<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ________ TO _______.
Commission File number: 000-27901
-------------
TeleCorp PCS, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1872248
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
and the following subsidiary:
TeleCorp Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-2105807
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
____________________
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ____ No X
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 15, 1999, the outstanding shares of each class of common
stock are as follows:
Class A Common Stock, $.01 par value per share 73,873,889
Class B Common Stock, $.01 par value per share 0
Class C Common Stock, $.01 par value per share 283,813
Class D Common Stock, $.01 par value per share 851,429
Voting Preference Common Stock, $.01 par value per share 3,090
(TeleCorp Communications, Inc. is a direct, wholly-owned subsidiary of
TeleCorp PCS, Inc.)
<PAGE>
This Form 10-Q, future filings of the registrant, press releases of the
registrant, and oral statements made with the approval of an authorized
executive officer of the Company may contain forward looking statements. In
connection therewith, please see the cautionary statements and risk factors
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations - Forward Looking Statements; Risk Factors" and elsewhere
in this report which identify important factors which could cause actual results
to differ materially from those in any such forward-looking statements.
Index
<TABLE>
<CAPTION>
Page
------
<S> <C>
PART I. Financial Information
Item 1. Financial Statements ......................................................... 1
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)......................................................... 1
Consolidated Statements of Operations for the Three and Nine Months ended ,
September 30 1998 (unaudited) and September 30, 1999 (unaudited)...................... 2
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1998 (unaudited) and September 30, 1999 (unaudited)...................... 3
Notes to Consolidated Financial Statements ............................................ 4
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of
Operations ................................................................... 21
PART II. Other Information
Item 2 Changes in Securities......................................................... 32
Item 4 Submission of Matters to Vote of Security Holders............................. 32
Item 6 Exhibits and Report on Form 8-K............................................... 33
INDEX TO EXHIBITS........................................................................ 35
</TABLE>
<PAGE>
Part I -- Financial Information
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of
As of September 30,
December 31, 1999
Current assets: 1998 (unaudited)
------------------ ------------------
<S> <C> <C>
Cash and cash equivalents $ 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 1,218,263 231,747
------------------ ------------------
Total current assets 115,914,783 112,888,753
Property and equipment, net 197,468,622 347,348,394
PCS licenses and microwave relocation costs 118,107,256 235,759,502
Intangible assets - AT&T agreements and other, net 26,285,612 39,696,161
Deferred financing costs, net 8,584,753 18,384,404
Other assets 283,006 705,964
------------------ ------------------
Total assets $ 466,644,032 $ 754,783,178
================== ==================
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 14,591,922 $ 21,962,774
Accrued expenses 94,872,262 38,794,385
Microwave relocation obligation, current portion 6,636,369 5,297,484
Long term debt, current portion - 1,340,378
Accrued interest 4,490,553 3,635,106
Deferred revenue - 1,133,018
------------------ ------------------
Total current liabilities 120,591,106 72,163,145
Long-term debt 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 366,653,294 708,571,821
------------------ ------------------
Mandatorily redeemable preferred stock, issued 255,999,
and 382,478 shares, respectively and outstanding 255,215
and 382,478 shares, respectively (liquidation preference
$382,802,874 as of September 30,1999) 240,408,879 353,014,125
Deferred compensation (4,111) (9,482)
Treasury stock, 784 and no shares, at cost (8) -
Preferred stock subscriptions receivable (75,914,054) (103,000,543)
------------------ ------------------
Total mandatorily redeemable preferred stock, net 164,490,706 250,004,100
------------------ ------------------
Commitments and contingencies
Stockholders' equity (deficit):
Series F preferred stock, par value $.01 per share,
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 $.01 per share, issued 49,357,658
and 74,973,595 shares respectively, and outstanding
48,805,184 and 74,973,595 shares, respectively 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, 552,474 and no shares, at cost (18) -
Accumulated deficit (65,003,215) (209,078,563)
------------------ ------------------
Total stockholders' equity (deficit) (64,499,968) (203,792,743)
------------------ ------------------
Total liabilities, mandatorily redeemable preferred stock
and stockholders' equity (deficit) $ 466,644,032 $ 754,783,178
================== ==================
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30 September 30
---------------------------------- ---------------------------------
1998 1999 1998 1999
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenue:
Service revenue $ - $ 12,704,676 $ - $ 18,937,031
Equipment revenue - 4,672,628 - 10,321,594
Roaming revenue - 9,455,164 - 18,942,080
-------------- -------------- -------------- --------------
Total revenue - 26,832,468 - 48,200,705
-------------- -------------- -------------- --------------
Operating expenses:
Cost of revenue - 12,979,848 - 23,086,816
Operations and development 2,930,301 10,426,905 4,144,673 25,925,009
Selling and marketing 1,393,136 18,795,152 2,488,497 39,719,864
General and administrative 7,681,572 16,501,559 15,576,108 38,942,446
Depreciation and amortization 212,608 19,507,679 308,753 35,999,053
-------------- -------------- -------------- --------------
Total operating expenses 12,217,617 78,211,143 22,518,031 163,673,188
-------------- -------------- -------------- --------------
Operating loss (12,217,617) (51,378,675) (21,518,031) (115,472,483)
Other (income) expense:
Interest expense 4,271,488 16,140,296 5,500,733 33,247,810
Interest income (2,490,238) (1,740,527) (2,630,576) (4,805,133)
Other expense 803,416 13,513 23,193 160,188
-------------- -------------- -------------- --------------
Net loss (14,802,283) (65,791,957) (25,411,381) (144,075,348)
Accretion of mandatorily redeemable
preferred stock (4,026,459) (7,063,918) (4,026,459) (16,959,618)
-------------- -------------- -------------- --------------
Net loss attributable to common
equity $ (18,828,742) $ (72,855,875) $ (29,437,840) $ (161,034,966)
============== ============== ============== ==============
Net loss attributable to common
equity par share - basic and diluted $ (0.39) $ (0.88) $ (1.45) $ (2.30)
============== ============== ============== ==============
Weighted average common equity shares
outstanding-basic and diluted 48,523,467 82,331,434 20,367,373 70,089,141
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
1998 1999
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,411,381) $ (144,075,348)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 739,171 34,799,411
Noncash compensation expense associated with the issuance
of common stock and preferred stock - -
Noncash interest expense 247,900 19,533,603
Allowance for bad debt 1,022,267
Amortization of deferred financing costs 232,398 1,199,642
Amortization of discount on notes payable 142,696 261,796
Changes in cash flow from operations resulting from changes in assets and liabilities:
Accounts receivable - (17,923,554)
Inventory - (11,347,415)
Prepaid expenses (885,463) (83,392)
Other current assets (135,573) 997,337
Other assets (210,413) 715,246
Accounts payable 7,831,768 11,137,988
Accrued expenses 7,636,992 15,591,175
Deferred rent 105,388 409,433
Accrued interest 569,409 (946,588)
Deferred revenue - 1,133,018
---------------- ----------------
Net cash used in operating activities (9,137,108) (87,575,383)
---------------- ----------------
Cash flows from investing activities:
Expenditures for network under development, wireless network and property
and equipment (38,599,088) (245,528,171)
Capitalized interest on network under development and wireless network - (4,478,356)
Expenditures for microwave relocation (1,966,669) (5,678,837)
Purchase of PCS licenses (21,000,000) (72,390,417)
Deposit on PCS licenses - (43,647,343)
Refund of deposit on PCS licenses - 11,361,351
Purchase of intangibles for AT&T agreements - (16,144,725)
---------------- ----------------
Net cash used in investing activities (61,565,757) (376,506,498)
---------------- ----------------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock 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) (2,500,000)
Proceeds from sale of common stock 38,305 21,724,314
Proceeds from long-term debt 255,390,954 397,635,000
Purchases of treasury shares (7) (19)
Payments on notes payable (2,072,573) (40,223,611)
Payments of deferred financing costs (9,109,677) (10,999,293)
Net decrease in amounts due to affiliates (824,164) (1,138,213)
---------------- ----------------
Net cash provided by financing activities 256,431,844 432,759,148
---------------- ----------------
Net increase in cash and cash equivalents 185,728,979 (31,322,733)
Cash and cash equivalents at the beginning of period 2,566,685 111,732,841
---------------- ----------------
Cash and cash equivalents at the end of period $ 188,295,664 $ 80,410,108
================ ================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of
Delaware on July 29, 1996 (date of inception). Holding was formed to
participate in the Federal Communications Commission's (FCC) Auction of F-Block
Personal Communications Services (PCS) licenses (the Auction) in April 1997.
Holding successfully obtained licenses in the New Orleans, Memphis, Beaumont,
Little Rock, Houston, Tampa, Melbourne and Orlando Basic Trading Areas (BTAs).
Holding qualifies as a Designated Entity and Very Small Business under Part 24
of the rules of the FCC applicable to broadband PCS.
In April 1997, Holding entered into an agreement to transfer the PCS
licenses for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed
entities created by Holding's existing stockholder group: THC of Houston, Inc.;
THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. These
licenses were transferred along with the related operating assets and
liabilities in exchanges 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 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.
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 in July 1998,
Holding became a wholly-owned subsidiary of TeleCorp (see Management's
Discussion and Analysis of Financial Condition and Results of Operations).
2. Basis of Presentation: Unaudited Interim Financial Information
The unaudited consolidated balance sheet as of September 30, 1999, and the
unaudited consolidated statements of operations and cash flows for the three and
nine months ended September 30, 1998 and 1999, and related footnotes, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles. In the opinion of management the interim data includes,
all adjustments (consisting of only normally recurring adjustments) necessary
for a fair statement of the results for the interim periods. Operating results
for the nine months ended September 30, 1998 and 1999 are not necessarily
indicative of results that may be expected for the years ending December 31,
1998 and 1999, respectively.
-4-
<PAGE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(unaudited)
------------------ ------------------
<S> <C> <C>
Wireless network $ - $ 306,052,853
Network under development 170,885,628 17,736,768
Computer equipment 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 2,924,233 8,574,678
Land - 48,800
------------------ ------------------
198,290,689 377,349,610
Accumulated depreciation (822,067) (30,001,216)
------------------ ------------------
$ 197,468,622 $ 347,348,394
================== ==================
</TABLE>
4. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
(unaudited)
---------------- ----------------
<S> <C> <C>
Senior subordinated discount notes $ - $ 344,351,212
Senior credit facility 225,000,000 225,000,000
Lucent notes payable 10,460,400 42,515,924
U.S. Government financing 7,924,666 17,882,935
---------------- ----------------
$ 243,385,066 $ 629,750,071
Less current portion - (1,340,378)
---------------- ----------------
$ 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 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. As of September 30, 1999 accrued
interest added to the principal was $16,716,212.
-5-
<PAGE>
Senior Credit Facility
In July 1998, the Company entered into a credit facility (the Senior Credit
Facility) with a group of commercial lenders, under which the Company may
borrow up to $525,000,000, in the aggregate, consisting of (i) up to
$150,000,000 in revolving loans (the Senior Revolving Credit Facility) with
a maturity date of January 2007, (ii) a $150,000,000 term loan (the Tranche
A Term Loan) with a maturity date of January 2007, and (iii) a $225,000,000
term loan (the Tranche B Term Loan) with a maturity date of January 2008. A
total of $225,000,000 of indebtedness from the Tranche B Term Loan was
outstanding as of December 31, 1998 and 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 8.41%. At September 30, 1998 and 1999, the interest rate applicable to
the Tranche B Term Loan was 8.84% and 8.48%, respectively. For the nine
months ended September 30, 1998 and 1999, interest incurred on the Tranche
B Term Loan was $3.4 million and $14.1 million of which $3.2 million and
$9.9 million was expensed and $0.2 million and $4.2 million was
capitalized, respectively.
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 $2,351,714 and $2,863,252 for the nine month periods
ended September 30, 1998 and 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
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.
-6-
<PAGE>
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 Agreement
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 $42,515,925 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.
The Series A and Series B Notes will not amortize and will have a maturity
date six months after the final maturity of the Company's high yield debt
offering, but in no event later than May 1, 2012. The Series A Notes will
have a mandatory redemption at par plus accrued interest from the proceeds
of a subsequent equity offering to the extent the net proceeds exceed an
amount identified in the Lucent Note Agreement. If the Series A Notes and
Series B Notes are not redeemed in full by January 2001 and January 2000,
respectively, the interest rate on each note will increase by 1.5% per
annum on January 1. However, the interest rate applicable to the
Subordinated Notes shall not exceed 12.125%. Interest payable on the Series
A Notes and the Series B Notes on or prior to May 11, 2004 shall be payable
in additional Series A and Series B Notes. Thereafter, interest shall be
paid in arrears in cash on each six month and yearly anniversary of the
Series A and Series B closing date or, if cash interest payments are
prohibited under the Senior Credit Facility and/or the Senior Subordinated
Discount Notes, in additional Series A and Series B Notes. As of December
31, 1998, interest accrued under the Series A Notes of $460,400 has been
included in long-term debt. As of September 30, 1999, interest accrued
under the Series A Notes of $2,515,924 has been included in long-term debt.
-7-
<PAGE>
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
In 1996, the Company placed $7,500,000 on deposit with the FCC in order to
bid on F Block broadband PCS licenses. In April 1997, the Company's
application for the PCS licenses was approved. The Company made a down
payment of $5,942,835 using the funds from the FCC deposit and issued
promissory notes to the FCC for $23,771,342. The balance of the Company's
deposit of $1,557,165 was refunded in April 1997. In April 1997, certain of
the PCS licenses with a cost of $15,678,814 and related US. Government
financing in the amount of $12,034,212, net of a discount of $2,544,192,
was transferred to four newly-formed entities created by the Company's
existing stockholder group in August 1997. 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, Inc. and Wireless
2000, Inc. (Note 5). As part of these acquisitions, the Company assumed
additional U.S. Government financing with the FCC amounting to $11,327,034,
less a discount of $1,368,765. The terms of the notes include an interest
rate of 6.125% for Notes assumed from Digital PCS, Inc. and 7.00% for Notes
assumed from Wireless 2000, Inc, quarterly interest payments for a two year
period and then quarterly principal and interest payments for the remaining
eight years.
These notes are net of a discount of $1,268,272, and $1,368,765 as of
December 31, 1998 and September 30, 1999, respectively. The notes were
discounted using management's best estimate of the prevailing market
interest rate at the time of issuance of 10.25%.
-8-
<PAGE>
As of September 30, 1999, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations
were as follows:
<TABLE>
<CAPTION>
<S> <C>
Quarter ended December 31, 1999 $ 327,389
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>
5. 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 licenses acquired.
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. In addition, the Company incurred
legal fees of $252,340 related to this acquisition. The purchase price has
been allocated to the assets acquired, as follows:
-9-
<PAGE>
<TABLE>
<S> <C>
PCS licenses $ 70,421,295
Intangible assets - AT&T Agreements 17,310,000
Cell sites, site acquisition, switching 9,015,100
facility assets, and other assets
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 increased by $15,000,000
($7,500,000 of Series A and $7,500,000 of Series B) and certain Cash Equity
Investors have committed $39,996,600 in cash in exchange for mandatorily
redeemable preferred and common stock. As a part of the financing, the
Company paid $2,000,000 to a Cash Equity Investor upon closing the
transaction. 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. In addition, certain officers, the Chief Executive Officer and
the Executive Vice President and Chief Financial Officer of the Company
were issued a total of 5,318 and 2,380,536 restricted shares of mandatorily
redeemable Series E preferred stock and Class A common stock, respectively.
The estimated fair value of these shares has been recorded as deferred
compensation and is being amortized over the related vesting periods.
On June 2, 1999 the Company acquired from Wireless 2000, Inc. 15 MHz PCS
licenses in the Alexandria, Lake Charles and Monroe, Louisiana BTAs. The
total purchase price of $7,448,318 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 re-auction for additional spectrum in most of
the Company's markets. Viper was initially capitalized with $100 and was
equally owned by the company's Chief Executive Officer and Executive Vice
President-Chief Financial Officer. In order to participate in the re-
auction, 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.
-10-
<PAGE>
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 a 30 MHz license in Beaumont, Texas. The
total auction price for these licenses is approximately $32,286,000 plus
legal costs 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 certain Cash
Equity Investors on September 29, 1999.
6. 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 September 30, 1999, the Company has purchased
approximately $140,000,000 of equipment and services from Lucent.
The Company has operating leases primarily related to retail store
locations, distribution outlets, office space, and rent for the Company's
network build-out. The terms of some of the leases include a reduction of
rental payments and scheduled rent increases at specified intervals during
the
-11-
<PAGE>
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>
1999 $ 3,794,049
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 $9,700,000 for the nine months ended September 30, 1999.
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 $4,000,000
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 $1,476,000 at September
30, 1999. The outstanding letters of credit reduce the amount available to
be drawn under the Senior Credit Facility. The Company is unaware of any
events that would have resulted in nonperformance of a contract during the
nine months ended September 30, 1999.
7. 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 September 30, 1999, and for the three months ended
September 30, 1999 and for the nine months ended September 30, 1999 as
follows:
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........ -- -- -- -- 196,063
Deferred rent........... -- -- 196,063 -- --
------------ ------------ ------------ ------------- ------------
Total liabilities.... 239,465,314 152,016,093 254,249,452 (279,077,565) 366,653,294
------------ ------------ ------------ ------------- ------------
Mandatorily redeemable
preferred stock........ 240,408,879 -- -- -- 240,408,879
Deferred compensation... -- (4,111) -- -- (4,111)
Treasury stock.......... (8) -- -- -- (8)
Preferred stock
subscriptions
receivable............. (75,914,054) -- -- -- (75,914,054)
------------ ------------ ------------ ------------- ------------
Total mandatorily
redeemable preferred
stock............... 164,494,817 (4,111) -- -- 164,490,706
------------ ------------ ------------ ------------- ------------
Series F preferred
stock.................. 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>
-12-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet as of September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
TeleCorp
Communications, Inc.- Non-Guarantor
TeleCorp Guarantor Subsidiary Subsidiaries
-------------- ---------------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,203,433 $ (10,164,328) $ (2,628,997)
Accounts receivable, net - 17,823,462 28,950
Inventory - 12,125,650 -
Intercompany receivables 701,489,565 - -
Prepaid expenses - 784,848 1,483,988
Other current assets 31,053 196,248 4,446
-------------- -------------- -------------
Total current assets 794,724,051 20,765,880 (1,111,613)
Property and equipment, net 5,513,458 163,707,122 178,198,908
PCS licenses and microwave relocation
Costs 1,292,605 117,306,326 117,160,571
Intangible assets-AT&T agreements - - 39,696,161
Deferred financing costs, net 18,080,655 303,749 -
FCC deposit - (32,285,994) 32,285,994
Other assets 4,369,680 322,671 17,899,686
-------------- -------------- -------------
Total assets $ 823,980,449 $ 270,119,754 $ 384,129,707
============== ============== =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Due to affiliates $ - $ 327,455,847 $ 374,033,718
Accounts payable - 8,069,648 13,893,126
Accrued expenses 24,751 35,078,700 3,690,934
Long-term debt, current portion - - 1,340,378
Microwave relocation obligation - 5,297,484 -
Accrued interest 3,163,174 - 471,932
Deferred Revenue - 1,133,018 -
-------------- -------------- -------------
Total current liabilities 3,187,925 377,034,697 393,430,088
-------------- -------------- -------------
Long-term debt 611,867,136 - 17,882,935
Microwave relocation obligation - 2,364,544 -
Accrued expenses - - 5,028,943
Deferred rent - - 605,496
--------------- -------------
Total liabilities 615,055,061 379,399,241 415,607,084
--------------- -------------
Mandatorily redeemable preferred stock 353,014,125 - -
Deferred compensation (5,371) (4,111) -
Treasury stock - - -
Preferred stock subscriptions receivable (103,000,543) - -
-------------- -------------- -------------
Total MRPS 250,008,211 (4,111) -
-------------- -------------- -------------
Shareholders' equity (deficit):
Series F preferred stock 149,128 - -
Common stock 749,704 - -
Additional paid in capital 5,379,060 - 21,886,075
Deferred compensation (793,906) (7,177) -
Common stock subscriptions receivable (190,991) - -
Treasury stock - - -
Accumulated deficit (46,375,818) (109,268,199) (53,363,452)
-------------- -------------- -------------
Total shareholders' equity (deficit) (41,082,823) (109,275,376) (31,477,377)
-------------- -------------- -------------
Total liabilities and shareholders'
equity (deficit) $ 823,980,449 $ 270,119,754 $ 384,129,707
=============== ============== =============
<CAPTION>
Eliminations Consolidated
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 80,410,108
Accounts receivable, net - 17,852,412
Inventory - 12,125,650
Intercompany receivables (701,489,565) -
Prepaid expenses - 2,268,836
Other current assets - 231,747
-------------- -------------
Total current assets (701,489,565) 112,888,753
Property and equipment, net (71,094) 347,348,394
PCS licenses and microwave relocation
Costs - 235,759,502
Intangible assets-AT&T agreements - 39,696,161
Deferred financing costs, net - 18,384,404
FCC deposit - -
Other assets (21,886,073) 705,964
-------------- -------------
Total assets $ (723,446,732) $ 754,783,178
============== =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Due to affiliates $ (701,489,565) $ -
Accounts payable - 21,962,774
Accrued expenses - 38,794,385
Long-term debt, current portion - 5,297,484
Microwave relocation obligation - 1,340,378
Accrued interest - 3,635,106
Deferred Revenue - 1,133,018
-------------- -------------
Total current liabilities (701,489,565) 72,163,145
-------------- -------------
Long-term debt - 628,409,693
Microwave relocation obligation - 2,364,544
Accrued expenses - 5,028,943
Deferred rent - 605,496
-------------- -------------
Total liabilities (701,489,565) 708,571,821
-------------- -------------
Mandatorily redeemable preferred stock - 353,014,125
Deferred compensation - (9,482)
Treasury stock - -
Preferred stock subscriptions receivable - (103,000,543)
-------------- -------------
Total MRPS - 250,004,100
-------------- -------------
Shareholders' equity (deficit):
Series F preferred stock - 149,128
Common stock - 749,704
Additional paid in capital (21,886,073) 5,379,062
Deferred compensation - (801,083)
Common stock subscriptions receivable - (190,991)
Treasury stock - -
Accumulated deficit (71,094) (209,078,563)
-------------- -------------
Total shareholders' equity (deficit) (21,957,167) (203,792,743)
-------------- -------------
Total liabilities and shareholders'
equity (deficit) $ (723,446,732) $ 754,783,178
============== =============
</TABLE>
-13-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations Information for the three months ended September 30, 1999 (unaudited):
TeleCorp
Communications,
Inc. - Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
------------ ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue $ - $ 12,704,676 $ - $ - $ 12,704,676
Equipment revenue - 4,672,628 (1,547,786) 1,547,786 4,672,628
Roaming revenue - 9,366,731 2,791,385 (2,702,952) 9,455,164
------------ --------------- ----------------- --------------- ----------------
Total Revenue - 26,744,035 1,243,599 (1,155,166) 26,832,468
------------ --------------- ----------------- --------------- ----------------
Operating expenses:
Cost of revenue - 12,979,848 - - 12,979,848
Operations and development - 8,220,425 3,361,646 (1,155,166) 10,426,905
Selling and marketing - 18,627,088 168,064 - 18,795,152
General and administrative 389,296 15,407,542 704,721 - 16,501,559
Depreciation and amortization 1,069,857 7,204,795 11,233,027 - 19,507,679
------------ --------------- ----------------- --------------- ----------------
Total operating expense 1,459,153 62,439,698 15,467,488 (1,155,166) 78,211,143
------------ --------------- ----------------- --------------- ----------------
Operating loss (1,459,153) (35,695,663) (14,223,859) - (51,378,675)
Other (income) expense:
Interest expense 15,384,859 76 755,361 - 16,140,296
Interest income (1,675,738) (63,431) (1,358) - (1,740,527)
Other expense - 6,644 6,869 - 13,513
------------ --------------- ----------------- --------------- ----------------
Net loss $(15,168,274) $ (35,638,952) $ (14,984,731) $ - $ (65,791,957)
============ =============== ================= =============== ================
</TABLE>
-14-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statement of Operations Information for the nine months ended September 30, 1999 (unaudited):
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 1,742,387 12,959,402 21,297,264 - 35,999,053
------------- ---------------- --------------- -------------- --------------
Total operating expense 2,485,275 131,381,045 32,455,258 (2,648,390) 163,673,188
------------- ---------------- --------------- -------------- --------------
Operating loss (2,485,275) (83,268,773) (29,663,873) (54,562) (115,472,483)
Other (income) expense:
Interest expense 31,449,866 76 1,797,868 - 33,247,810
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)
============= ================ =============== ============== ==============
</TABLE>
-15-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flow Information for the nine months ended September 30, 1999 (unaudited):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TeleCorp Communications,
TeleCorp Inc.-Guarantor 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 13,049,536
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 19,033,533 -
Allowance for bad bebt - 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 (17,058,748)
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
Deferred revenue - -
--------------------- ----------------------
Net cash used in operating activities (7,694,000) (78,539,898)
--------------------- ----------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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>
-17-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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 certain variable stock option awards
will reach their measurement date. At that date, the Company will record
deferred compensation expense cased 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, or 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. 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.
In connection with the Viper Wireless transaction (see Note 5), certain
employees, the Chief Executive Officer and the Executive Vice President-
Chief Financial Officer will be issued a total of 1,111 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. The
Chief Executive Officer and the Executive Vice President-Chief Financial
Officer's share's vest immediately and the employees' shares vest ratably
over five years. The total estimated fair value of the shares is
approximately $8,600,000 which will be recorded as deferred compensation,
of which $5,500,000 will be recorded as deferred compensation expense in
the fourth quarter of 1999 if final share transfer approval is received for
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.
-18-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pending Acquisitions
On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc.,
(TeleCorp LMDS) through an exchange 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 2,700 shares of our
Series C preferred stock and 834,300 shares of our 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' 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, licenses covering 1100 MHz of spectrum in the Little Rock,
Arkansas basic trading area (BTA) and 150 MHz of spectrum in each of the
Beaumont, Texas, New Orleans, Louisiana, San Juan and Mayeguez Puerto Rico,
and the U.S. Virgin Islands BTAs. The LMDS licenses will provide the
Company with additional spectrum to use to use as back-haul portions of PCS
network traffic in these markets.
On October 14, 1999, the Company agreed to purchase 15 MHz of additional
spectrum in the Lake Charles, Louisiana basic trading area (BTA) from
Gulfstream Telecomm, LLC. Total consideration approximates $2,700,000 and
consists of $362,844 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, and they may not close 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 $12,500,00 of new
series A and up to $12,500,00 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 Lucent 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 $20.0 million on a dollar for dollar basis
of any additional amounts Lucent otherwise lends to the Company for such
purposes under our senior credit facility (see Note 4). Any notes purchased
under this vendor financing 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.
-19-
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, any Lucent series B notes issued under the vendor expansion
facility will mature and will be subject to a 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.
-20-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and
related notes included elsewhere in this Form 10-Q and the financial statements
and related notes and Management Discussion and Analysis of Financial Condition
and Results of Operations included in our registration statements on Form S-4
initially filed on October 13, 1999 (file no. 333-81313), as amended, and our
Form S-1 initially filed on October 20, 1999 (file no. 333-89393),as amended.
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.
-21-
<PAGE>
. 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.
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.
-22-
<PAGE>
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 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.
Upon the closing of our pending initial public offering ("IPO") 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 expect to record approximately $71.3
million on our balance sheet as deferred compensation and additional paid-in
capital, based on an assumed public offering price in the IPO of $17.00 per
share (the mid point of the estimated offering range). The actual 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 the IPO, we expect to record a charge of approximately $24.8
million of the $71.3 million based on such assumed public offering price in the
IPO 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 inter-carrier 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.
-23-
<PAGE>
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.
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 Peurto 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 $4.1
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 $15.6 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 $36.0 million, as compared to $0.3 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.
-24-
<PAGE>
Interest expense, net of interest income, for the nine months ended
September 30, 1999 was $28.4 million, as compared to $4.7 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.
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
The Company grew its customer base to 75,723 at September 30, 1999. For the
three months ended September 30, 1999 we added 44,753 customers, primarily
related to our continued network build-out in our mainland U.S. markets and the
launch of our Puerto Rico market on June 30, 1999.
For the three months ended September 30, 1999, service revenue was $12.7
million, equipment revenue was $4.7 million and roaming revenue was $9.5
million. Our revenue growth is driven by our increasing customer base in
conjunction with our network build-out. We generated no revenue for the three
months ended September 30, 1998.
Cost of revenue for the three months ended September 30, 1999 was $12.9
million. We did not generate any cost of revenue during these three months of
1998.
Operations and development expense for the three months ended September 30,
1999 was $10.4 million, as compared to $2.9 million for the three months of
1998. The increase was attributable to the commercial launch of our networks
during 1999.
Selling and marketing expenses for the three months ended September 30,
1999 was $18.7 million, as compared to $1.4 million for the three 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 three months ended September 30, 1998 the Company was
preparing for commercial launch.
General and administrative expense for the three months ended September 30,
1999 was $16.5 million, as compared to $7.7 million for the three 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.
Depreciation and amortization expense for the three months ended September
30, 1999 was $19.5 million, as compared to $0.2 million for the three months
ended September 30, 1998. This increase is due to the commercial launch of our
wireless network resulting in the depreciation of our fixed assets, as well as
the amortization on personal communications services licenses and AT&T
agreements.
Interest expense, net of interest income, for the three months ended
September 30, 1999 was $14.4 million, as compared to $1.8 million for the three
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.
-25-
<PAGE>
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, 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.
-26-
<PAGE>
Recent Developments
Since September 30, 1999, we have 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, LCC. 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 personal communications services auction,
initiating research and development, conducting market research and developing
our wireless services offering and network. We have been relying on the proceeds
from borrowings and issuances of capital stock, rather than revenues, for our
primary sources of cash flow. We began commercial operations in December 1998
and began earning recurring revenues by the end of the first quarter of 1999.
Cash and cash equivalents totaled $80.4 million at September 30, 1999, as
compared to $111.7 million at December 31, 1998. This decrease was the result of
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, expenditures for microwave relocation, purchase of and deposits on
PCS licenses and investing activities.
During the nine months ended September 30,1999, we increased long-term debt
by $386.4 million, and we received $87.4 million of preferred stock proceeds and
receipts of preferred stock subscription receivables, net of direct issuance
costs. Cash outlays for capital expenditures required to develop and construct
our network totaled $245.5 million and we were required to deposit $32.3 million
with the FCC for personal communications services 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 $0.6 million.
-27-
<PAGE>
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 to our stockholders. We converted these notes
into mandatorily redeemable preferred stock. 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 equity of TeleCorp in July 1998 in connection with
the completion of the venture with AT&T.
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 will be
funded in an installment of $36.3 million in July 2000 and $36.2 million in July
2001.
We received additional irrevocable equity commitments from our stockholders
in the aggregate amount of $5.0 million in return for the issuance of preferred
and common stock in connection with the Digital PCS, Inc. acquisition. Our
stockholders funded $2.2 million of these equity commitments on April 30, 1999,
and will fund $1.4 million on each of July 2000 and July 2001.
We have received additional irrevocable equity commitments from our
stockholders in the aggregate amount of approximately $40.0 million in return
for the issuance of preferred and common stock in connection with the Puerto
Rico acquisition. We received $12.0 million of these commitments on May 24,
1999, and $6.0 million will be funded in December 1999 and $11.0 million will be
funded on each of March 30, 2001 and March 30, 2002.
We also received irrevocable equity commitments from our stockholders in
the amount of $32.3 million in connection with Viper Wireless' participation in
the FCC's re-auction of C-Block licenses. We received $6.5 million of these
equity commitments on May 14, 1999 and $11.0 million on July 15, 1999, and $14.8
million on September 29, 1999. In the aggregate, we have obtained $205.3 million
of cash equity commitments, of which 102.0 million had been funded as of
September 30, 1999.
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
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,
. a $35.0 million senior secured term loan that matures in May 2009
and
. an uncommitted $40.0 million senior secured term loan in the form
of an expansion facility.
We must repay the term loans in quarterly installments, beginning in
September 2002, and the commitments to make loans under the revolving credit
facility are automatically and permanently reduced
-28-
<PAGE>
beginning in April 2005. As of September 30, 1999, $225.0 million had been drawn
under the senior credit facilities.
In May 1998, we entered into a vendor procurement contract with Lucent,
under which we agreed to purchase radio, switching and related equipment and
services for the development of our network. Lucent agreed to provide us with
$80.0 million of junior subordinated vendor financing. This $80.0 million
consisted of $40.0 million aggregate principal amount of increasing rate Lucent
series A notes due 2012 and $40.0 million aggregate principal amount of
increasing rate Lucent series B notes due 2012.
As of September 30, 1999, we had outstanding approximately $40.0 million of
the Lucent series A notes, including $1.6 million of Lucent series A notes
issued as payment in kind, plus $2.5 million of additional accrued interest. The
$40 million principal amount of Lucent series A notes is subject to mandatory
prepayment on a dollar for dollar basis out of the proceeds of future equity
offerings in excess of $130.0 million.
In October 1999, the Company entered into an amended and restated note
purchase agreement with Lucent for the issuance of up to $12.5 million of new
series A and up to $12.5 million 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 Lucent note purchase
agreement, Lucent has agreed to take 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 the Company for such purposes under our senior
credit facility. Any notes purchased under this vendor financing facility would
be divided equally between Lucent series A and series B notes.
As of September 30, 1999, we have $20.5 million of debt owed to the U.S.
government related to our C-Block and F-Block 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. We assumed $4.1 million of debt to
the U.S. government in connection with the Digital PCS, LLC acquisition. This
debt is shown on our balance sheet net of a discount of $0.7 million reflecting
the below market interest rate on the debt. In addition, we assumed $7.4 million
of debt to the U.S. government in connection with the Wireless 2000 acquisition.
This debt is shown on our balance sheet net of a discount of $1.3 million
reflecting the below market interest rate on the debt.
-29-
<PAGE>
From inception through December 31, 1998, cash outlays for capital
expenditures were $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 therefore be highly leveraged.
We estimate that our total capital requirements from our inception until
December 31, 2002 will be approximately $1.2 billion. These requirements include
license acquisition costs, capital expenditures for network construction,
operating cash flow losses and other working capital costs, debt service and
closing fees and expenses. Cash outlays for capital expenditures from inception
to September 30, 1999 were $354.2 million. We estimate that cash outlays for
capital expenditures will total approximately $299.5 million for the year ended
December 31, 1999.
Year 2000
The year-2000 issue is the result of computer programs being written using
two digits, rather than four digits, to define the applicable year. Programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system failure or
miscalculations, including an inability to process transactions, send invoices
or engage in similar normal business activities. Because we rely on computer
hardware and software, telecommunications and related service industries are
highly susceptible to the year-2000 issue. Over the past two years, as we
purchased the various components that comprise our internal information
technology systems, we received representations from our vendors that these
components were year-2000 compliant. We have begun the process of evaluating our
information technology systems to verify the accuracy of the representations
made by our vendors. Our costs to date have been immaterial, and we anticipate
that our total costs in evaluating our information technology system will not
exceed $5.0 million, including costs to build the necessary redundancy into our
systems.
Our non-information technology systems may also be susceptible to the year-
2000 issues. In particular, our network switches contain 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. The failure of our
network switches would have a material adverse effect on our business.
We also depend upon the ability of AT&T, AT&T's roaming partners and EDS 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 EDS to provide clearinghouse services. There can be no guarantee that their
systems will be year-2000 compliant on a timely basis or that their systems will
be compatible with our systems. Year-2000 noncompliance or incompatible systems
could have a material adverse effect on our business.
Forward Looking Statements; Cautionary Statement
Statements in this report expressing our expectations and beliefs of the
Company regarding our future results or performance are forward-looking
statements that involve a number of risks and uncertainties. In particular,
certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical facts
constitute "forward-looking statements." Our actual future results may differ
significantly from those stated in any forward-looking statements.
Factors that may cause or contribute to such differences include, but are
not limited to, risks discussed in our Registration Statement on Form S-1 (Reg.
No. 333-89393) and from time to time in our other filings with the Securities
and Exchange Commission, including, without
-30-
<PAGE>
limitation, the following: (1) we depend on our agreements with AT&T for our
success, and under certain circumstances AT&T could terminate its exclusive
relationship with us and our use of the AT&T brand name and logo, (2) we may not
be able to manage the construction of our network or the growth of our business
successfully, (3) we have substantial existing debt, and may incur substantial
additional debt, that we may be unable to service, (4) we may not be able to
obtain the additional financing we may need to complete our network and fund
operating losses, (5) we have many competitors that have substantial coverage of
our licensed areas, (6) difficulties in obtaining infrastructure equipment or
sites may affect our ability to construct our network and meet our development
requirements, (7) potential acquisitions may require us to incur substantial
additional debt and integrate new technologies, operations and services, which
may be costly and time consuming, (8) we may experience a high rate of customer
turnover, (9) our association with the other SunCom companies may harm our
reputation if consumers react unfavorably to them, (10) we depend upon
consultants and contractors for our network services, (11) we may become subject
to new health and safety regulations, which may result in a decrease in demand
for our services, (12) changes in our licenses or other governmental action or
regulation could affect how we do business, (13) 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, (14)
the technologies that we use may become obsolete, which would limit our ability
to compete effectively, (15) we expect to incur operating costs due to fraud,
and (16) we depend on our third party service providers to become year-2000
compliant and we can not assure that this will occur.
As a result of the foregoing and other factors, we may experience material
fluctuations in future operating results on a quarterly or annual basis which
could materially and adversely affect our business, financial condition,
operating results and stock price. We specifically decline any obligation to
publicly release the result of any revisions which may be made to forward-
looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statement.
Item 3. 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.
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 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.
-31-
<PAGE>
Part II--Other Information
Item 2. Changes in Securities and Use of Proceeds
(a) In August we amended and restated our Certificate of Incorporation
to effect a 100-for-1 stock split of the Class A Common Stock, Class B Common
Stock, Class C Common Stock, Class D Common Stock, Voting Preference Common
Stock, Series F Preferred Stock, and Senior Common Stock and a corresponding
increase of the authorized shares of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, Voting Preference Common Stock,
Series F Preferred Stock and Senior Common Stock to account for the split.
In November we further amended our Certificate of Incorporation to effect a
3.09-for-1 stock split of the Class A Common Stock, Class B Common Stock, Class
C Common Stock, Class D Common Stock, Voting Preference Common Stock, Series F
Preferred Stock and Senior Common Stock and a corresponding increase of the
authorized shares of Class A Common Stock, Class B Common Stock, Class C Common
Stock, Class D Common Stock, Voting Preference Common Stock, Series F Preferred
Stock and Senior Common Stock to account for the split, plus an increase of an
additional 15 million shares of each of the Class A Common Stock and Class B
Common Stock. Our Fourth Amended and Restated Certificate of Incorporation, as
amended, is attached as an exhibit to this Form 10-Q.
(b) During the third quarter ended September 30, 1999, we sold shares of
our common stock and preferred stock in the amounts (restated to account for our
100-for-1 and 3.09-for-1 stock splits), 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.
(i) 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.
(ii) On September 29, 1999, we issued 2,241.56 shares of Series D
Preferred Stock, 692,642 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.
Item 4. Submission of Matters to a Vote of Security Holders
On August 27, 1999, the holders of 94% of the Class A Common Stock and all
of the holders of the Voting Preference Common Stock, by written consent,
approved amendments to our Certificate of Incorporation effecting a 100-for-1
stock split of all of the classes of Common Stock, the Series F Preferred Stock
and Senior Common Stock and a corresponding increase of the authorized shares of
all of the classes of Common Stock, Series F Preferred Stock and Senior Common
Stock. The holders of 6% of the Class A Common Stock took no action with respect
to such consent.
-32-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed with this report:
3.1 Fourth Amended and Restated Certificate of Incorporation, as amended,
of Telecorp PCS, Inc.
27.1 Financial Data Schedule
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELECORP PCS, INC.
Dated: November 15, 1999 By: /s/ Thomas H. Sullivan
____________________________________________
Thomas H. Sullivan,
Executive Vice President and Chief Financial
Officer
SUBSIDIARY
TELECORP COMMUNICATIONS, INC.
Dated: November 15, 1999 By: /s/ Thomas H. Sullivan
____________________________________________
Thomas H. Sullivan,
Executive Vice President and Chief Financial
Officer
-34-
<PAGE>
INDEX TO EXHIBITS
3.1 Fourth Amended and Restated Certificate of Incorporation, as amended,
of TeleCorp PCS, Inc.
27.1 Financial Data Schedule.
-35-
<PAGE>
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
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").
SECOND: This Fourth Amended and Restated Certificate of Incorporation
as amended (the "Restated Certificate of Incorporation") has been duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and written consent has been given by
the stockholders of the Company in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: This Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Corporation's Third Restated
Certificate, as follows:
ARTICLE I
The name of the Corporation shall be TeleCorp PCS, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in, carry on and conduct
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "GCL").
---
<PAGE>
ARTICLE IV
4.1 Classes of Stock; Stock Split. The total number of shares of all
-----------------------------
classes of stock which the Corporation shall have authority to issue is
656,014,090 shares, consisting of (a) 37,675,000 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 21,630,000 shares
------------------------
designated "Senior Common Stock" (the "Senior Common Stock"), and (b)
-------------------
618,339,090 shares of common stock, par value $0.01 per share (the "Common
------
Stock"), consisting of 308,550,000 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 4.14.).
3.09 FOR 1 STOCK SPLIT OF COMMON STOCK,
----------------------------------------
SENIOR COMMON STOCK
-------------------
AND SERIES F PREFERRED STOCK
----------------------------
At the close of business on the date of the filing of the Certificate
of Amendment with respect to Amendment No. 1 to the Fourth Restated Certificate
of Incorporation, each outstanding share of Class A Common Stock, Class B Common
Stock, Class C Common Stock, Class D Common Stock, Voting Preference Stock,
Senior Common Stock and Series F Preferred Stock shall be divided into 3.09
shares of, respectively, Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock
and Series F Preferred Stock Common Stock (the "Stock Split") without any action
by the holders of such shares; provided, however, that upon such subdivision,
the corporation shall not issue fractional shares or pay cash in respect
thereof, but shall instead issue to each stockholder the aggregate number of
shares resulting from the Stock Split rounded up to the next higher whole number
of shares based upon the preceding calculation. Following the Stock Split, each
holder of a certificate or certificates representing shares of Class A Common
Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting
Preference Stock, Senior Common Stock and
-2-
<PAGE>
F Preferred Stock of the Corporation, upon surrender thereof to the Corporation,
shall receive a certificate or certificates representing the number of shares
such stockholder is entitled to receive following the Stock Split. Pending such
surrender of any certificate or certificates, such certificate or certificates
for shares of Common Stock of the corporation shall be deemed for all purposes,
as a result of the Stock Split and without any action on the part of the holders
thereof, to evidence only the right to receive one or more certificates
representing shares of Class A Common Stock, Class B Common Stock, Class C
Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock
and F Preferred Stock in accordance with the terms and conditions hereof.
Following the Stock Split, the total number of shares of capital stock which the
corporation shall have authority to issue is 656,014,090, consisting of (a)
37,675,000 shares of Preferred Stock, 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, and 21,630,000 shares of Senior Common Stock, and (b) 618,339,090 shares
of Common Stock, consisting of 308,550,000 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 and 3,090 shares of Voting
Preference Common Stock."
4.2 Additional Series of Preferred Stock.
(a) Subject to approval by holders of shares of any class or series of
Preferred Stock to the extent such approval is required by its terms, the Board
of Directors of the Corporation (the "Board of Directors") is hereby expressly
------------------
authorized, by resolution or resolutions, to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock in addition to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred
Stock and the Senior Common Stock. Before any shares of any such series are
issued, the Board of Directors shall fix, and hereby is expressly empowered to
fix, by resolutions, the following provisions of the shares thereof:
(i) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(ii) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(iii) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of this class;
(iv) whether the shares of such series shall be subject to redemption
by the 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
-3-
<PAGE>
such series for retirement or other corporate purposes and the terms and
provisions relative to the operation thereof;
(vii) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of this
class or any other securities and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting the same,
and any other terms and conditions of conversion or exchange;
(viii) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of this class;
(ix) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this class
or of any other class; and
(x) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof.
(b) The powers, preferences and relative, participating, optional and
other special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
(c) Shares of Preferred Stock of any series that have been redeemed
(whether through the operation of a sinking fund or otherwise) or that, if
convertible or exchangeable, have been converted into or exchanged for any other
security shall have the status of authorized and unissued shares of Preferred
Stock of the same series and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a new
series of shares of Preferred Stock to be created by resolution or resolutions
of the Board of Directors or as part of any other series of shares of Preferred
Stock, all subject to the conditions or restrictions on issuance set forth 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,
-4-
<PAGE>
preferences and rights of the Series A Preferred Stock and the qualifications,
limitations and restrictions thereof are as follows:
(a) Ranking. The Series A Preferred Stock shall, with respect to the
-------
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, rank on a parity with the Series B Preferred Stock, and rank
senior to Junior Stock.
(b) Dividends and Distributions.
---------------------------
(i) Dividends. The holders of shares of Series A Preferred Stock shall
---------
be entitled to receive, as and when declared by the Board of Directors, out of
funds legally available therefor, dividends on each outstanding share of Series
A Preferred Stock, at an annual rate per share equal to ten percent (10%) of the
Liquidation Preference, calculated on the basis of a 360-day year consisting of
twelve 30-day months. Dividends shall be paid quarterly in arrears on the
Dividend Payment Date commencing September 30, 1998 in the manner provided in
paragraph (iii) below.
(ii) Accrued Dividends, Record Date. Dividends payable pursuant to
------------------------------
paragraph (i) above shall begin to accrue and be cumulative from the date on
which shares of Series A Preferred Stock are issued, and shall begin to accrue
on a daily basis, in each case whether or not earned or declared. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of the dividends payable
pursuant to paragraph (i) above, which record date shall not be more than 60
days prior to the Dividend Payment Date.
(iii) Payment. All dividends shall be payable in cash. Until the 42nd
-------
Dividend Payment Date, the Corporation shall have the option to defer payment of
dividends on Series A Preferred Stock. Any dividend payments so deferred shall
be payable on and not earlier than the 42nd Dividend Payment Date.
(iv) Dividends Pro Rata. All dividends paid with respect to shares of
------------------
Series A Preferred Stock pursuant to this Section 4.3(b) shall be paid pro rata
to the holders entitled thereto. In the event that the funds legally available
therefor shall be insufficient for the payment of the entire amount of cash
dividends payable at any Dividend Payment Date, subject to Section 4.3(c), such
funds shall be allocated for the payment of dividends with respect to the shares
of Series A Preferred Stock and Series B Preferred Stock pro rata based upon the
Liquidation Preference of the outstanding shares.
(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
-5-
<PAGE>
prohibit such declaration, payment or setting apart for payment or such
redemption, purchase or other acquisition, or provide that such declaration,
payment or setting apart for payment or such redemption, purchase or other
acquisition would constitute a violation or breach thereof or a default
thereunder.
(ii) So long as shares of Series A Preferred Stock are outstanding or
dividends payable on shares of Series A Preferred Stock have not been paid in
full in cash, then the Corporation shall not declare or pay cash dividends on,
or redeem, purchase or otherwise acquire for consideration, any shares of Common
Stock or other shares of Junior Stock, except with the prior written consent of
holders of a majority of the outstanding shares of Series A Preferred Stock,
except that the Corporation may acquire, in accordance with the terms of any
agreement between the Corporation and its employees, shares of Common Stock or
Preferred Stock at a price not greater than the Market Price as of such date.
(iii) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to make any distribution with respect to, or purchase
or otherwise acquire for consideration, any shares of capital stock of the
Corporation, unless the Corporation could, pursuant to paragraph (ii) above,
make such distribution or purchase or otherwise acquire such shares at such time
and in such manner.
(d) Voting Rights; Election of Directors.
------------------------------------
(i) The holders of shares of Series A Preferred Stock shall not have any
right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraphs (ii) and (iii) below or
as provided by law, and the shares of Series A Preferred Stock shall not be
included in determining the number of shares voting or entitled to vote on any
such matters (other than the matters described in paragraphs (ii) and (iii)
below or as otherwise required by law).
(ii) Unless the consent or approval of a greater number of shares shall
then be required by law, the affirmative vote of the holders of a majority of
the outstanding shares of Series A Preferred Stock in person or by proxy, at
each special and annual meeting of stockholders called for the purpose, or by
written consent, shall be necessary to (A) authorize, increase the authorized
number of shares of or issue (including on conversion or exchange of any
convertible or exchangeable securities or by reclassification) any shares of any
class or classes of Senior Stock or Parity Stock or any 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
-6-
<PAGE>
otherwise receive any shares of any class or classes of Senior Stock or Parity
Stock.
(iii) So long as the Initial Holders own in the aggregate at least two-
thirds (2/3) of the number of shares of Series A Preferred Stock owned by it on
the date hereof, holders of shares of Series A Preferred Stock shall have the
exclusive right, voting separately as a single class, to nominate two directors
of the Corporation or, at any time after the later of (x) the IPO Date or (y)
the date on which shares of Class A Common Stock and Voting Preference Common
Stock vote as a single class for all purposes, one director. The foregoing right
to nominate two directors (or one director) may be exercised at any annual
meeting of stockholders or a special meeting of stockholders or holders of
Series A Preferred Stock held for such purpose or any adjournment thereof, or by
the written consent, delivered to the Secretary of the Corporation, of the
holders of a majority of the issued and outstanding shares of Series A Preferred
Stock. Notwithstanding the foregoing, the Initial Holders shall have the right,
exercisable at any time by written notice delivered to the Secretary of the
Corporation, to surrender and cancel irrevocably such right to nominate two
directors (or one director) of the Corporation.
(e) Redemption at Option of the Corporation. The Corporation shall have
---------------------------------------
the right to redeem shares of Series A Preferred Stock pursuant to the following
provisions:
(i) The Corporation shall not have any right to redeem shares of the
Series A Preferred Stock prior to, with respect to any share of the Series A
Preferred Stock, the 30th day after the tenth anniversary of the issuance of
such share. Thereafter, subject to the restrictions in Section 4.3(c)(i), the
Corporation shall have the right, at its sole option and election, to redeem the
shares of the Series A Preferred Stock, in whole but not in part, at any time at
a redemption price (the "Series A Redemption Price") per share equal to the
-------------------------
Liquidation Preference as of the redemption date;
(ii) Notice of any redemption of the Series A Preferred Stock shall be
mailed at least ten, but not more than 60, days prior to the date fixed for
redemption to each holder of Series A Preferred Stock to be redeemed, at such
holder's address as it appears on the books of the Corporation. In order to
facilitate the redemption of the Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of Series A
Preferred Stock to be redeemed, or may cause the transfer books of the
Corporation to be closed for the transfer of the Series A Preferred Stock, not
more 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
-7-
<PAGE>
(iv) Effective upon the date of the notice given pursuant to paragraph
(ii) above, notwithstanding that any certificate for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding, the rights to receive dividends thereon shall
cease to accrue from and after the date of redemption designated in the notice
of redemption and all rights of the holders of the shares of the Series A
Preferred Stock called for redemption shall cease and terminate, excepting only
the right to receive the Series A Redemption Price therefor in accordance with
paragraph (iii) above and the right to convert such shares into shares of Class
A Common Stock until the close of business on the third Business Day preceding
the redemption date, as provided in Section 4.3(i).
(f) Redemption at Option of Holder.
------------------------------
(i) No holder of shares of Series A Preferred Stock shall have any
right to require the Corporation to redeem any shares of Series A Preferred
Stock prior to, with respect to any share of the Series A Preferred Stock, the
30th day after the twentieth anniversary of the issuance of such share.
Thereafter, subject to the restrictions set forth in Section 4.3(c)(i), each
holder of shares of Series A Preferred Stock shall have the right, at the sole
option and election of such holder, to require the Corporation to redeem all
(but not less than all) of the shares of Series A Preferred Stock owned by such
holder at a price per share equal to the Series A Redemption Price;
(ii) The holder of any shares of the Series A Preferred Stock may
exercise such holder's right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series A Preferred Stock to be redeemed,
accompanied by a written notice stating that such holder elects to require the
Corporation to redeem all (but not less than all) of such shares in accordance
with the provisions of this Section 4.3(f), which notice may specify an account
for delivery of the Series A Redemption Price;
(iii) Within two Business Days after the surrender of such certificates,
the Corporation shall pay to the holder of the shares being redeemed the Series
A Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a 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
-8-
<PAGE>
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued pursuant to Section 4.2(c) as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions or restrictions on issuance set forth
herein.
(h) Liquidation, Dissolution or Winding Up.
--------------------------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or payment
to holders of Junior Stock, the holders of shares of Series A Preferred Stock
shall be entitled to be paid an amount equal to the Liquidation Preference with
respect to each share of Series A Preferred Stock.
(ii) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock and Series B Preferred Stock shall be distributed among
and paid to such holders ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.
(iii) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.3(h).
(i) Conversion.
----------
(i) Stockholders' Right To Convert. No holder of shares of Series A
------------------------------
Preferred Stock shall have any right to convert any shares of Series A Preferred
Stock into Class A Common Stock or any other securities of the Corporation prior
to July 17, 2006. Thereafter, each share of Series A Preferred Stock held by the
Initial Holders or a Qualified Transferee shall be convertible, at the sole
option and election of the Initial Holders or Qualified Transferee, into fully
paid and non-assessable shares of Class A 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
-9-
<PAGE>
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 equired by the Corporation, certificates surrendered for
- ---------------
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing.
Within ten Business Days after the Series A Conversion Date (or, if at the time
of such surrender the shares of Class A Common Stock are not listed or admitted
for trading on any national securities exchange and are not quoted on NASDAQ or
any similar service, within ten Business Days of the determination of the Market
Price pursuant to the Appraisal Procedure), the Corporation shall issue to such
holder a number of shares of Class A Common Stock into which such shares of
Series A Preferred Stock are convertible pursuant to paragraph (ii) above.
Certificates representing such shares of Class A Common Stock shall be delivered
to such holder at such holder's address as it appears on the books of the
Corporation.
(v) Termination of Rights. All shares of Series A Preferred Stock
---------------------
which shall have been surrendered for conversion as herein provided shall no
longer be deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Series A Conversion Date, except only the right of
the holders thereof to receive shares of Class A Common Stock in exchange
therefor and payment of any declared and unpaid dividends thereon.
(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
-10-
<PAGE>
continuing corporation and which does not result in any reclassification or
change of outstanding shares of its Class A Common Stock) or the sale or
conveyance of all or substantially all of the assets of the Corporation to
another Person, then each share of Series A Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Class A Common Stock of the Corporation upon such
reorganization, reclassification, consolidation, merger, sale or conveyance, in
respect of that number of shares of Class A Common Stock into which such share
of Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance;
and, in any such case, appropriate adjustments (as determined in good faith by
the Board of Directors of the Corporation, whose determination shall be
conclusive) shall be made to assure that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be practicable, in
relation to any securities or other assets thereafter deliverable upon the
conversion of the Series A Preferred Stock.
(viii) Notice of Adjustment. Whenever the securities or other property
--------------------
deliverable upon the conversion of the Series A Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall promptly give
written notice thereof to each holder of shares of Series A Preferred Stock at
such holder's address as it appears on the transfer books of the Corporation and
shall forthwith file, at its principal executive office and with any transfer
agent or agents for the Series A Preferred Stock and the Class A Common Stock, a
certificate, signed by the Chairman of the Board, President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, Treasurer or
one of its Assistant Treasurers, stating the securities or other property
deliverable per share of Series A Preferred Stock calculated to the nearest cent
or to the nearest one-hundredth of a share and setting forth in reasonable
detail the method of calculation and the facts requiring such adjustment and
upon which such calculation is based. Each adjustment shall remain in effect
until a subsequent adjustment hereunder is required.
(ix) Reservation of Class A Common Stock. The Corporation shall at all
-----------------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series A Preferred Stock the maximum number of its authorized but unissued
shares of Class A Common Stock as is reasonably anticipated to be sufficient to
permit the conversion of all outstanding shares of Series A Preferred Stock, and
shall take all action required to increase the authorized number of shares of
Class A Common Stock if at any time there shall be insufficient authorized but
unissued shares of Class A Common Stock to permit such reservation or to permit
the conversion of all outstanding shares of Series A Preferred Stock.
(j) Qualified Transfer. If at any time an Initial Holders or
------------------
Qualified Transferee desires to sell, transfer or otherwise dispose of shares of
Series A Preferred Stock pursuant to a Qualified Transfer, it shall, with
respect to each such proposed transfer, give written notice (a "Qualified
---------
Transfer Notice") to the Corporation at its principal executive office
- ---------------
specifying up to ten prospective transferees. Upon receipt of such
-11-
<PAGE>
notice, the Corporation shall have ten days to give written notice to the
Initial Holders or Qualified Transferee specifying its disapproval of (A) any or
all of such prospective transferees if it has good reason for such disapproval
and specifying such reason and (B) up to two of such prospective transferees
with or without good reason.
(k) Notice of Certain Events. In case the Corporation shall propose at
------------------------
any time or from time to time (i) to declare or pay any dividend payable in
stock of any class to the holders of Common Stock or to make any other
distribution to the holders of Common Stock, (ii) to offer to the holders of
Common Stock rights or warrants to subscribe for or to purchase any additional
shares of Common Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Common Stock,
(iv) to effect any consolidation, merger or sale, transfer or other disposition
of all or substantially all of the property, assets or business of the
Corporation which would, if consummated, adjust the Series A Conversion Rate or
the securities issuable upon conversion of shares of Series A Preferred Stock,
or (v) to effect the liquidation, dissolution or winding up of the Corporation,
then, in each such case, the Corporation shall mail to each holder of shares of
Series A Preferred Stock, at such holder's address as it appears on the transfer
books of the Corporation, a written notice of such proposed action, which shall
specify (A) the date on which a record is to be taken for the purpose of such
dividend or distribution of rights or warrants or, if a record is not to be
taken, the date as of which the holders of shares of Common Stock of record to
be entitled to such dividend or distribution of rights or warrants are to be
determined, or (B) the date on which such reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation or winding up is expected to
become effective, and such notice shall be so given as promptly as possible but
in any event at least ten Business Days prior to the applicable record,
determination or effective date, specified in such notice.
(l) Certain Remedies. Any registered holder of shares of Series A
----------------
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Restated Certificate of Incorporation and to
enforce specifically the terms and provisions of this Restated Certificate of
Incorporation in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which such holder
may be entitled at law or in equity.
4.4 Powers, Preferences and Rights of the Series B Preferred Stock. The
--------------------------------------------------------------
Series B Preferred Stock shall rank on a parity with the Series A Preferred
Stock, and the powers, preferences and rights of the Series B Preferred Stock,
and the qualifications, limitations, and restrictions thereof, shall be
identical to those of the Series A Preferred Stock, except that (a) shares of
Series B Preferred Stock shall not be, pursuant to the terms of Section 4.3(i)
or otherwise, convertible into shares of Common Stock or any other security
issued by the Corporation, (b) the Corporation may redeem shares of Series B
Preferred Stock in accordance with the terms of Section 4.3(e) at any time
without regard to whether the redemption date is before, on or after the date
referred to in Section 4.3(e)(i), (c) shares of Series B Preferred Stock may be
issued by the Corporation in accordance with the terms of Section 4.12, (d)
holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or
otherwise, have the right to elect any directors of the Corporation and (e) the
words "Series B Preferred Stock" and "Series A
-12-
<PAGE>
Preferred Stock" shall be substituted for all references in Section 4.3 to
Series A Preferred Stock and Series B Preferred Stock, respectively.
4.5 Powers, Preferences and Rights of the Series C Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series C Preferred Stock and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series C Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock and the Series B Preferred Stock with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (ii) junior to the Series D Preferred Stock with respect to the
distribution of assets on a Statutory Liquidation, (iii) on a parity with the
Series D Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up (other than on a Statutory Liquidation),
(iv) on a parity with the Series D Preferred Stock and the Common Stock with
respect to the payment of dividends, and (v) senior to the Common Stock and any
series or class of the Corporation's common or preferred stock, now or hereafter
authorized (other than Series A Preferred Stock, Series B Preferred Stock or
Series D Preferred Stock), with respect to the distribution of assets on
liquidation, dissolution and winding up.
(b) Dividends. Holders of Series C Preferred Stock shall be entitled to
---------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation; provided that, in no event shall dividends in
--------
excess of the Liquidation Preference be declared or paid. So long as shares of
Series C Preferred Stock are outstanding or dividends payable on shares of
Series C Preferred Stock have not been paid in full in cash, the Corporation
shall not declare or pay cash dividends on, or redeem, purchase or otherwise
acquire for consideration, any shares of any class of common stock or series of
preferred stock ranking junior to or on a parity with the Series C Preferred
Stock, except that the Corporation may acquire, in accordance with the terms of
any agreement between the Corporation and its employees, shares of Common Stock
or Preferred Stock at a price not greater than the Market Price as of such date.
The Corporation shall not declare or pay cash dividends on, or redeem, purchase
or otherwise acquire for consideration, any shares of Series D Preferred Stock
unless concurrently 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
-13-
<PAGE>
before any payment shall be made or any assets distributed to the holders of
Common Stock or any series of preferred stock ranking junior to the Series C
Preferred Stock with respect to rights on liquidation, dissolution or winding
up, an amount equal to the Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Series C Preferred Stock and any other
series of preferred stock ranking on a parity with Series C Preferred Stock with
respect to rights on liquidation, dissolution or winding up (including, in the
case of a liquidation, dissolution or winding up other than a Statutory
Liquidation, the Series D Preferred Stock), to receive their full preferential
amounts, the entire assets of the Corporation shall be distributed among the
holders of Series C Preferred Stock and all such other series ratably in
accordance with their respective Liquidation Preference.
(iii) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.5(c).
(d) Voting Rights.
-------------
(i) The holders of shares of Series C Preferred Stock shall not have
any right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Series C Preferred Stock shall not be included in
determining the number of shares voting or entitled to vote on any such matters
(other than the matters described in paragraph (ii) below or as otherwise
required by law).
(ii) The affirmative vote of holders of not less than a majority of
Series C Preferred Stock shall be required to (A) authorize, increase the
authorized number of shares of or issue (including on conversion or exchange of
any convertible or exchangeable securities or by reclassification) any shares of
any class or classes of stock 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.
-14-
<PAGE>
(e) Conversion. The shares of Series C Preferred Stock shall be
----------
convertible into shares of Common Stock as follows:
(i) Optional Conversion. On the IPO Date, each share of Series C
-------------------
Preferred Stock then outstanding shall be convertible, at the option of the
Corporation, into the number of fully paid and non-assessable shares of Common
Stock as is determined by dividing the Liquidation Preference of the Series C
Preferred Stock as of the IPO Date by the IPO Price; provided, that the
foregoing option, if exercised, shall be exercised with respect to all shares of
Series C Preferred Stock then outstanding.
(ii) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of shares of Series C Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled after
determination of the aggregate full number of shares of Common Stock issuable in
respect of the Series C Preferred Stock then being converted, the Corporation
shall pay cash equal to such fraction multiplied by the IPO Price.
(iii) Mechanics of Conversion. All holders of record of shares of Series
-----------------------
C Preferred Stock will be given at least 30 but not more than 60 days' prior
written notice of the IPO Date and the place designated for conversion of all
shares of Series C Preferred Stock pursuant to this Section 4.5(e). Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Series C Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series C Preferred Stock (or the records
of the Corporation if it serves as its own transfer agent). Within ten days
after the date of such notice, each holder of shares of Series C Preferred Stock
shall notify the Corporation as to whether it desires to receive shares of Class
A Common Stock or Class B Common Stock. Any holder who fails to give such notice
shall be deemed to have selected Class A Common Stock. On or before the IPO
Date, each holder of shares of Series C Preferred Stock shall surrender his or
its certificate(s) for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the IPO Date and the surrender of the
certificate(s) representing shares of Series C Preferred Stock, the Corporation
shall issue and deliver to such holder, or on his or its written order to his or
its nominees, one or more certificates for the number of whole shares of Common
Stock issuable upon such conversion in accordance with the provisions hereof,
together with cash in lieu of fractional shares calculated in accordance with
paragraph (ii) above.
(iv) Reservation of Shares. The Corporation shall at all times when the
---------------------
Series C Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series C Preferred Stock. Before taking any action
which would cause Common Stock, upon the conversion
-15-
<PAGE>
of Series C Preferred Stock, to be issued below the then par value of the shares
of Common Stock, the Corporation will take any corporate action that may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and non-assessable shares of Common Stock to the
holders of Series C Preferred Stock.
(v) Termination of Rights. All shares of Series C Preferred Stock
---------------------
which are subject to conversion pursuant to this paragraph (e), which have not
been surrendered prior to the IPO Date, shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the IPO Date, except only the right of the holders thereof to receive shares of
Common Stock in exchange therefor. On and as of the IPO Date, the shares of
Common Stock issuable upon such conversion shall be deemed to be outstanding,
and the holder thereof shall be entitled to exercise and enjoy all rights with
respect to such shares of Common Stock, including the rights, if any, to receive
notices and to vote. Shares of Series C Preferred Stock converted into Common
Stock will be restored to the status of authorized but unissued shares of
preferred stock without designation as to series, and may thereafter be issued,
whether or not designated as shares of Series C Preferred Stock.
(vi) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of
Series C Preferred Stock shall be made without charge to the holder of shares of
Series C Preferred Stock for any issue or transfer tax, or other incidental
expense in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Corporation.
(vii) Reservation of Class A Common Stock. The Corporation shall at all
-----------------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series C Preferred Stock the maximum number of its authorized but unissued
shares of Class A Common Stock as is reasonably anticipated to be sufficient to
permit the conversion of all outstanding shares of Series C Preferred Stock, and
shall take all action required to increase the authorized number of shares of
Class A Common Stock if at any time there shall be insufficient authorized but
unissued shares of Class A Common Stock to permit such reservation or to permit
the conversion of all outstanding shares of Series C Preferred Stock.
(f) Redemption at Option of the Corporation. The Corporation shall have
---------------------------------------
the right to redeem shares of Series C Preferred Stock pursuant to the following
provisions:
(i) Subject to the restrictions set forth in Section 4.5(h)(i), the
Corporation shall have the right, at its sole option and election, to redeem the
shares of the Series C Preferred Stock, in whole but not in part, at any time at
a redemption price per share equal to the Liquidation Preference thereof as of
the redemption date; provided, that concurrently with such redemption, the
Corporation shall redeem the shares of Series D Preferred Stock, in whole and
not in part, at a redemption price per share equal to the
-16-
<PAGE>
Liquidation Preference thereof as of the redemption date; provided, further,
that if the funds legally available to the Corporation are insufficient to
effect the redemption of the Series C Preferred Stock and the Series D Preferred
Stock in full, such funds shall be allocated among the shares of Series C
Preferred Stock and Series D Preferred Stock ratably in accordance with the
number of shares of each Series outstanding as of the redemption date;
(ii) Notice of any redemption of the Series C Preferred Stock and Series
D Preferred Stock shall be mailed at least ten but not more than 60 days prior
to the date fixed for redemption to each holder of Series C Preferred Stock and
Series D Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Corporation. In order to facilitate the redemption of the
Series C Preferred Stock and Series D Preferred Stock, the Board of Directors
may fix a record date for the determination of holders of Series C Preferred
Stock and Series D Preferred Stock to be redeemed, or may cause the transfer
books of the Corporation to be closed for the transfer of the Series C Preferred
Stock and Series D Preferred Stock, not more than 60 days prior to the date
fixed for such redemption;
(iii) Within two Business Days after the redemption date specified in the
notice given pursuant to paragraph (ii) above and the surrender of the
certificate(s) representing shares of Series C Preferred Stock or Series D
Preferred Stock, as the case may be, the Corporation shall pay to the holder of
the shares being redeemed the Series C Redemption Price or the Series D
Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a nationally recognized courier) of a bank check to such
holder's address as it appears on the books of the Corporation; and
(iv) Effective upon the date of the notice given pursuant to paragraph
(ii) above, notwithstanding that any certificate for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall no
longer be deemed outstanding, the rights to receive dividends thereon shall
cease to accrue from and after the date of redemption designated in the notice
of redemption and all rights of the holders of the shares of the Series C
Preferred Stock or Series D Preferred Stock, as the case may be, called for
redemption shall cease and terminate, excepting only the right to receive the
Series C Redemption Price or the Series D Redemption Price therefor in
accordance with paragraph (iii) above.
(g) Redemption at Option of Holder.
------------------------------
(i) No holder of shares of Series C Preferred Stock shall have any
right to require the Corporation to redeem any shares of Series C Preferred
Stock prior to, with respect to any share of Series C Preferred Stock, the 30th
day after the twentieth anniversary of the issuance of such share. Thereafter,
subject to the restrictions set forth in Section 4.5(h)(i), each holder of
shares of Series C Preferred Stock shall have the right, at the sole option and
election of such holder, to require the Corporation to redeem all (but not less
than all) of the shares of Series C Preferred Stock owned by such holder at a
-17-
<PAGE>
price per share equal to the Series C Redemption Price;
(ii) The holder of any shares of the Series C Preferred Stock may
exercise such holder's right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series C Preferred Stock to be redeemed,
accompanied by a written notice stating that such holder elects to require the
Corporation to redeem all (but not less than all) of such shares in accordance
with the provisions of this Section 4.5(g), which notice may specify an account
for delivery of the Series C Redemption Price;
(iii) Within two Business Days after the surrender of such certificates,
the Corporation shall pay to the holder of the shares being redeemed the Series
C Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a nationally recognized courier) of a bank check to such
holder's address as it appears on the books of the Corporation; and
(iv) Such redemptions shall be deemed to have been made at the close of
business on the date of the receipt of such notice and of such surrender of the
certificates representing the shares of the Series C Preferred Stock to be
redeemed and the rights of the holder thereof, except for the right to receive
the Series C Redemption Price therefor in accordance herewith, shall cease on
such date of receipt and surrender.
(h) Certain Restrictions.
--------------------
(i) Notwithstanding the provisions of Sections 4.5(b), (e) or (f), cash
dividends on the Series C Preferred Stock may not be declared, paid or set apart
for payment, nor may the Corporation redeem, purchase or otherwise acquire any
shares of Series C Preferred Stock, if (A) the Corporation is not solvent or
would be rendered 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
-18-
<PAGE>
without such consent.
(iii) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to make any distribution with respect to, or purchase
or otherwise acquire for consideration, any shares of Common Stock or other
shares of capital stock of the Corporation ranking junior to or on a parity
basis with the Series C Preferred Stock unless the Corporation could, pursuant
to paragraph (i) above, make such distribution or purchase or otherwise acquire
such shares at such time and in such manner.
4.6 Powers, Preferences and Rights of the Series D Preferred Stock.
--------------------------------------------------------------
(a) General. The powers, preferences and rights of the Series D
-------
Preferred Stock, and the qualifications, limitations, and restrictions thereof,
shall be identical to those of the Series C Preferred Stock, except that (i) the
Series D Preferred Stock shall rank with respect to the other series and classes
of capital stock of the Corporation as provided in paragraph (b) below, (ii) the
Series D Preferred Stock shall not be convertible into Common Stock, but shall
be convertible into Senior Common Stock as provided in paragraph (c) below,
(iii) the shares of Series D Preferred Stock shall be subject to redemption, pro
rata with the Series C Preferred Stock, in accordance with Section 4.5(f), and
(iv) the words "Series D Preferred Stock" and "Series C Preferred Stock" shall
be substituted for all references in Section 4.5 to Series C Preferred Stock and
Series D Preferred Stock, respectively.
(b) Ranking. The Series D Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock and the Series B Preferred Stock with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (ii) senior to the Series C Preferred Stock with respect to the
distribution of assets on a Statutory Liquidation, (iii) on a parity with the
Series C Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up (other than on a Statutory Liquidation),
(iv) on a parity with the Series C Preferred Stock and the Common Stock with
respect to the payment of dividends, and (v) senior to the Common Stock and any
series or class of the Corporation's common or preferred stock, now or hereafter
authorized (other than Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock), with respect to the distribution of assets on
liquidation, dissolution and winding up.
(c) Conversion. In the event that the shares of Series C Preferred Stock
----------
are converted into shares of Common Stock in accordance with Section 4.5(e), the
shares of Series D Preferred Stock shall be convertible into shares of Senior
Common Stock as follows:
(i) Automatic Conversion. On the IPO Date, each share of Series D
--------------------
Preferred Stock then outstanding shall automatically be converted into a number
of fully paid and non-assessable shares of Senior Common Stock as is determined
by dividing the Liquidation Preference of the Series D Preferred Stock as of the
IPO Date by the IPO Price.
-19-
<PAGE>
(ii) Fractional Shares. No fractional shares of Senior Common Stock
-----------------
shall be issued upon conversion of shares of Series D Preferred Stock. In lieu
of any fractional share to which the holder would otherwise be entitled after
determination of the aggregate full number of shares of Senior Common Stock
issuable in respect of the Series D Preferred Stock then being converted, the
Corporation shall pay cash equal to such fraction multiplied by the Liquidation
Preference of the Series D Preferred Stock.
(iii) Mechanics of Conversion. All holders of record of shares of Series
-----------------------
D Preferred Stock will be given at least 30 but not more than 60 days' prior
written notice of the IPO Date and the place designated for conversion of all
shares of Series D Preferred Stock pursuant to this Section 4.6(c). Such notice
will be sent by first class or registered mail, postage prepaid, to each record
holder of Series D Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series D Preferred Stock (or the records
of the Corporation if it serves as its own transfer agent). On or before the IPO
Date, each holder of shares of Series D Preferred Stock shall surrender his or
its certificate(s) for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the IPO Date and the surrender of the
certificate(s) representing shares of Series D Preferred Stock, the Corporation
shall issue and deliver to such holder, or on his or its written order to his or
its nominees, one or more certificates for the number of shares of Senior Common
Stock issuable upon such conversion in accordance with the provisions hereof.
(iv) Reservation of Shares. The Corporation shall at all times when the
----------------------
Series D Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series D Preferred Stock, such number of its duly authorized shares of
Senior Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series D Preferred Stock. Before taking
any action which would cause Senior Common Stock, upon the conversion of Series
D Preferred Stock, to be issued below the then par value of the shares of Senior
Common Stock, the Corporation will take any corporate action that may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and non-assessable shares of Senior Common Stock to
the holders of Series D Preferred Stock.
(v) Adjustments for Dividends. Upon any conversion of Series D
-------------------------
Preferred Stock, no adjustment to the conversion ratio shall be made for
declared and unpaid dividends on the Series D Preferred Stock surrendered for
conversion or on the Senior Common Stock delivered upon conversion.
(vi) Termination of Rights. All shares of Series D Preferred Stock
----------------------
which shall be subject to conversion as herein provided, which have not been so
surrendered prior to the IPO Date, shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately
-20-
<PAGE>
cease and terminate on the IPO Date, except only the right of the holders
thereof to receive shares of Senior Common Stock in exchange therefor and
payment of any declared and unpaid dividends thereon. On and as of the IPO Date,
the shares of Senior Common Stock issuable upon such conversion shall be deemed
to be outstanding, and the holder thereof shall be entitled to exercise and
enjoy all rights with respect to such shares of Senior Common Stock, including
the rights, if any, to receive notices and to vote. Shares of Series D Preferred
Stock converted into Senior Common Stock will be restored to the status of
authorized but unissued shares of preferred stock without designation as to
series, and may thereafter be issued, whether or not designated as shares of
Series D Preferred Stock.
(vii) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Senior Common Stock upon the conversion of shares of
Series D Preferred Stock shall be made without charge to the holder of shares of
Series D Preferred Stock for any issue or transfer tax, or other incidental
expense in respect of the issuance or delivery of such certificates or the
securities represented thereby, all of which taxes and expenses shall be paid by
the Corporation.
4.7 Powers, Preferences and Rights of the Series E Preferred Stock.
--------------------------------------------------------------
The powers, preferences and rights of the Series E Preferred Stock, and the
qualifications, limitations and restrictions thereof, shall be identical to
those of the Series C Preferred Stock, except that (a) the Series E Preferred
Stock shall rank, with respect to the payment of dividends and the distribution
of assets on liquidation, dissolution or winding up, (i) junior to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock and (ii) senior to the Series F Preferred Stock, Senior Common
Stock and the Common Stock and any series or class of the Corporation's common
or preferred stock, now or hereafter authorized (other than the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock), (b) the provisos to Section 4.5(f)(i) shall not apply to a
redemption of the Series E Preferred Stock, and (c) the words "Series E
Preferred Stock" and "Series C Preferred Stock" shall be substituted for all
references in Section 4.5 to Series C Preferred Stock and Series E Preferred
Stock, respectively.
4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The
--------------------------------------------------------------
powers, preferences and rights of the Series F Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series F Preferred Stock shall rank (i) junior to the
-------
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock with
respect to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, (ii) on a parity with the Senior Common
Stock with respect to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, (iii) on a parity with the Common Stock
with respect to the distribution of assets on liquidation, dissolution or
winding up (other than on a Statutory Liquidation), (iv) senior to the Common
Stock with respect to the distribution of assets on a Statutory Liquidation (v)
on a parity with the Common Stock with respect to the payment of dividends, and
(vi) senior to any series or
-21-
<PAGE>
class of the Corporation's common or preferred stock hereafter authorized (other
than Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Senior Common Stock
or Common Stock), with respect to the payment of dividends and the distribution
of assets on liquidation, dissolution and winding up.
(b) Dividends. Holders of Series F Preferred Stock shall be entitled to
---------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation.
(c) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series F Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such assets are capital or
surplus of any nature, after payment is made to holders of all series of
preferred stock ranking senior to the Series F Preferred Stock with respect to
rights on liquidation, dissolution or winding up, but before any payment shall
be made or any assets distributed to the holders of Common Stock or any series
of preferred stock ranking junior to the Series F Preferred Stock with respect
to rights on liquidation, dissolution or winding up, an amount equal to the
Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Series F Preferred Stock and any other
series of preferred stock ranking on a 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
-22-
<PAGE>
F Preferred Stock shall not be included in determining the number of shares
voting or entitled to vote on any such matters (other than the matters described
in paragraph (ii) below or as otherwise required by law).
(ii) The affirmative vote of holders of not less than a majority of
Series F Preferred Stock shall be required to (A) authorize, increase the
authorized number of shares of or issue (including on conversion or exchange of
any convertible or exchangeable securities or by reclassification) any shares of
any class or classes of stock ranking senior to or pari passu with the Series F
Preferred Stock or any additional shares of Series F Preferred Stock, (B)
authorize, adopt or approve each amendment to this Restated Certificate of
Incorporation that would increase or decrease the par value of the shares of
Series F Preferred Stock, alter or change the powers, preferences or rights of
the shares of Series F Preferred Stock or alter or change the powers,
preferences or rights of any other capital stock of the Corporation if such
alteration or change results in such capital stock ranking senior to or pari
passu with the Series F Preferred Stock, (C) amend, alter or repeal any
provision of this Restated Certificate of Incorporation so as to affect the
shares of Series F Preferred Stock adversely, or (D) authorize or issue any
security convertible into, exchangeable for or evidencing the right to purchase
or otherwise receive any shares of any class or classes of stock senior to or
pari passu with the Series F Preferred Stock.
(e) Conversion. The shares of Series F Preferred Stock shall be
----------
convertible into shares of Common Stock or Senior Common Stock as follows:
(i) Optional Conversion. Each share of Series F Preferred Stock shall
-------------------
be convertible, at the option of the holder thereof, at any time and from time
to time, into one fully paid and non-assessable share of Non-Tracked Common
Stock; provided that, unless and until the Tracked Common Stock shall be
convertible into Class A Common Stock or Class B Common Stock in accordance with
Section 4.10(e)(iii), each of the first 631.27 shares of Series F Preferred
Stock converted pursuant to this paragraph shall be convertible into one fully
paid and non-assessable share of Class D Common Stock.
(ii) Automatic Conversion. In the event that the Series C Preferred
--------------------
Stock is converted into Common Stock in accordance with Section 4.5(e), then on
the IPO Date, each share of Series F Preferred Stock then outstanding shall
automatically be converted into one fully paid and non-assessable share of
Senior Common Stock.
(iii) Mechanics of Optional Conversion. In order for a holder of Series
F Preferred Stock to convert such shares into shares of Common Stock, such
holder shall surrender the certificate(s) for such shares of Series F Preferred
Stock at the office of the transfer agent for the Series F Preferred Stock (or
if the Corporation serves as its own transfer agent, at the principal office of
the Corporation), together with written notice that such holder elects to
convert all or any number of the shares of the Series F Preferred Stock
represented by such certificate(s). If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the
-23-
<PAGE>
registered holder or his or its attorney duly authorized in writing. The date of
receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date (the "Optional Conversion Date"). The Corporation shall, within
-------------------------
ten Business Days after the Optional Conversion Date, issue and deliver at such
office to such holder of Series F Preferred Stock, or to his or its nominees,
one or more certificates for the number of whole shares of Common Stock (and any
shares of Series F Preferred Stock represented by the certificate delivered to
the Corporation by the holder thereof that are not converted into Common Stock)
issuable upon such conversion in accordance with the provisions hereof.
(iv) Mechanics of Automatic Conversion. All holders of record of shares
---------------------------------
of Series F Preferred Stock will be given at least 30 but not more than 60 days'
prior written notice of the IPO Date and the place designated for conversion of
all shares of Series F Preferred Stock pursuant to this Section 4.8(e). Such
notice will be sent by first class or registered mail, postage prepaid, to each
record holder of Series F Preferred Stock at such holder's address last shown on
the records of the transfer agent for the Series F Preferred Stock (or the
records of the Corporation if it serves as its own transfer agent). On or before
the IPO Date, each holder of shares of Series F Preferred Stock shall surrender
his or its certificate(s) for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. As soon as practicable after the IPO Date and the surrender of the
certificates representing shares of Series F Preferred Stock, the Corporation
shall issue and deliver to such holder, or on his or its written order to his or
its nominees, one or more certificates for the number of whole shares of Senior
Common Stock issuable upon such conversion in accordance with the provisions
hereof.
(v) Reservation of Shares. The Corporation shall at all times when the
---------------------
Series F Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series F Preferred Stock, such number of its duly authorized shares of
Common Stock and Senior Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series F Preferred Stock.
Before taking any action which would cause Common Stock or Senior Common Stock,
upon the conversion of Series F Preferred Stock, to be issued below the then par
value of the shares of Common Stock or Senior Common Stock, as the case may be,
the Corporation will take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock or Senior Common
Stock, as the case may be, to the holders of Series F Preferred Stock.
(vi) Adjustments for Dividends. Upon any conversion of Series F
-------------------------
Preferred Stock, no adjustment to the conversion ratio shall be made for
declared and unpaid dividends on the Series F Preferred Stock surrendered for
conversion or on the Common Stock or Senior Common Stock delivered upon
conversion.
-24-
<PAGE>
(vii) Termination of Rights. All shares of Series F Preferred Stock
---------------------
which shall have been surrendered for conversion as herein provided or, as to
shares of Series F Preferred Stock which are subject to automatic conversion
pursuant to paragraph (ii) above, which have not been so surrendered prior to
the IPO Date, shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Optional Conversion Date or
the IPO Date, as the case may be, except only the right of the holders thereof
to receive shares of Common Stock or Senior Common Stock, as the case may be, in
exchange therefor and payment of any declared and unpaid dividends thereon. On
and as of the Optional Conversion Date or the IPO Date, the shares of Common
Stock or Senior Common Stock, as the case may be, issuable upon such conversion
shall be deemed to be outstanding, and the holder thereof shall be entitled to
exercise and enjoy all rights with respect to such shares of Common Stock or
Senior Common Stock, including the rights, if any, to receive notices and to
vote. Shares of Series F Preferred Stock converted into Common Stock or Senior
Common Stock will be restored to the status of authorized but unissued shares of
Common Stock or preferred stock without designation as to class or series, and
may thereafter be issued, whether or not designated as shares of Class A Common
Stock or Series F Preferred Stock.
(viii) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock or Senior Common Stock upon the
conversion of shares of Series F Preferred Stock shall be made without charge to
the holder of shares of Series F Preferred Stock for any issue or transfer tax,
or other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
(ix) Reorganization, Reclassification and Merger Adjustment. If there
------------------------------------------------------
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Corporation
to another Person, then each share of Series F Preferred Stock shall thereafter
be convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock of the Corporation upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, in respect of that
number of shares of Common Stock into which such share of Series F Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, consolidation, merger, sale or conveyance; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be conclusive) shall be
made to assure that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon the conversion of the
Series F Preferred Stock.
-25-
<PAGE>
(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 Powers, Preferences and Rights of the Senior Common Stock. The
---------------------------------------------------------
powers, preferences and rights of the Senior Common Stock, and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Senior Common Stock shall rank, with respect to the
-------
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, (ii) on a parity with the Series F Preferred Stock, and (iii) senior to
the Common Stock and any series or class of the Corporation's common or
preferred stock, now or hereafter authorized (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock).
(b) Dividends. Holders of Senior Common Stock shall be entitled to
---------
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation.
(c) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Senior Common Stock shall be entitled to receive out
of the assets of the Corporation, whether such assets are capital or surplus of
any nature, after payment is made to holders of all series of preferred stock
ranking senior to the Senior
-26-
<PAGE>
Common Stock with respect to rights on liquidation, dissolution or winding up,
but before any payment shall be made or any assets distributed to the holders of
Common Stock or any series of preferred stock ranking junior to the Senior
Common Stock with respect to rights on liquidation, dissolution or winding up,
an amount equal to the Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the
Corporation the assets of the Corporation to be distributed are insufficient to
permit the payment to all holders of Senior Common Stock and any other series of
preferred stock ranking on a parity with Senior Common Stock with respect to
rights on liquidation, dissolution or winding up, to receive their full
preferential amounts, the entire assets of the Corporation shall be distributed
among the holders of Senior Common Stock and all such other series ratably in
accordance with their respective Liquidation Preference.
(iii) After payment to the holders of Senior Common Stock of the amounts
set forth in paragraph (i) above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
among the holders of the Participating Stock in proportion to the shares of
Participating Stock then held by them as of the date of the liquidation,
dissolution or winding up of the Corporation.
(iv) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.9(c).
(d) Voting Rights.
-------------
(i) The holders of shares of Senior Common Stock shall not have any
right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Senior Common Stock shall not be included in
determining the number of shares voting or entitled to vote on any such matters
(other than the matters described in paragraph (ii) below or as otherwise
required by law).
(ii) The affirmative vote of holders of not less than a majority of
Senior Common Stock shall be required to (A) authorize, increase the authorized
number of shares of or issue (including on conversion or exchange of any
convertible or exchangeable securities or by reclassification) any shares of any
class or classes of stock ranking senior to or pari passu with the Senior Common
Stock or any additional shares of Senior Common Stock, (B) authorize, adopt or
approve each amendment to this Restated Certificate of Incorporation that would
increase or decrease the par value of the shares of Senior Common Stock, alter
or change the powers, preferences or rights of the shares of Senior Common Stock
or alter or change the powers, preferences or rights of any other capital stock
of the Corporation if such alteration or change results in such capital stock
ranking senior to or pari passu with the Senior Common Stock, (C) amend, alter
or repeal any provision of this Restated Certificate of Incorporation so as to
affect the shares of
-27-
<PAGE>
Senior Common Stock adversely, or (D) authorize or issue any security
convertible into, exchangeable for or evidencing the right to purchase or
otherwise receive any shares of any class or classes of stock senior to or pari
passu with the Senior Common Stock.
(e) Conversion. The shares of Senior Common Stock shall be convertible
----------
into shares of Common Stock as follows:
(i) Optional Conversion. Each share of Senior Common Stock shall be
-------------------
convertible, at the option of the holder thereof, at any time and from time to
time, into one fully paid and non-assessable share of Non-Tracked Common Stock;
provided that, unless and until the Tracked Common Stock shall be convertible
into Class A Common Stock or Class B Common Stock in accordance with Section
4.10(e)(iii), each of the first 631.27 shares of Senior Common Stock converted
pursuant to this paragraph shall be convertible into one fully paid and non-
assessable share of Class D Common Stock; provided, further that, if the
Corporation shall effect any change in the Senior Common Stock, whether through
stock dividends, stock splits, reverse stock splits, combinations or otherwise,
without payment to the Corporation of any consideration therefor in money,
services or property, then the terms of this proviso shall be adjusted by a
corresponding amount.
(ii) Mechanics of Optional Conversion. In order for a holder of Senior
---------------------------------
Common Stock to convert such shares into shares of Common Stock, such holder
shall surrender the certificate(s) for such shares of Senior Common Stock at the
office of the transfer agent for the Senior Common Stock (or if the Corporation
serves as its own transfer agent, at the principal office of the Corporation),
together with written notice that such holder elects to convert all or any
number of the shares of the Senior Common Stock represented by such
certificate(s). If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date. The Corporation shall, within ten Business Days after the
conversion date, issue and deliver at such office to such holder of Senior
Common Stock, or to his or its nominees, one or more certificates for the number
of whole shares of Common Stock (and any shares of Senior Common Stock
represented by the certificate delivered to the Corporation by the holder
thereof that are not converted into Common Stock) issuable upon such conversion
in accordance with the provisions hereof.
(iii) Reservation of Shares. The Corporation shall at all times when the
---------------------
Senior Common Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Senior Common Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Senior Common Stock. Before taking any action which would
cause Common Stock, upon the conversion of Senior Common Stock, to be issued
below the then par value of the shares of Common
-28-
<PAGE>
Stock, the Corporation will take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common Stock to the
holders of Senior Common Stock.
(iv) Adjustments for Dividends. Upon any conversion of Senior Common
-------------------------
Stock, no adjustment to the conversion ratio shall be made for declared and
unpaid dividends on the Senior Common Stock surrendered for conversion or on the
Common Stock delivered upon conversion.
(v) Termination of Rights. All shares of Senior Common Stock which
---------------------
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the conversion date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
declared and unpaid dividends thereon. On and as of the conversion date, the
shares of Common Stock issuable upon such conversion shall be deemed to be
outstanding, and the holder thereof shall be entitled to exercise and enjoy all
rights with respect to such shares of Common Stock, including the rights, if
any, to receive notices and to vote. Shares of Senior Common Stock converted
into Common Stock will be restored to the status of authorized but unissued
shares of preferred stock without designation as to series, and may thereafter
be issued, whether or not designated as shares of Senior Common Stock.
(vi) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of Senior
Common Stock shall be made without charge to the holder of shares of Senior
Common Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
(vii) Reorganization, Reclassification and Merger Adjustment. If there
------------------------------------------------------
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, the consolidation or merger of the Corporation with or into
another Person (other than a merger or consolidation of the Corporation in which
the Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of its Common Stock) or the
sale or conveyance of all or substantially all of the assets of the Corporation
to another Person, then each share of Senior Common Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock of the Corporation upon such reorganization,
reclassification, consolidation, merger, sale or conveyance, in respect of that
number of shares of Common Stock into which such share of Senior Common Stock
might have been converted immediately prior to such reorganization,
reclassification, consolidation, merger, sale or conveyance; and, in any such
case, appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation, whose
-29-
<PAGE>
determination shall be conclusive) shall be made to assure that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or other assets thereafter
deliverable upon the conversion of the Senior Common Stock.
4.10 Common Stock.
------------
(a) General. Except as otherwise provided herein, all shares of Common
-------
Stock issued and outstanding shall be identical, and shall entitle the holders
thereof to the same rights, powers and privileges of stockholders under Delaware
law. For purposes of this Section 4.10 (and the definitions relating thereto),
the Class A Common Stock and the Class B Common Stock are herein collectively
referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and
the Class D Common Stock are herein collectively referred to as the "Tracked
Common Stock".
(b) Dividends. Subject to Section 4.11(b) and the express terms of any
---------
outstanding series of Preferred Stock, dividends may be paid in cash or
otherwise with respect to each class of Common Stock out of the assets of the
Corporation, upon the terms, and subject to the limitations, provided in this
Section 4.10(b), as the Board of Directors may determine.
(i) Dividends on the Non-Tracked Common Stock. Dividends on the Non-
-----------------------------------------
Tracked Common Stock may be declared and paid only out of the excess of (A) the
funds of the Corporation legally available therefor over (B) the Tracked
Business Available Dividend Amount (the "Non-Tracked Business Available Dividend
Amount").
(ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common
---------------------------------
Stock may be declared and paid only out of the lesser of (A) the funds of the
Corporation legally available therefor and (B) the Tracked Business Available
Dividend Amount. The Corporation shall not declare or pay cash dividends on, or
redeem, purchase or otherwise acquire for consideration, any shares of Tracked
Common Stock unless concurrently therewith the Corporation shall declare or pay
cash dividends on, or redeem, purchase or otherwise acquire for consideration,
as the case may be, on the same terms, all shares of Tracked Common Stock
ratably in accordance with the number of shares of each class of Tracked Common
Stock then outstanding.
(iii) Discrimination in Dividends Among the Tracked and Non-Tracked
-------------------------------------------------------------
Common Stock. The Board of Directors may at any time, subject to the provisions
- ------------
of Sections 4.10(b)(i) and (ii) and Section 4.11, declare and pay dividends
exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common
Stock or on both such categories of Common Stock in equal or unequal amounts,
notwithstanding the relative amounts of the Non-Tracked Business Available
Dividend Amount and the Tracked Business Available Dividend Amount.
(c) Voting.
------
-30-
<PAGE>
(i) The holders of shares of Common Stock shall be entitled to such
voting rights as hereinafter provided, and shall be entitled to notice of any
stockholders' meeting and to vote upon such matters as provided herein and in
the by-laws of the Corporation, and as may be provided by law. Holders of any
class of Common Stock shall not be entitled to cumulate their votes for any
purpose. Except as otherwise required by law or provided herein, regardless of
the number of shares of any class of Common Stock then outstanding, each class
of Common Stock shall be entitled to the number of votes enumerated below and
the number of votes or fractional votes to which each share of a particular
class of Common Stock shall be entitled shall be the quotient determined by
dividing the aggregate number of votes to which such class of Common Stock is
entitled by the number of shares of such class of Common Stock then outstanding.
Except as otherwise required by law or provided herein, the Class A Common Stock
shall have 4,990,000 votes; the Class B Common Stock shall have no votes; the
Class C Common Stock shall have no votes; the Class D Common Stock shall have no
votes; and the Voting Preference Common Stock shall have 5,010,000 votes.
(ii) A quorum for the transaction of business shall be present when a
majority 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
-31-
<PAGE>
from the FCC to permit the Class A Common Stock and Voting Preference Common
Stock to vote and act as a single class in the manner described above. From and
after the date that such consent is obtained, the Class A Common Stock and the
Voting Preference Common Stock shall be voted as a single class on all matters,
shall be treated as a single class for purposes of all quorum requirements, and
shall have one vote per share; provided, that the voting rights of the Class B
Common Stock, Class C Common Stock and Class D Common Stock and the Preferred
Stock shall remain unaffected.
(v) The holders of shares of Class B Common Stock shall be entitled to
vote as a separate class on any amendment, repeal or modification of any
provision of this Restated Certificate of Incorporation that adversely affects
the powers, preferences or special rights of the holders of the Class B Common
Stock.
(d) Dissolution, Liquidation or Winding Up. Upon the dissolution,
--------------------------------------
liquidation or winding up of the Corporation, after any preferential amounts to
be distributed to the holders of the Preferred Stock and any other class or
series of stock having a preference 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-
-32-
<PAGE>
assessable share of Class A Common Stock or Class B Common Stock, and (y) each
share of Class D Common Stock may, at the option of the holder thereof, be
converted into one fully paid and non-assessable share of Class A Common Stock
or Class B Common Stock.
4.11 Participating Stock.
-------------------
(a) Changes in Capital Stock. The Corporation shall not effect any
------------------------
change in or reclassification of any class or series of the outstanding
Participating Stock, whether through stock dividends, stock splits, reverse
stock splits, combinations or otherwise, without the payment to the Corporation
of any consideration therefor in money, services or property, unless
concurrently therewith the Corporation shall effect a corresponding change in
each other class and series of the outstanding Participating Stock.
(b) Dividends and Distributions. The Corporation shall not declare or
---------------------------
pay cash dividends on, or redeem, purchase or otherwise acquire for
consideration, any shares of Participating Stock unless concurrently therewith
the Corporation shall declare or pay cash dividends on, or redeem, purchase or
otherwise acquire for consideration, as the case may be, on the same terms, all
shares of Participating Stock ratably in accordance with the number of shares of
each class and series of Participating Stock then outstanding.
(c) Notices. Any written notice or communication by the Corporation to
-------
holders of any class or series of Participating Stock shall be sent to all
holders of Participating Stock.
4.12 Exchange of Capital Stock. Notwithstanding any other provision of
-------------------------
this Restated Certificate of Incorporation to the contrary, in the event that
AT&T Wireless PCS, Inc. terminates its obligations under Section 8.6 of the
Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any
Overlap Territory (as defined therein) (any such termination being referred to
hereinafter as the "Exchange Event"), the following provisions shall apply:
--------------
(a) Right to Exchange. The Corporation shall have the right, exercisable
in its sole discretion by written notice (the "Exchange Notice") given to the
---------------
Initial Holders and Section 4.12 Transfers within 60 days after the Exchange
Event, to:
(i) require the Initial Holders and each Section 4.12 Transferee to
exchange for an equivalent number of shares of Series B Preferred Stock either
(A) all of the shares of Series A Preferred Stock then owned by the Initial
Holders and each Section 4.12 Transferee or (B) a number of shares of Series A
Preferred Stock then owned by each such holder equal to the product of (x) the
number of shares of Series A Preferred Stock then owned by such holder
multiplied by (y) a fraction, the numerator of which is equal to the number of
POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the
denominator of which is equal to the total number of POPs in the Territory (as
defined in the Stockholders Agreement); and
-33-
<PAGE>
(ii) require the Initial Holders and each Section 4.12 Transferee to
exchange, for a number of shares of Series B Preferred Stock determined in
accordance with paragraph (b) below, either (A) all of the shares of Series D
Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial
Holder on the date hereof (or shares of Common Stock or Senior Common Stock into
which such shares of Series D Preferred Stock, Series F Preferred Stock and
Senior Common Stock shall have been converted) and that the Initial Holders or a
Section 4.12 Transferee continues to own on the date of delivery of the Exchange
Notice (any such shares of Series D Preferred Stock, Series F Preferred Stock or
Common Stock being referred to hereinafter collectively as "Original Shares") or
(B) a number of Original Shares of Series D Preferred Stock, Series F Preferred
Stock and Common Stock equal to the product of (x) the number of Original Shares
of Series D Preferred Stock, Series F Preferred Stock, Senior Common Stock and
Common Stock, as the case may be, then owned by each such holder, multiplied by
(y) a fraction, the numerator of which is equal to the number of POPs in the
Overlap Territory and the denominator of which is equal to the total number of
POPs in the Territory;
provided, that (x) if the Corporation exercises its right under clause (i)(A) of
this paragraph (a), it shall be required to exercise its right under clause
(ii)(A) of this paragraph (a), and vice-versa; and if the Corporation exercises
its right under clause (i)(B) of this paragraph (a), it shall be required to
exercise its right under clause (ii)(B) of this paragraph (a), and vice-versa
and (y) the provisions of this Section 4.12(a) shall not apply to any Section
4.12 Transferee which is a Cash Equity Investor.
(Shares of Series A Preferred Stock, Series D Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock (and shares of Common Stock and
Senior Common Stock into which such shares shall have been converted) and shares
of Common Stock subject to exchange pursuant to this Section 4.12 are
hereinafter referred to collectively as "Exchange Shares.")
---------------
(b) Number of Shares of Series B Preferred Stock Issuable in Exchange.
-----------------------------------------------------------------
The number of shares of Series B Preferred Stock issuable in exchange for
Original Shares pursuant to clause (ii) of paragraph (a) above shall be equal to
the quotient of the aggregate purchase price paid by the Initial Holders for the
Original Shares being exchanged, divided by $1,000.
(c) Fractional Shares. Notwithstanding any other provision of this
-----------------
Restated Certificate of Incorporation, the Corporation shall not be required to
issue fractions of shares upon exchange of any Exchange Shares or to distribute
certificates which evidence fractional shares. In lieu of fractional shares, the
Corporation may pay therefor, at the time of any exchange of Exchange Shares as
herein provided, an amount in cash equal to such fraction multiplied by the
Market Price of a share of Common Stock on such date.
(d) Mechanics of Exchange. The Exchange Notice shall specify the date
---------------------
fixed for the exchange (the "Exchange Date"), which shall be at least ten but no
more than 60 days following delivery of the Exchange Notice, and the place
designated for exchange of the Exchange Shares pursuant to this Section 4.12.
Such notice will be sent by first class or registered mail, postage prepaid, to
the Initial Holders and each Section 4.12 Transferee
-34-
<PAGE>
at such holder's address last shown on the records of the transfer agent for the
Exchange Shares (or the records of the Corporation if it serves as its own
transfer agent). On or before the Exchange Date, the Initial Holders and each
Section 4.12 Transferee shall surrender its certificate or certificates for all
such shares to the Corporation at the place designated in such notice. If
required by the Corporation, certificates surrendered for exchange shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the Initial Holders and
each Section 4.12 Transferee or its attorney duly authorized in writing.
(e) Termination of Rights. On and after the Exchange Date (whether or
---------------------
not the applicable certificates have theretofore been surrendered), all rights
with respect to the Exchange Shares, including the rights, if any, to receive
notices and to vote, will terminate, except only the rights of the Initial
Holders and Section 4.12 Transferees to receive certificates for the number of
shares of Series B Preferred Stock into which such Exchange Shares have been
exchanged, upon surrender of its certificate or certificates therefor, and
payment of any declared but unpaid dividends thereon (which shall accrue and be
payable at the times and on the other terms applicable to such dividends when
declared) and payment of any deferred dividends in respect of Series A Preferred
Stock which shall be payable as set forth in Section 4.3(b)(iii). Within ten
Business Days after the Exchange Date, the Corporation shall issue and deliver
to the Initial Holders and each Section 4.12 Transferee, or on its written order
to its nominees, a certificate or certificates for the number of whole shares of
Series B Preferred Stock issuable upon such exchange in accordance with the
provisions hereof, together with cash in lieu of fractional shares calculated in
accordance with paragraph (c) of this Section 4.12.
(f) Reservation of Shares. The Corporation shall at all times reserve and
---------------------
keep available for issuance upon the exchange of Exchange Shares the maximum
number of its authorized but unissued shares of Series B Preferred Stock as is
reasonably anticipated to be sufficient to permit the exchange of all
outstanding Exchange Shares, and shall take all action required to increase the
authorized number of shares of Series B Preferred Stock if at any time there
shall be insufficient authorized but unissued shares of Series B Preferred Stock
to permit such reservation or to permit the exchange of all outstanding Exchange
Shares.
(g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no
-------------------------
adjustment to the rate of conversion shall be made for accrued and unpaid
dividends (whether or not declared) on the Exchange Shares, as the case may be,
surrendered for exchange or on the Series B Preferred Stock delivered upon
exchange.
(h) No Exchange Charge or Tax. The issuance and delivery of certificates
-------------------------
for shares of Series B Preferred Stock upon the exchange of Exchange Shares
shall be made without charge to the Initial Holder for any issue or transfer
tax, or other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
4.13 Redemption of Capital Stock; FCC Approval.
-----------------------------------------
-35-
<PAGE>
(a) Redemption. Notwithstanding any other provision of this Restated
----------
Certificate of Incorporation to the contrary, outstanding shares of capital
stock of the Corporation held by Disqualified Holders shall always be subject to
redemption by the Corporation, by action of the Board of Directors, if, in the
judgment of the Board of Directors, such action should be taken, pursuant to
Section 151(b) of the GCL or any other applicable provision of law, to the
extent necessary to prevent the loss or secure the reinstatement of any license
or franchise from any governmental agency held by the Corporation or any of its
subsidiaries to conduct any portion of the business of the Corporation or any of
its subsidiaries, which license or franchise is conditioned upon some or all of
the holders of the Corporation's stock possessing prescribed qualifications. The
terms and conditions of such redemption shall be as follows:
(i) the redemption price of the shares to be redeemed pursuant to this
Section 4.13 shall be equal to the lesser of (x) the Market Price or (y) if such
stock was purchased by such Disqualified Holder within one year of the Section
4.13 Redemption Date, such Disqualified Holder's purchase price for such shares;
(ii) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(iii) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall be
determined by the Board of Directors, which may include selection first of the
most recently purchased shares thereof, selection by lot or selection in any
other manner determined by the Board of Directors;
(iv) at least 30 days' written notice of the Section 4.13 Redemption
Date shall be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder); provided, however, that only 10
days' written notice of the Redemption Date shall be given to record holders if
the cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for their
shares to be redeemed; provided, further, that the record holders of the shares
selected to be redeemed may transfer such shares prior to the Section 4.13
Redemption Date to any holder that is not a Disqualified Holder and, thereafter,
for so long as such shares are not held by a Disqualified Holder, such shares
shall not be subject to redemption by the Corporation;
(v) from and after the Section 4.13 Redemption Date, any and all rights
of whatever nature (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series as such
shares) with respect to the shares selected from redemption held by Disqualified
Holders on the Section 4.13 Redemption Date shall cease and terminate and such
Disqualified Holders thenceforth shall be entitled only to receive the cash or
Redemption Securities payable upon redemption; and
-36-
<PAGE>
(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 Preferred Stock, no dividends shall be payable in respect of the period
following the Series A Conversion Date, unless the required approvals are not
obtained and the conversion has not been effected within one year of the Series
A Conversion Date and the applicable conversion notice is withdrawn, in which
event the obligation to pay dividends from and after the Series A Conversion
Date shall be payable in accordance with the terms of Section 4.3(b).
4.14 Definitions. For the purposes of this Restated Certificate of
-----------
Incorporation, the following terms shall have the meanings indicated:
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with that Person. For purposes of this
definition, "control" (including the terms "controlling" and "controlled") means
the power to direct or cause the direction of the management and policies of a
Person, directly or indirectly, whether through the ownership of securities or
partnership or other ownership interests, by contract or otherwise.
"Appraisal Procedure" means the following procedure for determining
-------------------
the Market Price, for the purpose of calculating the Series A Conversion Rate,
in the event that the shares of Class A Common Stock are not listed or admitted
for trading on any national securities exchange and are not quoted on NASDAQ or
any similar service:
(i) Two independent accounting or investment banking firms of nationally
recognized standing (each, an "Appraiser"), one chosen by the Corporation
---------
and one by the holders of a majority of the outstanding shares of Series A
Preferred Stock, shall each determine and attempt to mutually agree upon, the
Market Price. Each party shall deliver a notice to the other appointing its
Appraiser within 15 days after the applicable notice and surrender pursuant to
Section 4.3(iv). If either the Corporation or such holders fail to appoint an
appraiser within such 15-day period, the Market Price shall be determined by the
Appraiser that has been so appointed.
(ii) If within 30 days after appointment of the two Appraisers they are
unable to agree upon the Market Price, an independent accounting or investment
banking firm of nationally recognized standing shall within ten days thereafter
be chosen to serve as a
-37-
<PAGE>
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.
(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.
------------
-38-
<PAGE>
"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 all outstanding convertible securities (other than
the Series A Preferred Stock) and the exercise of all outstanding warrants,
options or other rights to subscribe for or purchase any shares of Common Stock.
"Initial Holder" means AT&T Wireless PCS Inc., a Delaware corporation,
--------------
TWR Cellular, Inc., a Delaware corporation, and/or any of their respective
Affiliates that is a Subsidiary of AT&T Corp.
"Invested Amount" means, as of any date with respect to each share of
---------------
Series C Preferred Stock held by any stockholder, an amount equal to the
quotient of (i) the aggregate paid-in capital actually paid with respect to all
shares of Series C Preferred Stock held by such stockholder as of such date
divided by (ii) the total number of shares of Series C Preferred Stock held by
such stockholder.
"IPO Date" shall mean the first date on which (a) the Common Stock
--------
shall have been registered pursuant to an effective Registration Statement under
the Securities Act of 1933, as amended, (b) the aggregate gross proceeds
received by the Corporation in connection with such Registration Statement(s)
equals or exceeds $20 million, and (c) the Common Stock shall be listed for
trading on the New York Stock Exchange or the American Stock Exchange or
authorized for trading on NASDAQ, including without limitation its National
Market System.
"IPO Price" shall mean the price per share at which shares of Common
---------
Stock are offered to the public in the Corporation's initial public offering of
Common Stock.
"Junior Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, any capital stock of the
Corporation, including without limitation the Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock and the Common Stock, ranking junior to the Series A Preferred
Stock or Series B Preferred Stock, as the case may be, with respect to
dividends, distribution in liquidation or any other preference, right or power.
-39-
<PAGE>
"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;
(v) with respect to each share of Series F Preferred Stock, $.01
plus accrued and unpaid dividends thereon; and
(vi) with respect to each share of Senior Common Stock, the
quotient of (a) the sum of (i) the Liquidation Preference with respect to each
share of Series D Preferred Stock, multiplied by the aggregate number of shares
of Series D Preferred Stock converted into shares of Senior Common Stock in
accordance with Section 4.6(c) and (ii) the Liquidation Preference with respect
to each share of Series F Preferred Stock, multiplied by the aggregate number of
shares of Series F Preferred Stock converted into shares of Senior Common Stock
in accordance with Section 4.8(e)(ii), divided by the aggregate number of shares
of Senior Common Stock issued upon conversion of shares of Series D Preferred
Stock and Series F Preferred Stock.
"Market Price" shall mean, with respect to each share of any class or
------------
series of capital stock for any day, (i) the average of the daily Closing Prices
for the ten consecutive trading days commencing 15 days before the day in
question or (ii) if on such date the shares of such class or series of capital
stock are not listed or admitted for trading on any national securities exchange
and are not quoted on NASDAQ or any similar service, the cash amount that a
willing buyer would pay a willing seller (neither acting under compulsion) in an
arm's-length transaction without time constraints per share of such class or
series of capital stock as of such date, viewing the Corporation on a going
concern basis, as determined (A) in the case of a
-40-
<PAGE>
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
------------------------
4.10(a).
"Non-Tracked Business Available Dividend Amount" has the meaning
----------------------------------------------
specified in Section 4.10(b)(i).
"Optional Conversion Date" has the meaning specified in 4.6(c)(iii).
------------------------
"Parity Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, any capital stock of the
Corporation ranking on a parity with the Series A Preferred Stock or Series B
Preferred Stock, as the case may be, with respect to dividends, distribution in
liquidation or any other preference, right or power.
"Participating Stock" shall mean, collectively, the Series F Preferred
-------------------
Stock, the Senior Common Stock and the Non-Tracked Common Stock.
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, governmental agency or political subdivision thereof or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Stock" has the meaning specified in Section 4.1.
---------------
"Qualified Transfer" shall mean a sale, transfer or other disposition
------------------
of shares of Series A Preferred Stock to any prospective transferee specified in
a Qualified Transfer Notice, other than a prospective transferee as to which the
Corporation disapproves in accordance with the terms of the second sentence of
Section 4.3(j), provided such sale, transfer or other disposition is made
pursuant to a binding agreement entered into no later than 180 days after the
applicable Qualified Transfer Notice is given.
"Qualified Transferee" shall mean, with respect to any shares of
--------------------
Series A Preferred Stock, (i) any Cash Equity Investor that acquired such shares
pursuant to Section 4.2 of the Stockholders Agreement or (ii) any other holder
that acquired such shares in a Qualified Transfer from an Initial Holders or
Qualified Transferee.
-41-
<PAGE>
"Qualified Transfer Notice" has the meaning specified in Section
-------------------------
4.3(i)(x).
"Redemption Securities" shall mean any debt or equity securities of
---------------------
the Corporation, any of its subsidiaries or affiliates or any other corporation,
or any combination thereof, having such terms and conditions as shall be
approved by the Board of Directors and which, together with any cash to be paid
as part of the redemption price payable pursuant to Section 4.13, in the opinion
of any nationally recognized investment banking firm selected by the Board of
Directors (which may be a firm which provides investment banking, brokerage or
other services to the Corporation), has a value, at the time notice of
redemption is given pursuant to Section 4.13(d) at least equal to the price
required to be paid pursuant to Section 4.13(a) (assuming, in the case of
Redemption Securities to be publicly traded, that such Redemption Securities
were fully distributed and subject only to normal trading activity).
"Section 4.12 Transferee" shall mean any transferee of shares of
------------------------
Series A Preferred Stock, Series D Preferred Stock and Series F Preferred Stock
issued to the Initial Holder on the date hereof (or any shares of Senior Common
Stock or Common Stock into which any such shares are converted) that are
acquired in a private transaction.
"Section 4.13 Redemption Date" shall mean the date fixed by the Board
----------------------------
of Directors for the redemption of any shares of stock of the corporation
pursuant to Section 4.13.
"Senior Common Stock" has the meaning specified in Section 4.1.
-------------------
"Senior Stock" shall mean, with respect to shares of Series A
------------
Preferred Stock or Series B Preferred Stock, as the case may be, any capital
stock of the Corporation ranking senior to the Series A Preferred Stock or the
Series B Preferred Stock, as the case may be, with respect to dividends,
distribution in liquidation or any other preference, right or power.
"Series A Conversion Date" has the meaning specified in Section
------------------------
4.3(i)(iv).
"Series A Conversion Rate" shall mean, as of any date of
------------------------
determination, a fraction in which the numerator is the Liquidation Preference
of one share of Series A Preferred Stock as of such date, and the denominator is
the Market Price of Class A Common Stock as of such date.
"Series A Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series A Redemption Price" has the meaning specified in Section
-------------------------
4.3(e)(i).
"Series B Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series C Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series D Preferred Stock" has the meaning specified in Section 4.1.
------------------------
"Series E Preferred Stock" has the meaning specified in Section 4.1.
------------------------
-42-
<PAGE>
"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 4.10(a).
--------------------
"Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc.
------------------
ARTICLE V
Election of Directors need not be by written ballot.
ARTICLE VI
Subject to the separate class vote requirements relating to any class
or series of Preferred Stock, the holders of shares of Common Stock representing
at least two-thirds (2/3) of the votes entitled to be cast for the election of
directors of the Corporation, voting together as a single class, in person or by
proxy, at a special or annual meeting of stockholders called for the purpose, or
by written consent, may amend, alter or repeal this Restated Certificate of
Incorporation or the bylaws of the Corporation (the "Bylaws").
------
-43-
<PAGE>
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 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
-44-
<PAGE>
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
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
-45-
<PAGE>
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
ARTICLE VIII
No Director of the Corporation shall be liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
Director, provided that this 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.
-46-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 80410108
<SECURITIES> 0
<RECEIVABLES> 18874679
<ALLOWANCES> 1022267
<INVENTORY> 12125650
<CURRENT-ASSETS> 112888753
<PP&E> 377349610
<DEPRECIATION> (30001216)
<TOTAL-ASSETS> 754783178
<CURRENT-LIABILITIES> 72163145
<BONDS> 629750071
250004100
149128
<COMMON> 749704
<OTHER-SE> (204691575)
<TOTAL-LIABILITY-AND-EQUITY> 754783178
<SALES> 48200705
<TOTAL-REVENUES> 48200705
<CGS> 23086816
<TOTAL-COSTS> 163673188
<OTHER-EXPENSES> 160188
<LOSS-PROVISION> 1022267
<INTEREST-EXPENSE> 33247810
<INCOME-PRETAX> (144075348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144075348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144075348)
<EPS-BASIC> (2.30)<F1>
<EPS-DILUTED> (2.30)<F1>
<FN>
<F1>The Eps is adjusted to reflect a 100-for-1 stocksplit effected by the
Company on August 27, 1999 and a 3.09-for-1 stocksplit effected by the Company
on November 8, 19999. Prior Financial Data Schedules have not been restated to
reflect either of these stocksplits.
</FN>
</TABLE>
