equity Investors and AT&T PCS
and TWR Cellular, in each case in its sole discretion. In the event that AT&T
PCS shall cease to be entitled to nominate the Series A Preferred Director, such
director shall resign (or the other directors or Stockholders shall remove
him/her) from the Board of Directors and the remaining directors shall take such
action so that the number of directors constituting the entire Board of
Directors shall be reduced accordingly. In the event that any Cash Equity
Investor that has an Unfunded Commitment shall fail to satisfy any such portion
of its Unfunded Commitments when due
2
<PAGE>
in accordance with Section 2.2 of the Securities Purchase Agreement or Section
3.10 hereof, and such failure is not cured by such Cash Equity Investor within
thirty-five (35) days thereof, then, until such failure is cured, the member of
the Board of Directors who is designated by, or Affiliated with, such Cash
Equity Investor (whether as an employee, partner, member, stockholder or
otherwise) shall resign from the Board of Directors and the Person(s) who
designated such member shall select an individual acceptable to AT&T PCS in its
sole discretion.
Any nomination or designation of directors and the acceptance thereof
pursuant to Section 3.1 shall be evidenced in writing."
B. Effective on the IPO Date, Section 3.2 is hereby amended and
restated in its entirety as follows:
"3.2 Removal; Filling of Vacancies. Except as set forth in Section 3.1,
-----------------------------
each Stockholder agrees it will not vote any shares of Voting Preference Stock
and/or Class A Voting Common Stock Beneficially Owned by such Stockholder, and
shall not permit any Affiliated Successor of such Stockholder holding any Voting
Preference Stock and/or Class A Voting Common Stock, to vote for the removal
without cause of any director designated by any other Stockholder in accordance
with Section 3.1. Any Stockholder or group of Stockholders who has the right to
designate any member(s) of the Board of Directors shall have the right to
replace any member(s) so designated by it (whether or not such member is removed
from the Board of Directors with or without cause or ceases to be a member of
the Board of Directors by reason of death, disability or for any other reason)
upon written notice to the other Stockholders, the Company and the members of
the Board of Directors, which notice shall set forth the name of the member(s)
being replaced and the name of the new member(s); provided, however, that if a
-------- -------
director designated pursuant to Section 3.1(e) is replaced by the holders of
Voting Preference Stock, the individual designated by the holders of Voting
Preference Stock to replace such director must be acceptable to those
Stockholders who are entitled pursuant to the terms of Section 3.1(e) to approve
such director. Each of the Stockholders agrees to vote, and to cause its
Affiliated Successors to vote, its shares of Voting Preference Stock and/ or
Class A Voting Common Stock, or shall otherwise take any action as is necessary
to cause the election of any successor director designated by any Stockholder
pursuant to this Section 3.2. The holders of the Voting Preference Stock, agree
that during the three (3) year period commencing on the date hereof, they will
not (i) remove the individuals nominated by them pursuant to Sections 3.1(e), or
(ii) nominate for election any individuals other than the individuals initially
selected by them and approved in accordance with said Section 3.1(e), subject to
the agreements of such individuals to serve on the Board of Directors."
C. Effective on the IPO Date, the first paragraph of Section 3.6(b)
is hereby amended and restated in its entirety as follows:
"None of the following transactions or actions shall be entered into or
taken by the Company, unless (i) voted for or consented to by the vote of at
least two (2) of the three (3) directors designated pursuant to Sections 3.1(a)
and (d) and (ii) four (4) of the six (6)
3
<PAGE>
directors designated pursuant to Sections 3.1(b) , (c) and (e) of the Board of
Directors of the Corporation.
D. Effective upon the IPO Date, the proviso of the last sentence of
Section 3.7 is hereby amended and restated as follows:
"provided, however, that for purposes of this Section 3.7, the directors
--------- -------
designated pursuant to Section 3.1(e)(i) shall not be deemed to have been
designated by the Cash Equity Investors, AT&T PCS or the holders of the Voting
Preference Stock."
E. Section 12.1 is hereby amended by changing the address for notices
to AT&T PCS and TWR Cellular and its counsel as follows:
"c/o AT&T Wireless Services, Inc.
7277 164/th/ Ave., N.E.
Redmond, WA 98052
Attention: William W. Hague
Telephone: (425) 828-8461
Facsimile: (425) 828-8451
With a copy to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Corporate Secretary
Facsimile: (908) 953-4657
and
Friedman Kaplan & Seiler LLP
875 Third Avenue, 8/th/ Floor
New York, New York 10022
Attention: Gregg S. Lerner
Telephone: (212) 833-1100
Facsimile: (212) 833-6401"
All references to Rubin Baum Levin Constant & Friedman are hereby
deleted.
F. Section 12.2(b) is hereby amended and restated in its entirety as
follows:
"No change or modification of this Agreement shall be valid, binding or
enforceable unless the same shall be in writing and signed by the Company and
the Beneficial Owners of a majority of the shares of Class A Voting Common Stock
party to
4
<PAGE>
this Agreement, including AT&T PCS, 66 2/3% of the Class A Voting Common Stock
Beneficially Owned by the Cash Equity Investors, and 66 2/3% of the Class A
Voting Common Stock Beneficially Owned by the Management Stockholders; provided,
--------
however, that in the event any party hereto shall cease to own any shares of
- -------
Equity Securities such party hereto shall cease to be a party to this Agreement
and the rights and obligations of such party hereunder shall terminate, except
to the extent otherwise provided in Section 4.7(a) with respect to any Unfunded
Commitment."
G. Effective on the IPO Date, Section 12.3(b) is hereby amended and
restated in its entirety as follows:
"Notwithstanding anything contained herein to the contrary, (i) the
provisions of Sections 3 and 4 shall terminate on the earlier to occur of a
termination pursuant to Section 12.3(a) and the expiration of ten (10) years
from the date hereof, (ii) the provisions of Sections 3.1(e) (relating to AT&T
PCS' right to approve directors selected by the holders of the Voting Preference
Stock and any replacement for Messrs. Vento or Sullivan to the Board of
Directors), 4.7(b), 7.4, 7.6 and 8.4(a), shall terminate, and neither the
Company nor any Stockholder shall be required to obtain AT&T PCS's prior written
consent as required under such Sections, on the earlier to occur of (a) a
termination pursuant to Section 12.3(a) and (b) (x) with respect to the period
prior to the eighth anniversary of the date hereof, the date on which AT&T PCS
and TWR Cellular shall cease to Beneficially Own, in the aggregate, more than
two-thirds of the number of shares of Series A Preferred Stock that AT&T PCS and
TWR Cellular Beneficially Own, in the aggregate, on the date hereof and (y) with
respect to the period after the eighth anniversary of the date hereof, the date
on which AT&T PCS and TWR Cellular shall cease to Beneficially Own, in the
aggregate, more than two-thirds of the number of shares of Class A Voting Common
Stock that AT&T PCS and TWR Cellular Beneficially Owns, in the aggregate, on
such eighth anniversary date, and (iii) the provisions of 3.6 shall terminate on
the date that the holders of shares of Voting Preference Stock shall vote as a
class with holders of Class A Voting Common Stock. Notwithstanding anything
contained herein to the contrary, the provisions of Section 3.1(b)-(e) shall
terminate on the earlier to occur of a termination pursuant to Section 12.3(a)
and the date after the date that the holders of shares of Voting Preference
Stock shall vote as a class with holders of Class A Voting Common Stock."
H. Effective on the IPO Date, Section 12.3(c)(i) is hereby amended and
restated in its entirety as follows:
"Notwithstanding anything contained herein to the contrary, in the event
the Cash Equity Investors shall Beneficially Own less than (I) one-half but more
than one-quarter of the number of shares of Common Stock Beneficially Owned by
the Cash Equity Investors on July 17, 1998, the number of directors the Cash
Equity Investors shall be permitted to designate under Section 3.1(a) shall be
reduced to one, or (II) one-quarter of the number of shares of Common Stock
Beneficially Owned by the Cash Equity Investors on July 17, 1998, the provisions
of Section 3.1(a) shall terminate and the provisions of Section 3.1(e) (relating
to the Cash Equity Investors' right to approve the directors selected by the
holders of the Voting Preference Stock pursuant to Section 3.1(e)(i) and (ii))
and the right to approve any director that replaces Messrs. Vento or Sullivan on
the Board of Directors
5
<PAGE>
shall terminate, and neither the Company nor any Stockholder shall be required
to obtain the Cash Equity Investors' prior written consent as required under
such Sections. In the event the number of directors the Cash Equity Investors
are entitled to designate is reduced pursuant to Section 12.3(c)(i)(I), one of
the directors designated by the Cash Equity Investors under Section 3.1(a) shall
resign (or the other directors or Stockholders shall remove him from the Board
of Directors) and the remaining directors shall take such action so that the
number of directors constituting the entire Board of Directors shall be reduced
accordingly. In the event the provisions of Section 3.1(a) and 3.1(e) (with
respect to the rights of the Cash Equity Investors) are terminated pursuant to
Section 12.3(c)(i)(II), the directors designated by the Cash Equity Investors
pursuant to Section 3.1(a) and the director designated pursuant to Section
3.1(e)(ii) shall resign (or the other directors or Stockholders shall remove
them from the Board of Directors) and the remaining directors shall take such
action so that the number of directors constituting the entire Board of
Directors is reduced to six (6) individuals. The holders of the Voting
Preference Stock shall thereafter have the right to designate three (3)
individuals to the Board of Directors provided each such individual is
acceptable to AT&T PCS (so long as AT&T PCS and TWR Cellular continues to
Beneficially Own, in the aggregate, more than two-thirds of the Common Stock
Beneficially Owned by AT&T PCS and TWR Cellular, in the aggregate, on July 17,
1998). For all purposes of this Agreement all references in this Agreement to
directors designated pursuant to Section 3.1(e) shall thereafter be deemed to
refer to the three (3) directors designated pursuant to the immediately
preceding sentence."
I. Effective upon the IPO Date, the provisions of Sections 3.3, 3.4,
3.5, 3.8, 3.11, 4.1(a), 4.5 (c), 7.1, 7.2, 7.6 and 12.3(c)(ii)
shall cease to be of any further force or effect, but such section
numbers are hereby reserved.
J. Effective upon the IPO Date, all references to "AT&T Wireless PCS,
Inc., a Delaware corporation" are hereby amended to read "AT&T
Wireless PCS, LLC, a Delaware limited liability company".
2. Amendment Effectiveness Date. This Amendment No. 2 shall be
----------------------------
effective on the later to occur of (i) the date that a counterpart hereof shall
have been executed by each of the Company, AT&T PCS, holders of 66 2/3% of the
Class A Voting Common Stock Beneficially Owned by the Cash Equity Investors and
holders of 66 2/3% of the Class A Voting Stock Beneficially Owned by the
Management Stockholders and (ii) the IPO Date (the "Amendment Effectiveness
Date").
3. Representation and Warranties. Each party hereto, as to itself,
-----------------------------
represents and warrants, as applicable, to each of the other parties as follows:
A. It is a corporation, limited liability company, general
partnership or limited partnership, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted.
B. It has the requisite power, authority and capacity to execute,
deliver and perform this Amendment No. 2
6
<PAGE>
C. The execution and delivery of this Amendment No. 2 by it have
been duly and validly authorized by its Board of Directors (or equivalent body)
and no other proceedings on its part which have not been taken (including,
without limitation, approval of its stockholders, partners or members) are
necessary to authorize this Amendment No. 2.
D. This Amendment No. 2 has been duly executed and delivered by it
and constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and may be subject to general
principles of equity.
E. The execution, delivery and performance by it of this Amendment
No. 2 will not (a) conflict with, or result in a breach or violation of, any
provision of its organizational documents; (b) constitute, with or without the
giving of notice or passage of time or both, a breach, violation or default,
create a Lien, or give rise to any right of termination, modification,
cancellation, prepayment or acceleration, under (i) any Law or License or (ii)
any note, bond, mortgage, indenture, lease, agreement or other instrument, in
each case which is applicable to or binding upon it or any of its assets; or (c)
require any Consent, or the approval of its board of directors, general partner,
stockholders or similar constituent bodies, as the case may be (which approvals
have been obtained), except in each case, where such breach, violation, default,
Lien, right, or the failure to obtain or give such Consent would not have a
Material Adverse Effect on it or its ability to perform its obligations
hereunder.
F. There is no action, proceeding or investigation pending or, to
its knowledge, threatened against it or any of its properties or assets that
would be reasonably expected to have an adverse effect on its ability to enter
into this Amendment No. 2 or to fulfill its obligations hereunder.
4. Severability of Provisions. Any provision of this Amendment No. 2
--------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
5. Agreements to Remain in Full Force and Effect. This Amendment No.
---------------------------------------------
2 shall be deemed to be an amendment to the Stockholders' Agreement. All
references to the Stockholders' Agreement in any other agreements or documents
shall on and after the date hereof be deemed to refer to the Stockholders'
Agreement as amended hereby. Except as amended hereby, the Stockholders'
Agreement shall remain in full force and effect and is hereby ratified, adopted
and confirmed in all respects.
6. Heading. The headings in this Amendment No. 2 are inserted for
-------
convenience and identification only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Amendment No. 2 or any
provision thereof.
7
<PAGE>
7. Counterparts. This Amendment No. 2 may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8. Governing Law. This Amendment No. 2 shall be governed and
-------------
construed in accordance with the laws of the State of Delaware.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AT&T WIRELESS PCS, LLC
By: /s/ Mary Hawkins-Key
-----------------------------
Name: Mary Hawkins-Key
Title: Senior Vice President
TWR CELLULAR, INC.
By: /s/ Mary Hawkins-Key
-----------------------------
Name: Mary Hawkins-Key
Title: Senior Vice President
TELECORP PCS, INC.
By: /s/ Gerald T. Vento
-----------------------------
Name: Gerald T. Vento
Title: Chairman and CEO
Cash Equity Investors:
CB CAPITAL INVESTORS, L.P.
By: CB Capital Investors, Inc.
its general partner
By: /s/ Michael R. Hannon
-----------------------------
Name: Michael R. Hannon
Title: Vice President CB Capital
Investors, L.P.
NORTHWOOD VENTURES LLC
By: /s/ Henry T. Wilson
-----------------------------
Name: Henry T. Wilson
Title: Managing Director
9
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
By: /s/ Henry T. Wilson
-----------------------------
Name: Henry T. Wilson
Title: Managing Director
ONE LIBERTY FUND IV, L.P.
By: /s/ Edwin M. Kania, Jr.
-----------------------------
Name: Edwin M. Kania, Jr.
Title: General Partner
ONE LIBERTY FUND III, L.P.
By: /s/ Edwin M. Kania, Jr.
-----------------------------
Name: Edwin M. Kania, Jr.
Title: General Partner
MEDIA COMMUNICATIONS INVESTORS LIMITED
PARTNERSHIP
By: M/C Investors General Partner - J. Inc.,
a general partner
By: /s/ James F. Wade
-----------------------------
Name: James F. Wade
Title: Authorized Officer
MEDIA/COMMUNICATIONS PARTNERS III LIMITED
PARTNERSHIP
By: M/CP III General Partner - J. Inc.,
a general partner
By: /s/ James F. Wade
-----------------------------
Name: James F. Wade
Title: Authorized Officer
10
<PAGE>
EQUITY-LINKED INVESTORS-II
By: ROHIT M. DESAI ASSOCIATES-II,
its general partner
By:________________________________
Name:
Title:
PRIVATE EQUITY INVESTORS III, L.P.
By: ROHIT M. DESAI ASSOCIATES III, LLC,
its general partner
By:_____________________________
Name:
Title:
HOAK COMMUNICATIONS PARTNERS, L.P.
By: HCP Investments, L.P.,
its general partner
By: Hoak Partners, LLC,
its general partner
By: /s/ James M. Hoak
-----------------------------
Name: James M. Hoak
Title: Manager
HCP CAPITAL FUND, L.P.
By: James M. Hoak & Co.,
its general partner
By: /s/ James M. Hoak
-----------------------------
Name: James M. Hoak
Title: Chairman
11
<PAGE>
WHITNEY EQUITY PARTNERS, L.P.
By: J.H. Whitney & Co.,
Its general partner
By: /s/ Daniel J. O'Brian
-----------------------------
Name: Daniel J. O'Brian
Title: Member
J.H. WHITNEY III, L.P.
By: J.H. Whitney & Co.,
Its general partner
By: /s/ Daniel J. O'Brian
-----------------------------
Name: Daniel J. O'Brian
Title: Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney & Co.,
Its general partner
By: /s/ Daniel J. O'Brian
-----------------------------
Name: Daniel J. O'Brian
Title: Member
12
<PAGE>
TORONTO DOMINION INVESTMENTS INC.
By:_____________________________
Name:
Title:
GILDE INTERNATIONAL B.V., by its attorney in
fact Morgan, Holland Partners L.P., by its GP
Morgan, Holland Partners II, L.P.
By: /s/ Edwin M. Kania, Jr.
-----------------------------
Name: Edwin M. Kania, Jr.
Title: General Partner
WIRELESS 2000
By: /s/ Joan S. Ducote.
-----------------------------
Name: Joan S. Ducote.
Title: President
DIGITAL PCS, LLC
By:_____________________________
Name:
Title:
Management Stockholders:
/s/ Thomas H. Sullivan
--------------------------------
Thomas Sullivan
13
<PAGE>
/s/ Gerald T. Vento
-------------------
Gerald Vento
14
<PAGE>
Exhibit 10.27
Exhibit Number 10.27**
TELECORP PCS, INC.
1999 STOCK OPTION PLAN*
*Amended October 18, 1999 by the Company's Board of Directors.
1. Purpose. The TELECORP PCS, INC. 1999 Stock Option Plan (the "Plan")
-------
is intended to provide incentives which will attract and retain highly competent
persons as employees, officers and/or directors of TELECORP PCS, INC. or its
affiliated companies (the "Company"), by providing them opportunities to acquire
shares of Class A Common Stock of the Company ("Common Shares") pursuant to
Stock Options described herein.
2. Administration. The Plan will be administered by the Board of
--------------
Directors of the Company (the "Board"). The Board is authorized, subject to the
provisions of the Plan, to establish such rules and regulations as it deems
necessary for the proper administration of the Plan and to make such
determinations and interpretations and to take such action or inaction in
connection with the Plan and any Stock Options granted hereunder as it deems
necessary or advisable. All determinations and interpretations made by the Board
shall be binding and conclusive on all participants and their legal
representatives. The Board may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the manner
and to the extent it shall deem expedient to effectuate the purposes of the
Plan. No member of the Board, and no officer or employee of the Company, shall
be liable for any act or failure to act hereunder, by any other member of the
Board or any officer or employee or by any agent to whom duties in connection
with the administration of this Plan have been delegated or, except in
circumstances involving his bad faith, gross negligence or fraud, for any act or
failure to act by the member of the Board or any officer or employee.
3. Participants. The Board, in its sole discretion may designate
------------
employees, officers and directors of the Company and its affiliates from time to
time to receive Stock Options under the Plan. Designation of a participant in
any year shall not require the Board to designate such person to receive a Stock
Option in any other year or, once designated, to receive the same type or amount
of Stock Options as granted to the participant or any other participant in any
year. The Board shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective Stock
Options.
4. Shares Reserved under the Plan. Subject to adjustment under
------------------------------
Section 6 below, there is hereby reserved for issuance under the Plan an
aggregate of 587,159 Common Shares. Such shares may be authorized but unissued
shares or may be shares issued and thereafter acquired by the Company. Any
shares subject to Stock Options may thereafter be subject to new options under
this Plan if there is a lapse, expiration or termination of any such options, or
if shares are issued under such options and thereafter are reacquired by the
Company pursuant to rights reserved by the Company upon issuance thereof.
- ---------------------
*Amended October 18, 1999 by the Company's Board of Directors.
<PAGE>
5. Stock Options. Stock Options will consist of awards from the
-------------
Company, in the form of agreements, which will enable the holder to purchase a
specific number of Common Shares, at set terms and at a fixed purchase price.
Stock Options may be "incentive stock options" within the meaning of Section 422
of the Internal Revenue Code ("Incentive Stock Options") or Stock Options which
do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The
Board will have the authority to grant to any participant one or more Incentive
Stock Options, Nonqualified Stock Options, or both types of Stock Options. Each
Stock Option shall be subject to such terms and conditions consistent with the
Plan as the Board may impose from time to time, subject to the following
limitations:
(a) Exercise Price. Subject to Paragraph (e) below, each Stock
--------------
Option granted hereunder shall have such per-share exercise price as the Board
may determine at the date of grant.
(b) Payment of Exercise Price. Options granted under the Plan
-------------------------
may provide for the payment of the exercise price by delivery of cash or a check
to the order of the Company in an amount equal to the exercise price of such
options, or by delivery to the Company of Common Shares already owned by the
participant having a Fair Market Value equal in amount to the exercise price of
the options being exercised or by any combination of such methods of payment.
The Fair Market Value of any Common Shares which may be delivered upon exercise
of an option shall be determined by the Board.
(c) Exercise Period. Stock Options granted under the Plan
---------------
shall be exercisable at such times and subject to such terms and conditions as
shall be determined by the Board. In addition, Stock Options shall not be
exercisable more than ten years after the date they are granted. All Stock
Options shall terminate at such earlier times and upon such conditions or
circumstances as the Board shall in its discretion set forth in such option at
the date of grant.
(d) Exercise of Options. Each option granted under the Plan
-------------------
shall be exercisable either in full or in installments at such time or times and
during such period as shall be set forth in the agreement evidencing such
option, subject to the provisions of paragraph (c) above. To the extent that an
option to purchase Common Shares is not exercised by an optionee when it becomes
initially exercisable, it shall not expire but shall be carried forward and
shall be exercisable, on a cumulative basis, until the expiration of the
exercise period or such earlier time as the Board shall, in its sole discretion,
set forth in such option at the date of grant.
(e) Limitations on Incentive Stock Options. Incentive Stock
--------------------------------------
Options may be granted only to participants who are employees of the Company at
the date of grant. The aggregate Fair Market Value (determined as of the time
the option is granted) of the Common Shares with respect to which Incentive
Stock Options are exercisable for the first time by a participant during any
calendar year (under all option plans of the Company) shall not exceed $100,000.
Incentive Stock Options may not be granted to any participant who, at the time
of grant, owns stock possessing (after the application of the attribution rules
of Section 424(d) of the
-2-
<PAGE>
Internal Revenue Code) more than 10% of the total combined voting power of all
classes of stock of the Company, unless the option price is fixed at not less
than 110% of the Fair Market Value of the Common Shares on the date of grant and
the exercise of such option is prohibited by its terms after the expiration of
five years from the date of grant of such option.
(f) Redesignation as Nonqualified Stock Options. Options
-------------------------------------------
designated as "incentive stock options" that fail to continue to meet the
requirements of Section 422 of the Internal Revenue Code shall be redesignated
as nonqualified options for Federal income tax purposes automatically without
further action by the Board on the date of such failure to continue to meet the
requirements of Section 422 of the Internal Revenue Code.
(g) Limitation of Rights in Shares. The recipient of a Stock
------------------------------
Option shall not be deemed for any purpose to be a shareholder of the Company
with respect to any of the shares subject thereto except to the extent that the
Stock Option shall have been exercised and, in addition, a certificate shall
have been issued and delivered to the participant.
6. Adjustment Provisions.
---------------------
(a) If the Company shall at any time change the number of
issued Common Shares without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of shares,
liquidation, combination or other change in corporate structure affecting the
Common Shares) or make a distribution of cash or property which has a
substantial impact on the value of issued Common Shares, the total number of
shares available for Stock Options under this Plan shall be appropriately
adjusted, and the number of shares covered by each outstanding Stock Option and
the option exercise price of each outstanding Stock Option shall be adjusted so
that the net value of such Stock Option shall not be changed.
(b) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the Company
with or into another corporation which results in the outstanding Common Shares
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"), subject to the
provisions of this Plan and any limitation applicable to the Stock Option,
including without limitation, the termination of any unexercised options upon
the sale of the Company's assets, any participant to whom a Stock Option has
been granted shall have the right thereafter and during the term of the Stock
Option, to receive upon exercise thereof the Acquisition Consideration (as
defined below). The term "Acquisition Consideration" shall mean the kind and
amount of securities, cash or other property or any combination thereof
receivable in respect of one Common Share upon consummation of an Acquisition.
(c) Notwithstanding any other provision of this Plan, the Board
may authorize the issuance, continuation or assumption of Stock Options or
provide for other equitable adjustments after changes in the Common Shares
resulting from any merger,
-3-
<PAGE>
consolidation, sale of assets, acquisition of property or stock,
recapitalization, reorganization or similar occurrence upon such terms and
conditions as it may deem equitable and appropriate.
7. Nontransferability. Each Stock Option granted under the Plan to a
------------------
participant shall not be transferable by him otherwise than by law or by will or
the laws of descent and distribution, and shall be exercisable, during his
lifetime, only by him (or his legal representative in the case of
incapacitation). In the event of the death of a participant while the
participant is rendering services to the Company, each Stock Option theretofore
granted to him shall be exercisable during such period after his death as the
Board shall in its discretion set forth in such option or right at the date of
grant (but not beyond the stated duration of the option or right) and then only:
(i) By the executor or administrator of the estate of the
deceased participant or the person or persons to whom the deceased participant's
rights under the Stock Option shall pass by will or the laws of descent and
distribution; an d
(ii) To the extent that the deceased participant was entitled to
do so at the date of his death.
8. Other Provisions. Stock Options under the Plan may also be subject
----------------
to such other provisions (whether or not applicable to any other Stock Options
under the Plan) as the Board, in its sole discretion, determines appropriate,
including without limitation, provisions determining the effect that a
termination of employment shall have on the participant's Stock Options,
provisions for the installment purchase of Common Shares under Stock Options,
provisions to assist the participant in financing the acquisition of Common
Shares, provisions for the forfeiture of, or restrictions on resale or other
disposition of Common Shares acquired under any form of Stock Option, provisions
for the acceleration of exercisability or vesting of Stock Options in the event
of a change of control of the Company, provisions for the payment of the value
of Stock Options to participants in the event of a change of control of the
Company, provisions for the forfeiture of, or provisions to comply with Federal
and state securities laws, or understandings or conditions as to the
participant's employment in addition to those specifically provided for under
the Plan. Notwithstanding the foregoing, such additional provisions shall not
cause any Incentive Stock Option granted under the Plan to fail to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Code.
9. Fair Market Value. For purposes of this Plan and any Incentive
-----------------
Stock Options awarded hereunder, Fair Market Value of Common Shares shall be the
amount determined in good faith by the Board from time to time as the fair
market value of the Common Shares of the Company.
10. Withholding. All payments or distributions or deliveries made
-----------
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements. If
the Company is required to issue Common Shares pursuant
-4-
<PAGE>
to the exercise of Stock Options, it may require the participant to remit to it
an amount sufficient to satisfy such tax withholding requirements prior to the
delivery of any certificates for such Common Shares. The Board may, in its
discretion and subject to such rules as it may adopt, permit a participant to
pay all or a portion of the federal, state and local withholding taxes arising
in connection with the exercise of a Stock Option, by electing to have the
Company withhold Common Shares having a Fair Market Value equal to the amount
required to be withheld.
11. Tenure. A participant's right, if any, to continue to serve the
------
Company as an officer, employee, director or otherwise, shall not be enlarged or
otherwise affected by his designation as a participant under the Plan, nor shall
this Plan in any way interfere with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
participant from the rate in existence at the time of the grant of a Stock
Option. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Board at the time.
12. Other Employee Benefits. The amount of any compensation that may
-----------------------
be deemed to be received by an participant as a result of the grant of a Stock
Option, the vesting of a Stock Option, the exercise of a Stock Option or the
sale of Common Shares received upon such exercise will not constitute
compensation with respect to which any other participant benefits of such
employee are determined, including, without limitation, benefits under any
bonus, pension, profit sharing, life insurance or salary continuation plan,
unless separate provision to the contrary is contained in such other plan.
13. Duration, Amendment and Termination. No Stock Option shall be
-----------------------------------
granted after December 31, 2008; provided, however, that the terms and
conditions applicable to any Stock Option granted prior to such date shall
continue to have force and effect in accordance with the participant's stock
option agreement, and such agreement may thereafter be amended or modified by
mutual agreement between the Company and the participant or such other persons
as may then have an interest therein. Also, by mutual agreement between the
Company and a participant hereunder, under this Plan or under any other present
or future plan of the Company, Stock Options may be granted to such participant
in substitution and exchange for, and in cancellation of, any Stock Options
previously granted such participant under this Plan, or any other present or
future plan of the Company. The Board may amend the Plan from time to time or
terminate the Plan at any time. However, no action authorized by this Section 13
shall reduce the amount of any existing Stock Option or change the terms and
conditions thereof without the participant's consent.
14. Governing Law. This Plan and actions taken in connection herewith
-------------
shall be governed and construed in accordance with the laws of the Commonwealth
of Virginia (regardless of the law that might otherwise govern under applicable
Virginia principles of conflict of laws).
-5-
<PAGE>
15. Approval. The Plan was adopted by the Board of the Company on
--------
June 23, 1999 and amended by the Board on October 18, 1999.
-6-
<PAGE>
EXHIBIT 10.31
Exhibit 10.31**
Form Of
INDEMNIFICATION AGREEMENT
BETWEEN
TELECORP PCS, INC.
AND
______________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions.............................................................................................1
2. Indemnification.........................................................................................2
2.1 Indemnification in Third Party Actions.........................................................2
2.2 Indemnification in Proceedings By or In the Name of the Company................................2
2.3 Partial Indemnification........................................................................2
2.4 Indemnification Hereunder Not Exclusive........................................................2
2.5 Indemnification of Indemnified Costs of Successful Party.......................................3
2.6 Indemnified Costs Advanced.....................................................................3
2.7 Limitations on Indemnification.................................................................3
3. Presumptions............................................................................................3
3.1 Presumption Regarding Standard of Conduct......................................................3
3.2 Determination of Right to Indemnification......................................................4
3.2.1 Burden................................................................................4
3.2.2 Standard..............................................................................4
4. Other Agreements........................................................................................4
4.1 Change in Control Event........................................................................4
4.2 Maintenance of Liability Insurance.............................................................5
4.2.1 Affirmative Covenant of the Company...................................................5
4.2.2 Indemnitee Named as Insured...........................................................5
4.3 Agreement to Serve.............................................................................5
4.4 Effect of this Agreement on Employment Agreement...............................................5
4.5 Nature of Rights; Separability.................................................................5
4.6 Savings Clause.................................................................................5
4.7 Repayment of Indemnified Costs.................................................................6
4.8 Repayment......................................................................................6
5. Indemnification Procedure...............................................................................6
5.1 Notice.........................................................................................6
5.2 Company Participation..........................................................................6
5.3 Settlement.....................................................................................7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
5.4 Subrogation....................................................................................7
6. Miscellaneous Provisions................................................................................7
6.1 Amendments; Waivers............................................................................7
6.2 Integration....................................................................................7
6.3 Interpretation; Governing Law..................................................................7
6.4 Headings.......................................................................................7
6.5 Counterparts...................................................................................7
6.6 Successors and Assigns.........................................................................7
6.7 Expenses; Legal Fees...........................................................................7
6.8 Representation by Counsel; Interpretation......................................................7
6.9 Specific Performance...........................................................................8
6.10 Time is of the Essence.........................................................................8
6.11 Notices........................................................................................8
</TABLE>
ii
<PAGE>
TELECORP PCS, INC.
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement (this "Agreement") is made as of
__________, 1999, by and between TeleCorp PCS, Inc., a Delaware corporation (the
"Company"), and the individual whose name appears below the word "Indemnitee" on
the signature page (the "Indemnitee"). In consideration of the services of the
Indemnitee, and to induce the Indemnitee to continue to serve as a director
and/or officer, the Company and the Indemnitee agree as follows:
R E C I T A L S
A. The Indemnitee has agreed to serve as a director and/or officer of the
Company and in such capacity will render valuable services to the Company.
B. The Company has concluded that insurance and statutory indemnity
provisions may provide inadequate protection to individuals requested to
serve as its directors and officers.
C. To induce and encourage the Indemnitee to serve as a director and/or
officer of the Company, the Company's Board of Directors has decided that
this Agreement is not only reasonable and prudent, but necessary, to
promote and ensure the best interests of the Company and its stockholders.
1. Definitions
-----------
As used in this Agreement:
1.1 "Agent" means a director, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise that the Indemnitee served in any of such
capacities at the request of the Company.
1.2 "Change in Control Event" means any of the following: (a) Approval by the
stockholders of the Company of the dissolution or liquidation of the
Company;
(b) Consummation of a merger, consolidation, or other reorganization, with
or into, or the sale of all or substantially all of the Company's business
and/or assets as an entirety to, one or more entities that are not Subsidiaries
or other affiliates of the Company (a "Business Combination"), unless (1) as a
result of the Business Combination more than 50% of the outstanding voting power
generally in the election of directors of the surviving or resulting entity or a
parent thereof (the "Successor Entity") immediately after the reorganization
are, or will be, owned, directly or indirectly, by holders of the Company's
voting securities immediately before the Business Combination; and (2) no Person
(excluding
<PAGE>
the Successor Entity or an Excluded Person) beneficially owns, directly or
indirectly, more than 50% of the outstanding shares or the combined voting power
of the outstanding voting securities of the Successor Entity, after giving
effect to the Business Combination, except to the extent that such ownership
existed prior to the Business Combination; and (3) at least 50% of the members
of the board of directors of the entity resulting from the Business Combination
were members of the Board of Directors at the time of the execution of the
initial agreement, or of the action of the Board of Directors, providing for the
Business Combination;
(c) Any "Person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act other than an Excluded Person becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the combined voting
power of the Company's then outstanding securities entitled to then vote
generally in the election of directors of the Company, other than as a result of
(1) an acquisition directly from the Company, (2) an acquisition by the Company,
(3) an acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or a Successor Entity, or (4) an acquisition by an
entity pursuant to a transaction which is expressly excluded under clause (b)
above; or
(d) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors cease to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of each new member of the Board of
Directors was approved by a vote of at least three-fourths of the members of the
Board of Directors then still in office who were members at the beginning of
such period (including for these purposes, new members whose election or
nomination was so approved), but excluding for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
person other than the Board of Directors.
1.3 "Excluded Person" means (a) any person described in and satisfying the
conditions of Rule 13d-1(b)(1) under the Exchange Act, (b) the Company, (c)
an employee benefit plan (or related trust) sponsored or maintained by the
Company or the Successor Entity, or (d) any person who is the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of more than 10% of
the outstanding shares of Common Stock at the time of adoption of this Plan
(or any affiliate, successor or related party of or to any such person).
1.4 "Expenses" includes, but is not limited to, attorneys' fees, disbursements
and retainers, accounting and witness fees, travel and deposition costs,
expenses of investigations and amounts paid in settlement by or on behalf
of the Indemnitee, and any expenses of establishing a right to
indemnification pursuant to this Agreement, to the extent actually and
reasonably incurred by the Indemnitee in connection with any Proceeding.
"Expenses" does not include the amount of judgments, fines, penalties or
ERISA excise taxes actually levied against the Indemnitee.
-2-
<PAGE>
1.5 "Indemnified Costs" means all Expenses, judgments, fines, penalties and
ERISA excise taxes actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense, appeal, or settlement of any
Proceeding.
1.6 "Person" means an individual, corporation, partnership, limited liability
company, association, joint stock company, business trust, unincorporated
organization, or other legal entity.
1.7 A "Potential Change in Control Event" will be deemed to have occurred if:
(a) the Company enters into an agreement or arrangement that would
constitute a Change in Control Event if consummated;
(b) any person (including the Company) publicly announces an intention to
take or to consider taking actions that would constitute a Change in
Control Event if consummated; or
(c) the Board of Directors adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control Event has
occurred.
1.8 "Proceeding" means any threatened, pending or completed action, suit or
proceeding (including appeals thereof), whether brought by or in the name
of the Company or otherwise and whether of a civil, criminal or
administrative or investigative nature, in which the Indemnitee is or will
be a party at the time because the Indemnitee is or was an Agent, whether
or not the Indemnitee is serving in such capacity at the time any liability
or Expense is incurred for which indemnification or reimbursement is to be
provided under this Agreement.
2. Indemnification
---------------
2.1 Indemnification in Third Party Actions. The Company will indemnify the
--------------------------------------
Indemnitee if the Indemnitee becomes a party to, is threatened to be made a
party to, is a witness or other participant in, or is otherwise involved in
any Proceeding (other than a Proceeding by or in the name of the Company to
procure a judgment in its favor), because the Indemnitee is or was an
Agent, against all Indemnified Costs, to the fullest extent permitted by
applicable law. Any settlement must be approved in writing by the Company.
2.2 Indemnification in Proceedings By or In the Name of the Company. The
---------------------------------------------------------------
Company will indemnify the Indemnitee if the Indemnitee is a party to, is
threatened to be made a party to, is a witness or other participant in, or
is otherwise involved in any Proceeding by or in the name of the Company to
procure a judgment in its favor because the Indemnitee was or is an Agent
of the Company against all Expenses in connection with the defense or
settlement of the Proceeding, to the fullest extent permitted by applicable
law.
-3-
<PAGE>
2.3 Partial Indemnification. If the Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion
of, but not the total amount of, the Indemnified Costs, the Company will
nevertheless indemnify the Indemnitee for the portion of the Indemnified
Costs to which the Indemnitee is entitled.
2.4 Indemnification Hereunder Not Exclusive. The indemnification provided by
---------------------------------------
this Agreement is not exclusive of any other rights to which the Indemnitee
may be entitled under the Company's Certificate of Incorporation, the
Bylaws, any agreement, any vote of stockholders or disinterested directors,
applicable law, or otherwise, both as to action in the Indemnitee's
official capacity and as to action in another capacity on behalf of the
Company.
2.5 Indemnification of Indemnified Costs of Successful Party. Notwithstanding
--------------------------------------------------------
any other provisions of this Agreement, to the extent that the Indemnitee
has been successful in defense of any Proceeding or in defense of any
claim, issue or matter in the Proceeding, on the merits or otherwise,
including, but not limited to, the dismissal of a Proceeding without
prejudice, the Indemnitee will be indemnified against all Indemnified Costs
incurred in connection therewith to the fullest extent permitted by
applicable law.
2.6 Indemnified Costs Advanced. The Indemnified Costs incurred by the
--------------------------
Indemnitee in any Proceeding will be paid promptly by the Company in
advance of the final disposition of the Proceeding at the written request
of the Indemnitee to the fullest extent permitted by applicable law. The
advances to be made will be paid by the Company to the Indemnitee within 30
days following delivery of the written request by Indemnitee to the
Company, accompanied by substantiated documentation.
2.7 Limitations on Indemnification. Notwithstanding anything to the contrary
------------------------------
in this Agreement, the Company is not required to make payments to:
(a) indemnify or advance Indemnified Costs with respect to Proceedings
initiated or brought voluntarily by the Indemnitee and not by way of
defense, except with respect to Proceedings brought to establish or enforce
a right to indemnification under this Agreement or any other statute or law
or otherwise as required under applicable law;
(b) indemnify the Indemnitee for any Indemnified Costs for which
payment is actually made to the Indemnitee under an insurance policy,
except for any excess beyond the amount of payment under the policy;
(c) indemnify the Indemnitee for any Indemnified Costs sustained in
any Proceeding for an accounting of profits made from the purchase or sale
by the Indemnitee of securities of the Company pursuant to Section 16(b) of
the Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder and amendments thereto or similar provisions of any
federal, state or local law;
-4-
<PAGE>
(d) indemnify the Indemnitee for any Indemnified Costs resulting from
Indemnitee's conduct that is finally adjudged by a court of competent
jurisdiction to have been willful misconduct, knowingly fraudulent or
deliberately dishonest; or
(e) indemnify the Indemnitee if a court of competent jurisdiction
finally determines that such payment is unlawful.
3. Presumptions
------------
3.1 Presumption Regarding Standard of Conduct. The Indemnitee will be
-----------------------------------------
conclusively presumed to have met the relevant standards of conduct as
defined by applicable law for indemnification pursuant to this Agreement
unless a determination that the Indemnitee has not met the relevant
standards is made by (a) the Board of Directors of the Company by a
majority vote of a quorum consisting of directors who are not parties to
the Proceeding, (b) the stockholders of the Company by majority vote, or
(c) in a written opinion by independent legal counsel, selection of whom
has been made by the Company's Board of Directors and approved by the
Indemnitee.
3.2 Determination of Right to Indemnification.
-----------------------------------------
3.2.1 Burden. If a claim under this Agreement is not paid by the Company
------
within 30 days of receipt of written notice, the right to indemnification
as provided by this Agreement will be enforceable by the Indemnitee in any
court of competent jurisdiction. The burden of proving by clear and
convincing evidence that indemnification or advances are not appropriate
will be on the Company. Neither the failure of the directors, stockholders,
or independent legal counsel to have made a determination before the
commencement of the action that indemnification or advances are proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct, nor an actual determination by the directors, stockholders or
independent legal counsel that the Indemnitee has not met the applicable
standard of conduct, will be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of
conduct.
3.2.2 Standard. The Indemnitee's Expenses incurred in connection with
--------
any Proceeding concerning the Indemnitee's right to indemnification or
advances in whole or in part pursuant to this Agreement will also be
indemnified by the Company regardless of the outcome of the Proceeding,
unless a court of competent jurisdiction determines that each of the
material assertions made by the Indemnitee in the Proceeding was not made
in good faith or was frivolous.
4. Other Agreements
----------------
4.1 Change in Control Event. If there is a Change in Control Event or a
-----------------------
Potential Change in Control Event of the Company (other than a Change in
Control Event or Potential Change in Control Event that has been approved
by a majority of the Company's Board
-5-
<PAGE>
of Directors who were directors immediately before the Change in Control
Event or Potential Change in Control Event), then with respect to all
matters thereafter arising concerning the rights of the Indemnitee to be
indemnified for Indemnified Costs, the Company will seek legal advice only
from independent counsel selected by the Indemnitee, and reasonably
satisfactory to the Company, and who has not otherwise performed other
services for the Company or the Indemnitee within the last three years
("Special Independent Counsel"). The Special Independent Counsel, among
other things, will render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company will pay the
reasonable fees and expenses of the Special Independent Counsel.
4.2 Maintenance of Liability Insurance.
----------------------------------
4.2.1 Affirmative Covenant of the Company. While the Indemnitee continues
-----------------------------------
to serve as a director or officer of the Company, and thereafter while the
Indemnitee is subject to any possible Proceeding, the Company will promptly
obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from reputable
insurers. The Company has no obligation, however, to obtain or maintain D&O
Insurance if it determines in good faith that insurance is not reasonably
available, the premium costs for insurance are disproportionate to the
amount of coverage provided, the coverage provided by insurance is so
limited by exclusions that it provides an insufficient benefit, or the
Indemnitee is covered by similar insurance maintained by a subsidiary of
the Company. If at the time it receives a notice a Proceeding has commenced
the Company has D&O Insurance, the Company will give prompt notice of such
commencement to the insurers as required by the respective policies. The
Company will thereafter take all necessary or desirable action to cause
such insurers to pay, on behalf of the Indemnitee, all amounts payable as a
result of such proceeding in accordance with the terms of such policies.
4.2.2 Indemnitee Named as Insured. In all D&O Insurance policies, the
---------------------------
Indemnitee will be named as an insured in a manner that provides the
Indemnitee the same rights and benefits accorded to the most favorably
insured of the Company's directors and officers.
4.3 Agreement to Serve. Indemnitee will serve or continue to serve as an Agent
------------------
of the Company for so long as the Indemnitee is duly elected or appointed
or until the Indemnitee voluntarily resigns. Indemnitee will give notice to
the Company at least thirty (30) days before voluntarily resigning.
4.4 Effect of this Agreement on Employment Agreement. Any present or future
------------------------------------------------
employment agreement between the Indemnitee and the Company is not modified
by this Agreement. Nothing contained in this Agreement creates in the
Indemnitee any right of continued employment.
-6-
<PAGE>
4.5 Nature of Rights; Separability. The rights afforded to the Indemnitee by
------------------------------
this Agreement are contract rights and may not be diminished, eliminated or
otherwise affected by amendments to the Company's Certificate of
Incorporation, Bylaws or agreements, including D&O Insurance policies. Each
provision of this Agreement is a separate and distinct agreement and
independent of the others, so that if any provision of this Agreement is
held to be invalid or unenforceable for any reason, the invalidity or
unenforceability will not affect the validity or enforceability of the
other provisions. To the extent required, any provision of this Agreement
may be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable law.
4.6 Savings Clause. If this Agreement or any portion of it is invalidated on
--------------
any ground by any court of competent jurisdiction, then the Company will
nevertheless indemnify the Indemnitee as to Indemnified Costs with respect
to any Proceeding to the full extent permitted by any applicable portion of
this Agreement that is not invalidated, or by any applicable law.
4.7 Repayment of Indemnified Costs. The Indemnitee will reimburse the Company
------------------------------
for all Indemnified Costs paid by the Company in defending any Proceeding
against the Indemnitee if and only to the extent that a court of competent
jurisdiction finally decides that the Indemnitee is not entitled to be
indemnified by the Company for such Indemnified Costs under the provisions
of applicable law, the Company's Bylaws, Certificate of Incorporation, this
Agreement, or otherwise. The Indemnitee will repay such amounts advanced
only if, and to the extent that, it is ultimately determined that
Indemnitee is not entitled to be indemnified for such Indemnified Costs by
the Company pursuant to this Agreement.
4.8 Repayment. The Indemnitee will promptly repay to the Company any amounts
---------
paid to the Indemnitee pursuant to other rights of indemnification or under
any insurance policy, to the extent those payments are duplicative of
payments under this Agreement.
5. Indemnification Procedure
-------------------------
5.1 Notice. Promptly after receipt of notice that a Proceeding has commenced,
------
the Indemnitee will, if a claim is to be made under this Agreement, notify
the Company of that fact. The failure to notify the Company will not
relieve it from any liability that it may have to the Indemnitee except to
the extent of the Company's material damage resulting from such failure.
5.2 Company Participation. The Company will be entitled to participate in any
---------------------
Proceeding at its own expense and, except as otherwise provided below, to
the extent that it may wish, the Company may assume the defense of any
Proceeding for which indemnification is sought hereunder, with counsel
reasonably satisfactory to the Indemnitee. After the Company notifies the
Indemnitee of the Company's election to assume the defense of a
-7-
<PAGE>
Proceeding, during the Company's good faith active defense the Company will
not be liable to the Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the
defense of the Proceeding, other than reasonable costs of investigation or
as otherwise provided below. The Indemnitee will have the right to employ
the Indemnitee's counsel in any Proceeding, but the fees and expenses of
the counsel incurred after the Company assumes the defense of the
Proceeding will be at the expense of the Indemnitee, unless (a) the
employment of counsel by the Indemnitee has been authorized by the Company,
(b) the Indemnitee has reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of the
defense of a Proceeding, or (c) the Company has not in fact employed
counsel to assume the defense of a Proceeding. In each of the foregoing
cases the fees and expenses of the Indemnitee's counsel will be at the
expense of the Company. The Company will not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to
which the Indemnitee has made the conclusion that there may be a conflict
of interest between the Company and the Indemnitee.
5.3 Settlement. The Company will not settle or compromise any Proceeding in
----------
any manner that would impose any penalty or limitation on the Indemnitee
without the Indemnitee's consent. The Indemnitee will not settle or
compromise any Proceeding without the Company's consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent or
approval under this Agreement.
5.4 Subrogation. If the Company pays Indemnified Costs, the Company will be
-----------
subrogated to the extent of such payment to all of the rights of recovery
of the Indemnitee against third parties. The Indemnitee will do all things
reasonably necessary to secure such rights, including the execution of
documents necessary to enable the Company effectively to bring suit to
enforce such rights.
6. Miscellaneous Provisions
------------------------
6.1 Amendments; Waivers. Amendments, waivers, consents and approvals under
-------------------
this Agreement must be in writing and designated as such. No failure or
delay in exercising any right will be deemed a waiver of such right.
6.2 Integration. This Agreement is the entire agreement between the parties
-----------
pertaining to its subject matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject matter.
6.3 Interpretation; Governing Law. This Agreement is to be construed as a
-----------------------------
whole and in accordance with its fair meaning. This Agreement is to be
interpreted in accordance with the laws of the State of Delaware relating
to indemnification of Agents.
6.4 Headings. Headings of Sections and subsections are for convenience only
--------
and are not a part of this Agreement.
-8-
<PAGE>
6.5 Counterparts. This Agreement may be signed in one or more counterparts,
------------
all of which constitute one agreement.
6.6 Successors and Assigns. This Agreement is binding upon and inures to the
----------------------
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns. Nothing in this Agreement, express
or implied, is intended to confer any rights or remedies upon any other
person.
6.7 Expenses; Legal Fees. Each party will pay its own expenses in the
--------------------
negotiation, preparation and performance of this Agreement. The prevailing
party in any action relating to this Agreement will be entitled to
reasonable legal fees, costs and expenses incurred in such action.
6.8 Representation by Counsel; Interpretation. Each party acknowledges that it
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has been given an opportunity to be represented by counsel in connection
with this Agreement. Any rule of law, including, but not limited to,
Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this Agreement against
the party that drafted it, has no application and is expressly waived.
6.9 Specific Performance. The Company acknowledges that in view of the
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uniqueness of the matters contemplated by this Agreement, the Indemnitee
would not have an adequate remedy at law for money damages if this
Agreement is not being performed in accordance with its terms. The Company
therefore agrees that the Indemnitee will be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which
the Indemnitee may be entitled.
6.10 Time is of the Essence. Time is of the essence in the performance of each
----------------------
provision of this Agreement.
6.11 Notices. Any notice to be given hereunder must be in writing and
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delivered as follows (or to another address designated in writing):
<TABLE>
<CAPTION>
If to TeleCorp PCS, Inc. If to the Indemnitee:
- ------------------------ ---------------------
<S> <C>
1010 North Glebe Road, Suite 800 At the Indemnitee's most recent address on
Arlington, Virginia 22201 the books and records of the Company
Attention: Chief Financial Officer
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
The parties have signed this Agreement as of the date on page one.
INDEMNITEE
________________________________________
Print Name:_____________________________
TELECORP PCS, INC.
________________________________________
By:
Title:
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the inclusion in this Registration Statement on Form S-1 of
our report dated November 16, 1999, relating to the consolidated financial
statements of TeleCorp PCS, Inc. and Subsidiaries and Predecessor Company. We
also consent to the reference to our firm under the headings "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
McLean, Virginia
November 16, 1999
