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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________.
Commission File Number: 000-27901
TeleCorp PCS, Inc.
Exact name of registrant as specified in charter
DELAWARE 54-1872248
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
and the following subsidiary:
TeleCorp Communications, Inc.
DELAWARE 52-2105807
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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1010 N. Glebe Road, Suite 800
Arlington, VA 22201
(Address of principal executive office)
(703) 236-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of
the Act: None Securities registered pursuant to
Section 12(g) of the Act:
Class A Voting Common Stock, par value $0.01
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 that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Class A Common Stock held by
non-affiliates of the Registrant (without admitting that any person whose shares
are not included in such calculation is an affiliate) on March 26, 2000, was
$4,530,016,950 based on the last reported sale price on the Nasdaq National
Market.
As of March 26, 2000, the Registrant had 86,698,889 shares of Class A
Common Stock outstanding.
Documents Incorporated By Reference
The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-K: Certain information required in Part III
of this Form 10-K is incorporated from the Registrant's Proxy Statement for the
2000 Annual Meeting of Stockholders to be held on May 24, 2000.
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Forward-Looking Statements or Information
This Form 10-K, future filings of the registrant, press releases of the
registrant, and oral statements made with the approval of one of our authorized
executive officers may contain forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1955. In connection therewith,
please see the cautionary statements contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Forward Looking
Statements: Cautionary Statements" 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.
PART I
Item 1. Business.
Overview
We are the largest AT&T Wireless affiliate in the United States in terms of
licensed population, with licenses covering approximately 16.7 million people.
We provide wireless personal communication services, or PCS, in selected markets
in the south-central and northeast United States and in Puerto Rico,
encompassing eight of the 100 largest metropolitan areas in the United States.
Commencing with the launch of operations in the New Orleans market in February
1999, we have successfully launched our services in 26 markets. At December 31,
1999, we had more than 142,000 customers and our networks covered approximately
66% of the population where we held licenses.
We entered into a venture with AT&T in July 1998 under which AT&T
contributed PCS licenses to us in exchange for ownership in our company. We are
AT&T's exclusive provider of wireless mobility services, using equal emphasis
co-branding with AT&T, in our covered markets, subject to AT&T's right to resell
services on our network. We have the right to use the AT&T brand name and logo
together with our SunCom brand name and logo, giving equal emphasis to each in
our covered markets. We are AT&T's preferred roaming partner for digital
customers in our markets. Additionally, our relationship with AT&T allows us to
provide coast-to-coast coverage to our customers.
Our PCS licenses include both major population centers as well as popular
vacation destinations, such as:
o San Juan, Puerto Rico and the U.S. Virgin Islands;
o New Orleans and Baton Rouge, Louisiana;
o Memphis, Tennessee;
o Little Rock, Arkansas;
o Manchester, Concord and Nashua, New Hampshire; and
o Worcester, Cape Cod, Martha's Vineyard and Nantucket, Massachusetts.
We market our services through our own stores, retail outlets, through our
direct corporate and telemarketing sales forces and on the Internet through our
website. We have a strong distribution presence in our markets through our
company-owned stores and retail outlets where consumers can purchase our
services, including Best Buy, Circuit City, Office Depot, Office Max, Staples
and Radio Shack. Our affiliation with AT&T enables us to leverage their
marketing and sales efforts in our markets.
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Recent Developments
On February 28, 2000, we agreed to merge with Tritel, Inc. through a merger
of each of us and Tritel into a newly formed subsidiary of a new holding
company. The new holding company, to be called TeleCorp PCS, Inc., will be
controlled by our voting preference common stockholders, and we and Tritel will
become subsidiaries of the holding company. In connection with the merger, AT&T
Wireless agreed to contribute certain wireless rights and commitments in the
Midwestern United States, cash of approximately $20 million and a two year
extension of its brand license in exchange for approximately $410 million worth
of common shares in the newly formed company. Additionally, in a separate
transaction, we agreed to exchange our licenses in several New England markets
for certain wireless properties or rights to acquire additional wireless
properties of AT&T Wireless in the Milwaukee, Wisconsin and Des Moines, Iowa
markets, a cash payment of approximately $80 million and the right to extend the
term and geographic coverage of AT&T Wireless' license and roaming agreements
with us to include the new markets, either through amending our existing
agreements or entering into new agreements with the holding company on
substantially the same terms as our existing agreements. AT&T has also agreed to
extend its affiliation agreements to include licenses covering an additional 1.4
million people in the Midwest if we acquire them.
The proposed merger has been unanimously approved by our and Tritel's board
of directors, with three of our directors abstaining. In addition, shareholders
with greater than 50% of the voting power of each company have agreed to vote in
favor of the merger. The merger is subject to regulatory approval and other
conditions and is expected to close in the last quarter of 2000.
The Wireless Communications Industry
Wireless communications systems use a variety of radio airwaves to transmit
voice and data signals. In the wireless communications industry, applications
that transmit these signals include one-way radio applications, such as paging
or beeper services, and two-way radio applications, such as PCS, cellular
telephone and other technologies. Each application is licensed and operates in a
distinct radio airwave block. The two principal services licensed by the Federal
Communications Commission, or FCC, for transmitting voice and data signals are
PCS and cellular. PCS is a term commonly used to refer to service carried over
the 1850 Megahertz (or MHz) to 1990 MHz portion of the radio airwaves. Megahertz
is a method of measuring radio airwaves. Cellular is a term commonly used to
refer to service carried over the 824 MHz to 893 MHz portion of the radio
airwaves. Cellular service systems were originally analog-based systems,
although digital technology has been introduced in some markets. PCS systems use
digital technology. Analog technology has several limitations, including lack of
privacy and limited transmission capacity. Digital systems convert voice or data
signals into a stream of digits that is compressed before transmission, enabling
a single radio channel to carry multiple simultaneous signal transmissions. This
enhanced capacity, along with improvements in digital signaling, allows
digital-based wireless technologies to offer new and enhanced services, such as
greater call privacy and robust data transmission features, including mobile
office applications like facsimile, e-mail and wireless connections to
computer/data networks, including the Internet.
Operation of Wireless Communications Systems
Wireless communications system service areas, whether PCS, cellular or
other technologies, are divided into multiple units, each containing a
transmitter, a receiver and signaling equipment to transmit wireless signals to
individual phones. This equipment is connected by telephone lines or microwave
signals to call connection equipment that uses computers to control the
operation of the communications system for the entire service area. The call
connection equipment controls the connection of calls and the connection of the
wireless network to local telephone systems and long distance carriers. As a
customer's handset travels, the system
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controls the transfer of calls from one equipment site to another, coordinates
calls to and from handsets, allocates calls among the network equipment sites
within the system and connects calls to the local telephone system or to a long
distance telephone carrier. Wireless communications providers must establish
agreements with local and long distance carriers that allow them to pass calls,
or interconnect, thereby integrating their system with the existing
communications system.
Because the signal strength of a transmission between a handset and a
network equipment site declines as the handset moves away from the originating
network equipment site, the wireless network monitors the signal strength of
calls in progress. When the signal strength of a call declines, the call
connection equipment may transfer the call to another network equipment site
where the signal is stronger. If a handset leaves the service area of a PCS or
cellular system, the call is disconnected unless there is a technical connection
with the adjacent system. If there is a technical connection with the adjacent
system, the customer may roam onto the adjacent system.
Although PCS and cellular systems use similar technologies and hardware,
they operate on different portions of the airwaves and use different technical
and network standards. The use of advanced handsets makes it possible for
customers using one type of system to roam on a different type of system outside
of their service area, and to transfer calls from one type of system to another
if the appropriate agreements are in place and the networks are properly
configured to transfer calls from one system to the next.
Currently, PCS systems operate under one of three principal digital signal
transmission technology standards that various operators and vendors have
proposed for use in PCS systems: time division multiple access (or TDMA), code
division multiple access (or CDMA) or global system for mobile communications
(or GSM). TDMA and GSM are both time division-based technologies, but are
incompatible with each other and with CDMA. Accordingly, a customer of a system
that uses TDMA technology is unable to use a TDMA handset when travelling in an
area not served by TDMA-based PCS operators, unless the customer carries a
special handset that permits the customer to use the analog or digital system on
the cellular portion of the airwaves in that area and the appropriate agreements
are in place.
If a PCS system operated by the service provider or covered by a roaming
agreement is operating in the area, the call will be placed via this system. If
there is no PCS system providing coverage, the call will be placed through a
digital system on the cellular portion of the airwaves operating in the area and
providing coverage to the user, and if no digital system on the cellular portion
of the airwaves is providing coverage, the call will be connected over an analog
system that uses the cellular portion of the airwaves providing coverage.
Advanced handsets allow for a call in progress to be handed off to an adjacent
system, without interruption, if appropriate agreements are in place, whereas
earlier generations of handsets would cut off the call when the handset left the
coverage of one system, requiring the customer to redial the call using the
adjacent system.
Our Revenue Sources
We derive our revenue from:
o Services. The various types of revenue associated with PCS for our
customers include monthly recurring access 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 customers and
non-recurring activation and de-activation service charges.
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o Roaming Charges. We charge monthly, non-recurring, per minute fees to
other wireless companies whose customers use our network facilities to
place and receive wireless calls.
o Equipment Sales. We sell wireless personal communications handsets and
accessories that are used by our customers in connection with our
wireless services.
Strategic Alliance with AT&T
We have a strategic alliance with AT&T Wireless which provides us with many
business, operational and marketing advantages. We are AT&T's exclusive provider
of wireless mobility services using equal emphasis co-branding with AT&T in our
covered markets, subject to AT&T's right to resell services on our network.
We have the right to use the AT&T brand name and logo together with the
SunCom brand name and logo in our markets, giving equal emphasis to each. We are
also AT&T's preferred roaming partner for digital customers in our markets and
outside our markets, our customers can place and receive calls in AT&T Wireless'
markets and the markets of AT&T Wireless' other roaming partners. We receive
preferred terms on selected products and services, including handsets,
infrastructure equipment and back office support from companies who provide
these products and services to AT&T. In addition, we benefit from AT&T's
nationwide marketing and advertising campaigns, including the success of the
AT&T Digital One RateSM plans, in the marketing of our own national SunRate
plans and we are working with AT&T's national sales representatives to jointly
market our wireless services to AT&T corporate customers located in our markets.
Service
Our primary service is wireless calling, which features advanced handsets,
enhanced voice clarity, improved protection from eavesdropping and a broad
feature set. Our basic wireless service offering includes caller identification,
three-way conference calling, call waiting, voicemail, paging and
short-messaging. As part of our basic service offering, we sell easy-to-use,
interactive menu-driven handsets that can be activated over the air.
Sales and Distribution
Our sales and distribution strategy is to use a balanced mix of
distribution channels to maximize penetration within our licensed service area
while minimizing customer acquisition costs. Our channels include a network of
company stores, nationally recognized retailers, a direct sales force for
corporate and business customers, regional and local mass merchandisers,
telesales, direct mail and online sales. We also work with AT&T's sales channels
to cooperatively exchange leads and develop new business.
Company Stores. Our stores range in size from small kiosks to 3,600 square
foot stores in the principal retail district in each market.
Retail Outlets. We have negotiated distribution agreements with national
and regional mass merchandisers and consumer electronics retailers, including
Circuit City, Cellular Warehouse, Metrocall, Office Depot, Staples, Best Buy and
Office Max in the U.S. and Farmacia El Amal, Let's Talk Wireless, Beeper
Connections and Radio Shack in Puerto Rico. We select distributors based upon
their ability to reach our target customers in our service area. In some of
these retail store locations, we are implementing a store-within-a-
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store concept, which uses visual merchandising to leverage the brand awareness
created by both SunCom and AT&T advertising.
Direct Sales and Marketing. Our direct corporate sales force focuses on
high-revenue, high-margin corporate users. We also benefit from AT&T's national
corporate accounts sales force. AT&T, in conjunction with us, supports marketing
of our services to AT&T's large national accounts located in our service areas.
We also employ telesales representatives in our Memphis call center and contract
for Spanish speaking telesales representatives in Convergys' Fort Lauderdale,
Florida operations. We use direct marketing to generate leads and stimulate
prospects, allowing us to maintain low selling costs and to offer our customers
additional features or customized services.
Online Sales. Our web page provides current information about us, our
markets and our products and services. All information that is required to make
a purchasing decision is available through our website and online store.
Customers are able to choose any of our rate plans, features, handsets and
accessories. The online store provides a secure environment for transactions,
and customers purchasing through the online store experience a similar business
process to that of customers purchasing service through other channels.
Customer Care
We are committed to building strong customer relationships by providing
customers with prompt and helpful service. We serve our customers from our
state-of-the-art facility in Memphis, Tennessee. Convergys, a leading provider
of outsourced call center services, provides back up call center support and
bilingual customer service for our Spanish speaking customers from two
facilities in Florida. The multiple center structure allows us to distribute
customer service calls between the centers to promote cost effective 24
hour/seven days a week customer service. We have strict quality standards in our
customer care operation, including a commitment to answering at least 80% of
calls within twenty seconds. All of our centers have sophisticated
infrastructure and information systems, including automated call distributors
and advanced diagnostic tools for one-call trouble resolution. We emphasize
proactive and responsive customer service, including welcome packages along with
first bill, three months and one year anniversary calls. We are expanding our
web-based services to include online account information to allow customers to
check billing, modify service or otherwise manage their accounts.
Network Development
We launched commercial operations in February 1999 and have commenced our
services in each of our major markets. We launched in markets which have
attractive characteristics for a high volume of wireless communications usage,
including metropolitan areas, the surrounding suburbs, commuting and travel
corridors, and popular leisure and vacation destinations. Immediately upon
launch, customers had access to coast-to-coast coverage through roaming
arrangements with AT&T and its roaming partners, both inside and outside our
licensed areas. Within each market, geographic coverage will be based upon
changes in wireless communications usage patterns, demographic changes within
our licensed areas and our experiences in those markets. As of December 31,
1999, we provided coverage to approximately 66% of the population of our
licensed area. We define coverage to include an entire basic trading area if we
have a significantly developed system in that basic trading area.
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Construction of our network is scheduled for multiple phases. In 1999, we
completed the first phase of our network build out. We expect to complete the
second phase by the end of 2000. We successfully launched commercial service in
the following 26 markets in 1999:
Fayetteville, AR Nantucket, MA
Hot Springs, AR Worcester, MA
Jonesboro, AR Concord, NH
Little Rock, AR Manchester, NH
Baton Rouge, LA Nashua, NH
Hammond, LA Portsmouth, NH
Houma, LA Arecibo, PR
Lafayette, LA Humacao, PR
New Iberia, LA Mayaguez, PR
New Orleans, LA Ponce, PR
Thibodaux, LA San Juan, PR
Cape Cod, MA Jackson, TN
Martha's Vineyard, MA Memphis, TN
The third and fourth phases of our network buildout plan will focus on
expanding our coverage to over 40 markets including a population of 3.3 million,
and entail launching service in Beaumont, Texas; Alexandria, Louisiana;
Evansville, Indiana; Paducah, Kentucky; Columbia and Jefferson City, Missouri;
Pine Bluff and Fort Smith, Arkansas and the Virgin Islands. Upon completion of
the fourth phase, which we expect by the end of 2001, we expect our network to
be available to a population of 15.9 million.
At December 31, 1999, our network covered a population of 11.0 million and
our customer base had grown to more than 142,000 customers.
Network Construction
We develop the network design, including frequency planning for our network
equipment sites. We designed our network to allow us to use existing sites,
which minimizes the construction of new towers and significantly reduces our
need to obtain zoning approvals. We use two experienced vendors to perform
property acquisition, construction and installation of our sites.
Network Operations
We maintain a network operations center to ensure continuous monitoring and
maintenance of our network. The effective operation of our network requires:
o connection agreements and agreements to transmit signals from network
equipment sites to call connection equipment with other communications
providers;
o long distance connection;
o the implementation of roaming arrangements;
o the development of network monitoring systems; and
o the implementation of information technology systems.
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Connection Agreements
Our network is connected to the public telephone network to facilitate the
origination and termination of traffic between our network and both the local
and long distance carriers. We have signed agreements with multiple carriers,
including BellSouth, SBC Communications, Bell Atlantic and Puerto Rico
Telephone. In most cases these agreements are standard agreements entered into
with all qualifying carriers on generally the same terms, with each party
agreeing to pay the other for the carrying or completion of calls on the other's
network.
Long Distance Connection
We have executed a wholesale long distance agreement with AT&T providing
for preferred rates for long distance services.
Roaming Arrangements
Through our arrangements with AT&T and via the use of advanced handsets,
our customers have roaming capabilities on AT&T's wireless network and AT&T's
customers have roaming capability on our wireless network. Further, we have the
benefit of AT&T's roaming agreements with third party carriers at AT&T's
preferred pricing. These agreements, together with AT&T's wireless network,
cover approximately 98% of the U.S. population, including in-market roaming
agreements covering all of our launched service areas.
Network Monitoring Systems
Our network operations center provides around-the-clock monitoring and
maintenance of our entire network. The network operations center is equipped to
constantly monitor the status of all network equipment sites and call connection
equipment and to record network traffic. The network operations center provides
continuous monitoring of system quality for blocked or dropped calls, call
clarity and evidence of tampering, cloning or fraud. We designed our network
operations center to oversee the interface between customer usage, data
collected by call connection equipment and our billing systems. Our network
operations center is located in the Memphis site containing call connection
equipment, and we also have back-up network operations center capabilities in
our Arlington, Virginia data center.
Information Technology Systems
We operate management information systems to handle customer care, billing,
network management and financial and administrative services. The systems focus
on three primary areas:
o network management, including service activation, pre-pay systems,
traffic and usage monitoring, trouble management and operational
support systems;
o customer care, including billing systems and customer service and
support systems; and
o business systems, including financial, purchasing, human resources and
other administrative systems.
We have incorporated sophisticated network management and operations
support systems to facilitate network fault detection, correction and
management, performance and usage monitoring and security. System capabilities
have been developed to allow over-the-air activation of handsets and implement
fraud protection measures. We maintain stringent controls for both voluntary and
involuntary deactivations. We attempt to
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minimize customer disconnects initiated by us by performing credit review and
preactivation screening to identify prior fraudulent or bad debt activity. We
use this information to identify where activation and termination policy
adjustments are needed.
TDMA Technology
We have chosen digital TDMA technology for our network. TDMA technology
allows for:
o the use of advanced handsets which allow for roaming across the PCS
and cellular portion of the airwaves, including both analog and
digital technologies;
o enhanced services and features, such as short-messaging, extended
battery life, added call security and improved voice quality; and
o network equipment sites that are small and that improve network
coverage with low incremental investment.
TDMA technology is the digital technology choice of two of the largest
wireless communications companies in the United States, AT&T and SBC
Communications. This technology served an estimated 35 million customers
worldwide and 19 million customers in North America as of December 31, 1999,
according to the Universal Wireless Communications Consortium, an association of
TDMA providers and manufacturers. We believe that the increased volume of TDMA
customers has increased the probability that this technology will remain an
industry standard.
Competition
We believe that customers choose a wireless communications service provider
principally based upon network coverage, pricing, quality of service and
customer care. We compete directly with at least two cellular providers and
other PCS providers in each of our markets and against enhanced special mobile
radio operations in some of our markets. We compete with at least one analog,
one CDMA and one GSM operator in each of our markets other than Puerto Rico and
New Orleans. Most of the existing cellular providers in our markets have an
infrastructure in place and have been operational for a number of years. These
cellular operators may upgrade their networks to provide services comparable to
those offered by us. We also compete with other PCS license holders in each of
our markets.
In addition, we compete with resellers of wireless communications services
in each of our markets. Resellers purchase large volumes of services on a
wireless operator's network, usually at a discount, and resell the services to
end users under the reseller's own brand name. While the network operator
receives some revenue from the sale of services to the reseller, the operator is
competing with its own customer for sales to the end users. The principal
resellers in our markets include MCI in New England and Motorola in Puerto Rico.
We have agreed to resell services to AT&T in each of our markets should AT&T
desire to do so. We have not yet entered into any such arrangements with AT&T or
any other party.
As a recent entrant into the market for wireless communications services,
we do not believe that we have obtained a significant share of the market in any
of our areas of operation. As a recent entrant, we face significant competition
from operators who have already established strong market positions and have
signed up many customers. Most of the existing cellular operators have developed
systems that have larger local and regional coverage than we currently have. We
seek to compete by offering a competitive product with attractive pricing plans
and through our extensive access to roaming, including in-region roaming, which
gives us an effective coverage area competitive with that of our principal
competitors. We have developed our
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pricing plans to be competitive and to emphasize the advantages of our
offerings. We have and may continue to discount our pricing in order to obtain
customers or in response to downward pricing in the market for wireless
communications services.
We anticipate that market prices for wireless communications services
generally will decline in the future based upon increased competition. Our
ability to compete successfully will depend, in part, on our ability to
anticipate and respond to various competitive factors affecting the industry,
including new services that may be introduced, changes in consumer preferences,
demographic trends, economic conditions and competitors' discount pricing
strategies, all of which could adversely affect our operating margins. We plan
to use our digital feature offerings, national network through our AT&T
affiliations, contiguous footprint providing an extended home calling area, and
local presence in secondary markets, to combat potential competition. We believe
that our extensive digital network, once deployed, will provide a cost effective
means to react appropriately to any price competition.
Government Regulation
We are subject to substantial regulation by the FCC, state public utility
commissions and, in some cases, local authorities. Our principal operations are
classified as commercial mobile radio service by the FCC, subject to regulation
under Title II of the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, as a common carrier and subject to regulation
under Title III of the Communications Act as a radio licensee. The states are
preempted from regulating our entry into and rates for commercial mobile radio
service offerings, but remain free to regulate other terms and conditions of our
commercial mobile radio services and to regulate other intrastate offerings by
us. Congress and the states regularly enact legislation, and the FCC, state
commissions and local authorities regularly conduct rulemaking and adjudicatory
proceedings that could have a material adverse effect on us. In addition,
government regulation may adversely affect our ability to engage in, or rapidly
complete, transactions and may require us to expend additional resources in due
diligence and filings related to FCC and other requirements, as compared to
unregulated entities.
FCC Common Carrier Regulation Under Title II
Under Title II of the Communications Act, among other things, we are:
o required to offer service upon reasonable request;
o prohibited from imposing unjust or unreasonable rates, terms or
conditions of service;
o proscribed from unjustly or unreasonably discriminating among
customers;
o required to reserve communications capacity for law enforcement
surveillance operations and to make technical network changes to
facilitate this surveillance;
o required to make our services and products accessible to, and usable
by, Americans with disabilities, if readily achievable; and
o required to comply with limitations on our use of customer proprietary
network information.
Under the Telecommunications Act, we are entitled to benefits when
negotiating interconnection arrangements with other communications carriers,
such as resale rights, our customers being able to keep their
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old numbers when switching to us, and compensation equal to that of other
carriers, but we are subject to many of those same requirements when other
carriers seek to interconnect with our network. The FCC is still in the process
of implementing some of these benefits. While the rates of common carriers are
subject to the FCC's jurisdiction, the FCC forbears from requiring commercial
mobile radio service carriers to file tariffs for their services. Common
carriers, including commercial mobile radio service providers, are also
prohibited under the Communications Act from unreasonably restricting the resale
of their services and are required to offer unrestricted resale.
FCC Radio License Regulation Under Title III
Among other things, Title III of the Communications Act:
o does not permit licenses to be granted or held by entities that have
been subject to the denial of federal benefits;
o requires us to seek prior approval from the FCC to transfer control of
us or to assign our radio authorizations, including subdividing our
radio airwaves or partitioning geographic license areas, except in
very limited circumstances; and
o limits foreign ownership in radio licensees, including PCS providers.
FCC Commercial Mobile Radio Service Regulation
The FCC rules and policies impose substantial regulations on commercial
mobile radio service providers. Among other regulations, commercial mobile radio
service providers such as us:
o incur costs as a result of required contributions to federal programs;
o are prohibited from acquiring or holding an attributable interest in
PCS, cellular or specialized mobile radio licenses with more than
45MHz of airwaves in the same metropolitan area, and more than 55 MHz
in rural markets;
o are required to provide manual roaming service to enable a customer of
other providers to obtain service while roaming in our service area;
o are required to route emergency calls to public safety centers and
provide the public safety centers under certain circumstances with
information regarding the originating number and the general location
of the caller; and
o will eventually be required to allow customers to retain their
telephone numbers when changing service providers, in some
circumstances.
FCC Personal Communications Services Regulation
We are subject to service-specific regulations under the FCC's rules. Among
other things, these regulations provide that PCS licensees, such as us, are
granted licenses for a 10-year term, subject to renewal. Under these policies,
we will be granted a renewal expectancy that would preclude the FCC from
considering competing applications if we have:
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o provided "substantial" performance, that is "sound, favorable and
substantially above a level of mediocre service just minimally
justifying renewal;" and
o substantially complied with FCC rules and policies and the
Communications Act.
These regulations also govern the transmission characteristics of PCS
handsets and network equipment sites and other technical requirements. PCS
licensees are required to comply with limits intended to ensure that these
operations do not interfere with radio services in other markets or in other
portions of the airwaves and to ensure emissions from mobile transmitters do not
cause adverse health effects. We are also subject to minimum construction
requirements that will require us to deploy facilities with service coverage of
a particular amount of the population of our licensed area within specified time
periods.
Relocation of Fixed Microwave Licensees
Because PCS carriers use airwaves occupied by existing microwave licensees,
the FCC has adopted special regulations governing the relocation of incumbent
microwave systems and cost-sharing among licensees that pay to relocate
microwave incumbents. Relocation usually requires a PCS operator to compensate
an incumbent for the costs of system modifications and new equipment required to
move the incumbent to new portions of the airwaves, including possible premium
costs for early relocation to alternate portions of the airwaves. The transition
plan allows most microwave users to operate in the PCS portion of the airwaves
for a one-year voluntary negotiation period and an additional one-year mandatory
negotiation period following the issuance of the PCS license. These periods are
longer for public safety entities. We have entered into all necessary agreements
for microwave relocation. Under certain circumstances, relocated licensees may
exercise their rights to move back to their original sites in the event the new
sites are inadequate.
Local Multipoint Distribution Service Regulation
TeleCorp LMDS holds certain Local Multipoint Distribution Service ("LMDS")
licenses that are subject to service specific FCC regulations. Like the PCS
service specific regulations, these regulations provide that LMDS licensees,
such as us, are granted licenses for a 10-year term, subject to renewal. Under
these policies, we will be granted a renewal expectancy that would preclude the
FCC from considering competing applications if we have:
o provided "substantial" performance, that is "sound, favorable and
substantially above a level of mediocre service just minimally
justifying renewal;" and
o substantially complied with FCC rules and policies and the
Communications Act.
These regulations also govern the transmission characteristics of LMDS
systems and other technical requirements. LMDS licensees are required to comply
with limits intended to ensure that these operations do not interfere with radio
services in other markets or in other portions of the airwaves and to ensure
emissions from transmitters do not cause adverse health effects. In addition,
depending upon how the Company uses such licenses, the Company may become
subject to additional federal or state regulations.
FCC and Federal Aviation Administration Facilities Regulation
Because we acquire and operate antenna sites for use in our network, we are
subject to FCC and Federal Aviation Administration regulations governing
registration of towers, the marking and lighting of structures and regulations
governing compliance with the National Environmental Policy Act of 1969, which
requires carriers to assess the impact of their operations on the environment,
including the health effects of radio airwave radiation on humans.
12
<PAGE>
FCC Designated Entity Regulation
Each of TeleCorp Holding, TeleCorp LMDS, and Viper Wireless obtained their
FCC licenses under the FCC's designated entity policies. Under such policies,
for a period of five years from initial license grant, some of our licenses can
only be held by a company that meets the FCC's criteria for "entrepreneurial"
status. In addition, some of our licenses were awarded subject to bidding
credits because the original bidder met the criteria for "small business" or
"very small business" status. With respect to our designated entity licenses,
we:
o believe we met the relevant eligibility and benefits criteria at the
time we received such licenses;
o believe we continue to hold such licenses in compliance with the FCC's
eligibility and benefits criteria;
o intend to diligently pursue and maintain our eligibility and benefits
criteria in compliance with applicable FCC rules.
We rely on representations of our investors to determine our compliance
with the FCC's rules applicable to PCS licenses.
Entrepreneurial Eligibility. Under the FCC's designated entity rules for
PCS, the C and F Blocks of PCS spectrum were set aside by the FCC for
entrepreneurs. Only entrepreneurs were eligible to bid for these licenses and,
for a period of five years from the original grant, only entrepreneurs may hold
these licenses. TeleCorp Holding and Viper both hold PCS licenses as
entrepreneurs, having won some licenses at auction and having acquired some
licenses from other entrepreneurs. To qualify as an entrepreneur, our designated
entity subsidiaries, their attributable investors, the affiliates of our
designated entity subsidiaries, and the affiliates of the attributable investors
in our designated entity subsidiaries must have less than $500 million in net
assets and average aggregate gross revenues of less than $125 million for the
two years prior to filing its license application. To the extent an entrepreneur
grows beyond these limits as a result of normal business growth, it will retain
its eligibility to holds its licenses and even may continue to acquire
additional entrepreneurial licenses from other entrepreneurs.
Small Business and Very Small Business Status. Under the FCC's designated
entity policies, TeleCorp Holding, TeleCorp LMDS, and Viper received their
licenses subject to bidding credits, and in some cases, government financing,
awarded because of their status as very small businesses. In order to qualify
for bidding credits or government financing, or to aquire licenses originally
awarded with bidding credits or government financing without being subject
to penalty payments, the FCC considers the aggregate average gross revenues of
the applicant, its attributable investors, the applicant's affiliates, and the
affiliates of the applicant's attributable investors for the prior three years.
If these average annual revenues are less than $40 million, the entity will be
considered a small business. If these average annual revenues are less than $15
million, the entity will be considered a very small business. To the extent a
small business or very small business grows beyond these limits as a result of
normal business growth, it will not lose its bidding credits or government
financing, but its status is not grandfathered for other licenses its
subsequently acquires. Each of TeleCorp Holding, TeleCorp LMDS, and Viper
qualified as a very small business in the relevant auction. TeleCorp Holding has
also acquired licenses in the aftermarket as a very small business. After 1999,
however, our designated entity subsidiaries will only qualify as small
businesses for future acquisitions.
Control Group Requirements. For our designated entity subsidiaries to
avoid attribution of the revenues and assets of some of their investors, our
subsidiaries are required to maintain a conforming control group and to limit
the amount of equity held by other investors on a fully-diluted basis. These
requirements mandate that the control group, among other things, has and
maintains both actual and legal control of the licensee. Under these control
group requirements:
o an established group of investors meeting the financial qualifications
must own at least three-fifths of the control group's equity, or 15%
of the licensee's overall equity, on a fully-diluted basis and at
least 50.1% of the voting power, in the licensee entity; and
o additional members of the control group may hold up to two-fifths of
the control group's equity, or up to 10% of the equity interest, on a
fully-diluted basis, in the licensee entity.
Additional members may be non-controlling institutional investors,
including most venture capital firms. A licensee must have met the requirements
at the time it filed its application to acquire these licenses and must continue
to meet the requirements for five years following the date that a license is
granted, although normal business growth is permitted. Beginning the fourth year
of the license term, the FCC rules:
o eliminate the requirement that additional members hold the 10% equity
interest; and
o allow the qualifying investors to reduce the minimum required equity
interest from 15% to 10%.
FCC Transfer Restrictions. During the first five years of their license
terms, designated entity PCS licensees may only transfer or assign their
license, in whole or in part, to other qualified entrepreneurs. The acquiring
entities would take over the license, or any portion of the license, subject to
13
<PAGE>
separately established installment payment obligations. After five years,
licenses are transferable to entrepreneurs and non-entrepreneurs alike, subject
to unjust enrichment penalties. If transfer occurs during years six through ten
of the initial license term to a company that does not qualify for the same
level of auction preferences as the transferor, the sale would be subject to
immediate payment of the outstanding balance of the government installment
payment debt and payment of any unjust enrichment assessments as a condition of
transfer. The FCC has also initiated transfer disclosure regulations that
require licensees who transfer control of or assign a PCS license within the
first three years to file associated contracts for sale, option agreements,
management agreements or other documents disclosing the total consideration that
the applicant would receive in return for the transfer or assignment of its
license.
State and Local Regulation
The FCC permits the states to:
o regulate terms and conditions of our commercial mobile radio services
other than rates and entry and may regulate all aspects of our
intrastate toll services;
o regulate the intrastate portion of services offered by local telephone
carriers, and therefore the rates we must pay to acquire critical
facilities from other common carriers;
o administer numbering resources, subject to federal oversight; and
o have other responsibilities that impact the nature and profitability
of our operations, including the ability to specify cost-recovery
mechanisms for network modifications to support emergency public
safety services.
States and localities also regulate construction of new antenna site facilities
and are responsible for zoning and developmental regulations that can materially
impact our timely acquisition of sites critical to our radio network.
Emission and Hands-Free Regulation
Media reports have suggested that some radio airwave emissions from
wireless handsets may be linked to health concerns, including the incidence of
cancer. Data gathered in studies performed by manufacturers of wireless
communications equipment dispute these media reports. The FCC has adopted rules
specifying the methods to be used in evaluating radio airwave emissions from
radio equipment, including wireless handsets. The hand-held digital telephones
that we offer to our customers comply with the standards adopted under the new
rules, although these handsets may not comply with any rules adopted by the FCC
in the future. Recent studies have shown that hand-held digital telephones
interfere with medical devices, including hearing aids and pacemakers and
additional studies are underway.
Various state legislatures have proposed or considered measures that would
require hands free use of cellular phones while operating motor vehicles, ban
cellular phone use or limit the length of calls while driving and require
drivers to pull to the side of the road to use cellular phones. In addition,
some gas stations have banned the use of mobile phones on their premises.
Intellectual Property
The AT&T and globe design logo is a service mark registered with the U.S.
Patent and Trademark Office. AT&T owns the service mark. We use the AT&T and
globe design logo, on a royalty free basis, with
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<PAGE>
equal emphasis on our SunCom brand and logo, solely within our licensed area in
connection with marketing, offering and providing licensed services to end-users
and resellers of our services. Our license agreement with AT&T grants us the
right and license to use licensed marks on permitted mobile phones. This license
agreement contains numerous restrictions with respect to the use and
modification of licensed marks.
We, Triton PCS and Tritel Communications have adopted a common brand,
SunCom, that is co-branded with equal emphasis with the AT&T brand and logo.
Each of the SunCom companies owns one-third of Affiliate License Co., which owns
the SunCom name and has no other operations. We and the other SunCom companies
license the SunCom name from Affiliate License Co. We use the brand to market,
offer and provide services to end-users and resellers of our PCS.
Employees
As of December 31, 1999, we employed approximately 914 people. None of our
employees currently are represented by a union and we believe that our relations
with our employees are good.
Segment Reporting
The Company presently operates in a single business segment as a provider
of wireless mobility services in its licensed regions primarily in the
south-central and northeastern United States and in Puerto Rico. The Company
operates in various MTAs including New Orleans, LA, Memphis, TN, Little Rock,
AR, Boston, MA and San Juan, Puerto Rico.
Acquisition History
On April 20, 1999, we acquired PCS licenses covering the Baton Rouge,
Houma, Hammond and Lafayette, Louisiana basic trading areas from Digital PCS. As
consideration for the licenses, we issued $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. 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.
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 Wireless. On May 24,
1999, we sold to AT&T $40.0 million of our series A, D and F preferred stock. On
May 25, 1999, we purchased the license and related assets from AT&T for $96.5
million in cash. In addition, we reimbursed AT&T $3.2 million for microwave
relocation and $0.3 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 acquired PCS licenses covering the Alexandria, Lake
Charles and Monroe, Louisiana basic trading areas from Wireless 2000. As
consideration for the licenses, we issued approximately $0.4 million of our
common and preferred stock, paid $0.2 million for Wireless 2000's 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. These licenses cover a population of approximately 0.8 million. We
cannot, without AT&T's consent, develop the markets covered by the Monroe
license.
Our agreements with AT&T Wireless 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.
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<PAGE>
On October 14, 1999, we agreed to purchase 15 MHz of additional airwaves in
the Lake Charles, Louisiana basic trading area from Gulf Telecomm, LLC. As
consideration for the additional airwaves we will pay Gulf Telecomm $362,844 in
cash, assume approximately $2.3 million in FCC debt related to the license and
reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to
the license from June, 1998 until the date the transaction is completed. We have
received FCC approval and expect to consummate the acquisition no later than the
second quarter of 2000.
On October 18, 1999, we entered into a plan of reorganization and
agreement of merger with Messrs. Vento and Sullivan and TeleCorp Holding Corp.
to acquire the 15% of Viper Wireless, Inc. that we do not yet own from Messrs.
Vento and Sullivan in exchange for an aggregate of 323,372 shares of our class A
common stock and 800 shares of our series E preferred stock. TeleCorp Holding
Corp. acquired 85% of Viper Wireless on March 1, 1999 in exchange for
$32,286,000 contributed by AT&T and some of our other initial investors for
additional shares of our preferred and common stock. Viper Wireless' used the
proceeds to participate in the FCC's reauction of PCS licenses. Viper Wireless
was subsequently granted six PCS licenses in the reauction. We have received FCC
approval for the acquisition of the final 15% of Viper Wireless and expect to
consummate the acquisition no later than the second quarter of 2000.
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. The completion of this transaction is
contingent upon FCC approval, which is expected in the second quarter of 2000.
Item 2. Properties.
We lease space for our call connection equipment in New Orleans, Boston and
Puerto Rico and for our network operations center, our call connection
equipment, our customer care and our data center in Memphis. Further, we have
operating leases primarily related to our headquarters, regional offices, retail
store locations, distribution outlets, office space and network equipment sites.
Item 3. Legal Proceedings.
We were not a party to any lawsuit or proceeding which is likely, in the
opinion of management, to have a material adverse effect on our financial
position, results of operations and cash flows. We are a party to routine
filings and customary regulatory proceedings with the FCC relating to our
operations.
Item 4. Submission of Matters to Vote of Security Holders.
On November 5, 1999, the holders of 90.3% of the class A common stock and
all of the holders of the voting preference common stock, by written consent in
lieu of a special meeting:
o approved an amendment to our certificate of incorporation to effect a
3.09-for-1 stock split of and increase the authorized amount of all
classes of our common stock and our series F preferred stock;
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<PAGE>
o approved the adoption of our Fifth Amended and Restated Certificate of
Incorporation effective upon the closing of our initial public
offering on November 30, 1999 that (a) increased the authorized number
of shares of our class A common stock by 300 million, (b) added 1
million new undesignated shares of authorized preferred stock subject
to blank check preferred stock provisions, (c) reduced the number of
directors that holders of series A preferred stock can nominate to
one, (d) added a provision that permits the Board of Directors to
amend the By-laws, (e) added a provision for a classified Board of
Directors, (f) added provisions regarding number, selection and
removal of directors, (g) added provisions regarding director
appointments and vacancies and (h) integrated all prior amendments
into a single document;
o approved the adoption of our Second Amended and Restated By-Laws
effective upon the closing of our initial public offering on November
30, 1999 to (a) amend notice of meeting provisions to increase
percentage of outstanding shares needed to call special meeting, (b)
amend quorum and voting provisions, (c) amend provisions regarding
number, term, selection and removal of directors, (d) add provisions
regarding notice of a stockholder proposals, including directors
nominees, and (e) add provisions that permits the Board of Directors
to amend By-laws; and
o approved an amendment to our Stockholders' Agreement to, among other
things, change the provisions with respect to the election of
directors and delete provisions rendered inapplicable as a result of
our IPO.
The holders of 9.7 % of the class A common stock took no action with
respect to such consent.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
Our Class A Common Stock began trading on the Nasdaq National Market on
November 23, 1999 under the symbol "TLCP." The following table sets forth, for
the period indicated, the high and low last reported sales price for our Class A
Common Stock, as reported by the Nasdaq National Market since it commenced
public trading.
<TABLE>
<CAPTION>
Class A
Common Stock
------------
Fiscal Year Ended December 31, 1999 High Low
----------------------------------- ---- ---
<S> <C> <C>
Fourth Quarter ended December 31, 1999
(from November 231999) ..................................... $42.875 $ 31.00
</TABLE>
Stockholders
As of March 26, 2000, there were approximately 48 stockholders of record.
Dividends
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We have never paid cash dividends to our stockholders since our inception
and do not plan to pay cash dividends in the foreseeable future. We currently
intend to retain earnings, if any, to finance our growth. Our ability to pay
dividends is restricted by the terms of our preferred stock, our senior
subordinated notes indenture and our senior credit facilities.
Unregistered Sales of Securities
None.
Use of Proceeds from Registered Securities
On November 23, 1999, in connection with our initial public offering, a
registration statement on Form S-1 (File No. 333-89393) was declared effective
by the Securities and Exchange Commission, pursuant to which 10.58 million
shares of our class A common stock were sold at a price of $20 per share,
generating gross proceeds of $211.6 million. The managing underwriters were
Salomon Smith Barney Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated. After deducting
approximately $14.3 million in underwriting discounts and commissions and
approximately $1.8 million in other offering expenses payable by us, the net
proceeds to us were approximately $195.5 million. In addition, in January of
2000, we completed a private offering to AT&T of 2.245 million shares of our
class A common stock at a price of $18.65 per share generating proceeds of $41.9
million. The following table approximates our intended use of the net offering
proceeds:
<TABLE>
<CAPTION>
<S> <C>
Construction of plant, building and facilities .................. $170.0
Working Capital ................................................. 25.5
------
Total ........................................................ $195.5
======
</TABLE>
The foregoing use of net proceeds does not represent a material change in the
use of net proceeds described in the registration statement.
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<PAGE>
Item 6. Selected Financial Data.
The following sets fourth certain consolidated financial data for the
periods indicated and should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information appearing
elsewhere in Part II of this Annual Report on Form 10K (dollar amounts in
thousands, except per share amounts).
<TABLE>
<CAPTION>
July 29, 1996
(inception) to
December 31, For the year ended December 31,
1996 --------------------------------------------
(Predecessor) 1997 1998 1999
------------ --------------------------------------------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue:
Service revenue ................... $ -- $ -- $ -- $ 41,319
Roaming revenue ................... -- -- 29 29,010
Equipment revenue ................ -- -- -- 17,353
------------ ------------ ------------ ------------
Total revenue ........ -- -- 29 87,682
------------ ------------ ------------ ------------
Operating expense:
Cost of revenue ................... -- -- -- 39,259
Operations and development (c) .... -- -- 9,772 35,979
Selling and marketing (c) ......... 10 304 6,325 71,180
General and administrative (c) .... 515 2,637 26,239 92,585
Depreciation and amortization ..... -- 11 1,584 55,110
------------ ------------ ------------ ------------
Total operating expense ....... 525 2,952 43,920 294,113
------------ ------------ ------------ ------------
Operating loss ................ (525) (2,952) (43,891) (206,431)
Other (income) expense:
Interest expense .................. -- 396 11,934 51,313
Interest income ................... -- (13) (4,697) (6,464)
Other expense ..................... -- -- 27 (284)
------------ ------------ ------------ ------------
Net loss ...................... (525) (3,335) (51,155) (250,996)
Accretion of mandatorily
redeemable preferred stock ... (289) (726) (8,567) (24,124)
------------ ------------ ------------ ------------
Net loss attributable to
common equity ................ $ (814) $ (4,061) $ (59,722) $ (275,120)
============ ============ ============ ============
Net loss attributable to common
equity per share
- basic and diluted ................. $ (44.45) (111.74) $ (2.19) $ (3.58)
============ ============ ============ ============
Weighted average common equity shares
outstanding-basic and diluted ....... 18,313 36,340 27,233,786 76,895,391
============ ============ ============ ============
Other Operating Data:
Subscribers (end of period) ......... -- -- -- 142,231
Covered population (end of period) .. -- -- -- 11.0 million
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------------
1996 1997
(Predecessor) (Predecessor) 1998 1999
----------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ....................... $ 52 $ 2,567 $ 111,733 $ 182,330
(524) (6,656) (4,676)
Working capital ................................. 94,082
Property and equipment, net ..................... 1 3,609 197,469 400,450
PCS licenses and microwave relocation costs, net -- 10,018 118,107 267,682
Intangible assets -AT&T agreements, net ......... -- -- 26,285 37,908
Total assets .................................... 7,574 16,295 466,644 952,202
Total debt ...................................... 499 7,727 243,385 640,571
Mandatorily redeemable preferred stock, net(a)(b) 7,789 4,144 164,491 263,181
Total stockholders' equity (deficit) ........... $ (812) $ (4,875) $ (64,500) (90,554)
</TABLE>
- ---------
(a) Net of deferred compensation and preferred stock subscription receivable of
$4 and $75,914, respectively, as of December 31, 1998.
(b) Net of preferred stock subscription receivable of $97,001 as of December
31, 1999.
(c) Includes non cash stock compensation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
For periods prior to 1999 we were a development stage company. In the first
quarter of 1999, we exited the development stage and 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
service in our Puerto Rico markets on June 30, 1999. At December 31, 1999 we had
launched our service in 26 markets covering approximately 66% of the population
of our licensed area.
Revenue
We derive our revenue from:
o Services. We sell wireless personal communications services. The
various types of service revenue associated with personal
communications services for our customers include monthly recurring
access charges and monthly non-recurring airtime charges for local,
long distance and
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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 customers and
non-recurring activation and de-activation service charges.
o Roaming Charges. We charge monthly, non-recurring, per minute fees to
other wireless companies whose customers use our network facilities to
place and receive wireless calls.
o Equipment Sales. We sell wireless personal communications handsets and
accessories that are used by our customers in connection with our
wireless services.
Service revenue constituted our largest component of revenue during the
year ended December 31, 1999 at 47%. Roaming revenue and equipment revenue
represented 33% and 20%, respectively. We expect that as our customer base
grows, service revenue will become an even larger percentage of revenue, while
roaming revenue and equipment revenue are expected to decrease as a percentage
of revenue. Roaming minutes on our network are expected to increase as AT&T and
other carriers increase the number of customers on their networks. Under our
reciprocal roaming agreement with AT&T Wireless, our largest roaming partner,
the amount we will receive and pay per roaming minute 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 from time to time in order to obtain additional
customers or in response to downward pricing in the market for wireless
communications services.
Cost of Revenue
o 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.
o 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.
o 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
21
<PAGE>
minimum purchase requirements. These fees are based on the number of
transactions processed in a month.
o 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.
o 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 customers' usage,
applied at pre-negotiated rates with the other carriers. We do not
have any significant minimum purchase requirements other than an
obligation to AT&T Wireless to purchase a minimum number of minutes of
traffic annually over a specified time period and a specified number
of dedicated voice and data leased lines in order for us to retain
preferred pricing rates. We believe we will be able to meet these
minimum requirements.
Operating Expense
Operations and development. Our operations and development expense includes
engineering operations and support, field technicians, network implementation
support, product development, engineering management and non cash stock
compensation related to employees whose salaries are recorded within operations
and development. 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 customers. 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 and non cash stock
compensation related to employees whose salaries are included within selling and
marketing. 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 customers. 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 and non cash stock compensation related to employees whose salaries are
included within general and administrative. Although we expect general and
administrative expense to increase in future periods we expect this expense will
decrease as a percentage of gross revenues.
Depreciation and amortization. Depreciation of property and equipment is
computed using the straight-line method, generally over three to ten years,
based upon estimated useful lives. Leasehold improvements are amortized over the
lesser of the useful lives of the assets or the term of the lease. Network
development costs incurred to ready our network for use are capitalized.
Amortization of network development costs begins when the network equipment is
ready for its intended use and will be amortized over its estimated useful life
ranging from five to ten years. We began amortizing the cost of the PCS
licenses, microwave relocation costs, and capitalized interest in 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 of PCS licenses and
microwave relocation 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,
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<PAGE>
which range from three to ten years. Amortization of the AT&T exclusivity
agreement, long distance agreement and the intercarrier roamer services
agreement began once wireless services were available to our customers.
Amortization of the network membership license agreement began on July 17, 1998,
the date of the finalization of the AT&T transaction.
Capital expenditures. Our principal capital requirements for deployment of
our wireless network include installation of equipment and, to a lesser extent,
site development work.
Interest income (expense). Interest income is earned primarily on our cash
and cash equivalents. Interest expense through December 31, 1999 consists of
interest due on our senior credit facilities, senior subordinated discount
notes, vendor financing, and debt owed to the U.S. government related to our
licenses, less interest capitalized.
Results of Operations
Year ended December 31, 1999 Compared to Year ended December 31, 1998
Customer Analysis
We began launching commercial service in the first quarter of 1999, and by
December 31, 1999, grew our customer base to over 142,000 customers and launched
commercial service in 26 of our markets with our networks covering approximately
66% of the population where we held licenses.
Revenue
Service revenue was approximately $41.3 million for the year ended December
31, 1999 and resulted from our launch of commercial service in 26 of our markets
in 1999. We generated no service revenue for the year ended December 31, 1998.
Equipment revenue was approximately $17.4 million for the year ended December
31, 1999 and resulted from our customers' purchase of handsets and other
equipment in connection with the use of our service. We generated no equipment
revenue for the year ended December 31, 1998. Roaming revenue was $29.0 million
for the year ended December 31, 1999, as compared to $29,000 for the year ended
December 31, 1998. The increase was due to our significant increase in cell
sites which provided service to AT&T Wireless' roaming customers in our markets.
Cost of Revenue
Cost of revenue for the year ended December 31, 1999 was approximately
$39.3 million, consisting of equipment costs, roaming and clearinghouse fees
and variable interconnect and long distance charges. We did not generate any
cost of revenue for the year ended December 31, 1998.
Operations and Development
Operations and development expense was $36.0 million for the year ended
December 31, 1999, as compared to $9.8 million for the year ended December 31,
1998. The increase in operations and development was primarily due to the
engineering and implementation support and maintenance expense related to the
significant increase of our PCS network.
Selling and Marketing
23
<PAGE>
Selling and marketing expense for the year ended December 31, 1999, was
approximately $71.2 million, as compared to $6.3 million for the year ended
December 31, 1998. This increase was primarily due to the increase in salary and
benefit expenses for new corporate and regional sales staff, advertising and
promotion expenses associated with our launch of 26 markets in 1999, and the
expense associated with the excess cost of handsets over the retail price.
General and Administrative
General and administrative expense was approximately $92.6 million,
including $29.4 million in non cash stock compensation, for the year ended
December 31, 1999, as compared to approximately $26.2 million and no non cash
stock compensation for the year ended December 31, 1998. The increase was
primarily due to the development and growth of infrastructure and staffing
related to information technology, customer care and other administrative
functions incurred in conjunction with the commencement of our service offering,
as well as the stock based compensation charge related to vested stock options
and vested restricted stock awards measured in 1999.
Depreciation and Amortization
Depreciation and amortization expense was approximately $55.1 million for
the year ended December 31, 1999, as compared to approximately $1.6 million for
the year ended December 31, 1998. The increase was primarily due to depreciation
of our fixed assets, as well as the amortization on personal communications
services licenses and the AT&T agreements.
Interest Income and Expense
Interest expense was $51.3 million, net of capitalized interest income of
$5.4 million, for the year ended December 31, 1999, as compared to $11.9
million, net of capitalized interest of $1.5 million, for the year ended
December 31, 1998. The increase in interest expense was primarily due to the
increase in debt of approximately $397,000 including the issuance of the senior
subordinated discount notes of $327.6 million. The increase in capitalized
interest of $3.8 million was attributable to the increased capital expenditure
in 1999.
Year ended December 31, 1998 Compared to Year ended December 31, 1997
Revenue
Revenue for the year ended December 31, 1998 was approximately $29,000.
This revenue resulted from servicing AT&T Wireless' roaming customers in our
Louisiana markets. We began offering wireless services in most of our major
markets in the first quarter of 1999. We generated no revenue for the year ended
1997.
Operations and Development
Operations and development expense for the year ended December 31, 1998,
was approximately $9.8 million. This expense was primarily related to an
increase in engineering and operating staff devoted to the implementation of
future operations of our network. There was no operations and development
expense for the year ended December 31, 1997.
24
<PAGE>
Selling and Marketing
Selling and marketing expenses for the year ended December 31, 1998, was
approximately $6.3 million, as compared to approximately $0.3 million for the
year ended December 31, 1997. The year-over-year increase was due to the
increase in corporate and regional sales and marketing staff in order to prepare
for domestic market launches in the first quarter of 1999.
General and Administrative
General and administrative expense for the year ended December 31, 1998,
was approximately $26.2 million, as compared to approximately $2.6 million for
the year ended December 31, 1997. The year-over-year increase was due to the
development and growth of infrastructure and staffing related to information
technology, customer care and other administrative functions incurred in the
preparation for commercial launch of our markets in the first quarter of 1999.
Depreciation and Amortization
Depreciation and amortization expense for the year ended December 31, 1998,
was approximately $1.6 million, as compared to approximately $11,000 for the
year ended December 31, 1997. This expense was related to depreciation of
furniture, fixtures and office equipment, as well as the initiation of
amortization on AT&T Wireless agreements.
Interest Income and Expense
Interest expense, net of interest income, for the year ended December 31,
1998, was approximately $7.2 million, as compared to approximately $0.4 million
for the year ended December 31, 1997. This interest expense was related to notes
payable to shareholders and affiliates. This increase in interest expense was
related to borrowings under the senior credit facilities of $225.0 million since
July 1998 and the issuance of $10.0 million aggregate principal amount of notes
under the vendor financing provided by Lucent.
Liquidity and Capital Resources
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 $182.3 million at December 31, 1999, as
compared to $111.7 million at December 31, 1998. This increase was the result of
incoming cash provided by financing activities of $638.6 million, offset by
$126.9 million of cash used in operating activities and $441.0 million of cash
used in network development and investing activities.
During the year ended December 31, 1999, we received proceeds from
long-term debt, net of repayments of $357.2 million. Additionally, we received
net proceeds from our initial public offering of $195.5 million, and received
$79.7 million of preferred stock proceeds and receipt of preferred stock
subscriptions receivable net of direct issuance costs. Cash outlays for capital
expenditures required to develop and construct our network totaled $298.5
million. We spent $114.2 million to purchase PCS licenses and $17.3 million for
the purchase of additional AT&T agreements. Cash used in operating activities of
$126.9 million
25
<PAGE>
for the year ended December 31, 1999 resulted from a net loss of $251.0 million
that was partially offset by non-cash charges of $122.6 million.
During the year ended December 31, 1998, we received proceeds from
long-term debt, net of repayments of $255.4 million. Additionally, we received
$26.7 million of preferred stock proceeds net of direct issuance costs. Cash
outlays for capital expenditures required to develop and construct our network
totaled $107.5 million and we spent $21.0 million to purchase PCS licenses. Cash
used in operating activities of $29.8 million for the year ended December 31,
1998 resulted from a net loss of $51.2 million that was partially offset by
non-cash charges of $3.0 million.
During the year ended December 31, 1997, we received proceeds from
long-term debt, net of repayments of $2.8 million. Additionally, we received
$1.5 million of preferred stock proceeds net of direct issuance costs. Cash
outlays for capital expenditures required to develop and construct our network
totaled $1.1 million. Cash used in operating activities of $2.4 million for the
year ended December 31, 1997 resulted from a net loss of $3.3 million that was
partially offset by non-cash charges of $0.1 million.
Our preferred stock is convertible into shares of our common stock at
various times and following various events as follows:
o our series A preferred stock is convertible into shares of our class A
common stock after July 17, 2006 at a conversion rate equal to the
liquidation preference, which was approximately $109.6 million as of
December 31, 1999, divided by the market price of the class A common
stock at the time of conversion;
o our series F preferred stock is convertible at any time into shares of
our class A, class B or, if certain FCC restrictions have not been
lifted, Class D common stock, on a share for share basis.
We may redeem:
o shares of our series A preferred stock after the tenth anniversary of
its issuance; and
o shares of our series B, series C and series D preferred stock at any
time at the liquidation preference for the shares being redeemed.
The holders of our series A, series B, series C, series D and series E
preferred stock have the right to require us to redeem their shares after the
twentieth anniversary of their issuance time at the liquidation preference for
the shares being redeemed.
Holders of our series A preferred stock are entitled to a quarterly
dividend equal to 10% per annum of that stock's accumulated liquidation
preference. The accumulated liquidation preference of our series A preferred
stock was approximately $109.6 million in aggregate as of December 31, 1999. We
may defer payment of this dividend until December 31, 2008, and we are currently
doing so.
Holders of our series C, D and E preferred stock are not entitled to a
dividend except to the extent declared by our board. Those series of stock,
however, are entitled to an accumulated liquidation preference, which was
approximately $280.3 million in aggregate as of December 31, 1999. The
liquidation preference accretes at a rate of 6% per annum, compounded quarterly.
26
<PAGE>
Equity Commitments
In connection with completion of the venture with AT&T, we received
unconditional and irrevocable equity commitments from our stockholders in the
aggregate amount of $128.0 million in return for the issuance of preferred and
common stock. As of December 31, 1999, approximately $55.5 million of the equity
commitments had been funded. The remaining equity commitments will be funded in
an installment of $36.3 million in July 2000 and $36.2 million in July 2001.
We received additional irrevocable equity commitments from our stockholders
in the aggregate amount of $5.0 million in return for the issuance of preferred
and common stock in connection with the Digital PCS acquisition. Our
stockholders funded $2.2 million of these equity commitments on April 30, 1999,
and will fund $1.4 million in each of July 2000 and July 2001.
We have received additional irrevocable equity commitments from our
stockholders in the aggregate amount of approximately $40.0 million in return
for the issuance of preferred and common stock in connection with the Puerto
Rico acquisition. We received $12.0 million of these commitments on May 24, 1999
and an additional $6.0 million on December 15, 1999. Our stockholders will fund
the remaining commitments in two installments of $11.0 million on March 30, 2001
and March 30, 2002.
We also received irrevocable equity commitments from our stockholders in
the amount of approximately $32.3 million in connection with Viper Wireless'
participation in the FCC's reauction of PCS licenses. We received approximately
$6.5 million of these equity commitments on May 14, 1999, approximately $11.0
million on July 15, 1999 and approximately $14.8 million on September 29, 1999.
In the aggregate, we have obtained $205.3 million of equity commitments, of
which $108 million had been funded as of December 31, 1999.
These equity commitments cannot be amended without our consent and the
consent of AT&T and all of the other initial investors. In addition, the terms
of our senior subordinated discount notes and our bank and vendor credit
facilities restrict us from waiving or amending these commitments. The foregoing
equity commitments are also collateralized by pledges of the shares of our
capital stock issued to each initial investor, other than certain shares of
preferred stock. Those pledges have been assigned to our senior lenders as
collateral for our senior credit facilities. Transfers of shares of our capital
stock pledged to collateralize an equity commitment remain subject to such
pledge until the equity commitment is funded in full.
In addition, pursuant to the stockholders' agreement between our initial
investors, Mr. Vento and Mr. Sullivan and us, the initial investors are
restricted from transferring their shares of common stock prior to July 2001,
except to affiliates. Any transfers by them of class A common stock are subject
to rights of first offer and tag-along and drag-along rights in favor of AT&T
Wireless and the other initial investors. In addition to the approval of our
senior lenders, the terms of the stockholders' agreement may be amended only if
agreed to in writing by us and the beneficial holders of a majority of the class
A common stock party to the stockholders' agreement, including AT&T Wireless, 66
2/3% of the class A common stock beneficially owned by our initial investors
other than AT&T Wireless, and 66 2/3% of the class A common stock beneficially
owned by Mr. Vento and Mr. Sullivan. Following the expiration or waiver of the
180 day restrictions on transfer imposed in connection with our initial public
offering of 9,200,000 shares of our class A common stock, shares of our
preferred stock may be transferred, subject, however, to the pledge described
above and the continuing obligations of the investors to fund its Commitments.
27
<PAGE>
Senior Subordinated Discount Notes
On April 20, 1999, we sold $575.0 million aggregate principal amount at
maturity of 11 5/8% senior subordinated discount notes due April 15, 2009. Cash
interest on these notes will not accrue or be payable prior to April 15, 2004.
From April 15, 2004, cash interest will accrue at a rate of 11 5/8% per annum on
the principal amount at maturity of the notes through and including the maturity
date and will be payable semi-annually on April 15 and October 15 of each year.
In connection with the sale of these notes, we received net proceeds of
approximately $317 million after deducting initial purchasers' discount and
issuance expenses of approximately $11 million.
The indenture under which the notes were issued restricts, among other
things, our ability to:
o incur debt;
o create levels of debt that are senior to the notes but junior to our
senior debt;
o pay dividends on or redeem capital stock;
o make some investments or redeem other subordinated debt;
o make particular dispositions of assets;
o engage in transactions with affiliates;
o engage in particular business activities; and
o engage in mergers, consolidations and particular sales of assets.
Senior Credit Facilities
In July 1998, we entered into senior credit facilities with a group of
lenders for an aggregate amount of $525.0 million. In October 1999 we entered
into amendments to the senior credit facilities under which the amount of credit
available to us was increased to $560.0 million. Our senior credit facilities
currently provide for:
o a $150.0 million senior secured term loan that matures in January
2007,
o a $225.0 million senior secured term loan that matures in January
2008,
o a $150.0 million senior secured revolving credit facility that
matures in January 2007, and
o a $35.0 million senior secured term loan that matures in May
2009.
We must repay the term loans in quarterly installments, beginning in
September 2002, and the commitments to make loans under the revolving credit
facility automatically and permanently reduce beginning in April 2005. As of
December 31, 1999, $225.0 million had been drawn under the senior credit
facilities and was then accruing interest at an annual rate of 9.12%. The senior
credit agreement contains financial and other covenants customary for senior
agreements.
28
<PAGE>
We entered into a note purchase agreement with Lucent under which Lucent
agreed to provide us with $80.0 million of junior subordinated vendor financing.
This $80.0 million consisted of $40.0 million aggregate principal amount of
increasing rate Lucent series A notes and $40.0 million aggregate principal
amount of increasing rate Lucent series B notes. We borrowed $40.0 million under
the series B note facility and repaid this amount and accrued interest thereon
in April 1999 from proceeds of our sale of senior subordinated discount notes.
This amount cannot be reborrowed. As of December 31, 1999, we had outstanding
approximately $43.5 million of our Lucent series A notes, including $3.6 million
of accrued interest and accruing interest at a rate per annum of 8.5% as of
December 31, 1999. The amount outstanding under these series A notes and any
future series A note borrowings is subject to mandatory prepayment in an amount
equal to 50% of the excess of $198.0 million in net proceeds we receive from an
equity offering other than the issuance of capital stock used to acquire related
business assets.
In October 1999 we entered into an amended and restated note purchase
agreement with Lucent under which Lucent has agreed to purchase up to $12.5
million of new series A notes and up to $12.5 million of new series B notes
under a vendor expansion facility in connection with our prior acquisition of
licenses in the San Juan, Puerto Rico, Evansville Indiana, Paducah, Kentucky and
Alexandria and Lake Charles, Louisiana markets. The obligation of Lucent to
purchase notes under this vendor expansion facility is subject to a number of
conditions, including that we commit to purchase one wireless call connection
equipment site and 50 network equipment sites for each additional market from
Lucent.
In addition, pursuant to the amended and restated note purchase agreement
Lucent has agreed to make available up to an additional $50.0 million of new
vendor financing not to exceed an amount equal to 30% of the value of equipment,
software and services provided by Lucent in connection with any additional
markets we acquire. This $50.0 million of availability is subject to a reduction
up to $20 million on a dollar for dollar basis of any additional amounts Lucent
otherwise lends to us for such purposes under our senior credit facilities,
exclusive of amounts Lucent lends to us under its existing commitments under our
senior credit facilities. Any notes purchased under this facility would be
divided equally between Lucent series A and series B notes.
The terms of Lucent series A and series B notes issued under these
expansion facilities would be identical to the terms of the original Lucent
series A and series B notes as amended, including a maturity date of October 23,
2009.
Any Lucent series B notes issued under these expansion facilities will
mature and will be subject to mandatory prepayment on a dollar for dollar basis
out of the net proceeds of any future public or private offering or sale of debt
securities, exclusive of any private placement notes issued to finance any
additional market and borrowings under the senior credit facilities or any
replacement facility.
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 requires 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.
Vendor Financing
In May 1998, we entered into a vendor procurement contract with Lucent
under which we are required to purchase up to $285.0 million of radio, call
connecting and related equipment and services for the development of our
wireless communications network. At December 31, 1999, we had satisfied our
purchase requirements under this contract through our purchase of approximately
$294.5 million of equipment and services from Lucent.
29
<PAGE>
FCC Debt
In completing acquisitions of PCS licenses during the year ended December
31, 1999, we assumed U.S. government financing with the FCC. At December 31,
1999 our FCC debt was $20.2 million less a discount of $2.5 million. The terms
of the notes include interest rates ranging from 6.125% to 7.00% and have
quarterly and principal interest payments over the remaining nine years of the
debt.
Commitments
We have operating leases primarily related to retail store locations,
distribution outlets, office space and rent for our network development. The
terms of some of the leases include a reduction of rental payments and scheduled
rent increases at specified intervals during the term of the leases. We are
recognizing rent expense on a straight-line basis over the life of the lease,
which establishes deferred rent on the balance sheet. As of December 31, 1999,
the aggregate minimum rental commitments under non-cancelable operating leases
are as follows:
<TABLE>
<CAPTION>
For the year ending December 31: (dollars in thousands)
<S> <C>
2000........................................ $ 21,605
2001........................................ 21,375
2002........................................ 21,057
2003........................................ 18,374
2004........................................ 10,330
Thereafter..................................... 27,999
--------
Total $120,740
========
</TABLE>
Rental expense, which is recorded ratably over the lease terms, was
approximately $157,000, $3.2 million and $13.8 million for the years ended
December 31, 1997, 1998, and 1999, respectively.
We have communications towers situated on leased sites in all of our
markets and we are considering entering into sale/leaseback transactions and may
do so if we can obtain terms acceptable to us.
We have entered into letters of credit to facilitate local business
activities. We are liable under the letters of credit for nonperformance of
certain criteria under the individual contracts. The total amount of outstanding
letters of credit was approximately $1.6 million at December 31, 1999. The
outstanding letters of credit reduce the amount available to be drawn under our
senior credit facility.
We have minimum purchase commitments of 15 million roaming minutes from
July 1999 to January 2002 from another wireless provider in Puerto Rico relating
to customers roaming outside our coverage area. We believe we will be able to
meet these minimum requirements.
We believe that the capital we have raised to date and the other capital
resources currently available to us, which includes the funding of the
irrevocable equity commitments from our initial investors, will be sufficient to
meet our projected capital requirements through December 31, 2001. If we acquire
additional licenses or properties, we may need to incur substantial additional
debt to complete the acquisitions and construct and operate the acquired
properties. The network development requirements imposed by our agreements with
AT&T create significant capital requirements, much of which will be covered by
indebtedness we incur.
30
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ended December 31, 1999. This data
has been prepared on the same basis as the audited financial statements, and in
management's opinion, includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the information
for the periods presented. Results for any previous fiscal quarter are not
necessarily indicative of results for the full year or for any future quarter.
Quarterly Financial Data (unaudited)
($ in thousands expect per share amounts)
<TABLE>
<CAPTION>
Quarter ended,
---------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
-------- -------- --------- --------
1999
----
<S> <C> <C> <C> <C>
Revenue $ 4,240 $ 17,128 $ 26,833 $ 39,481
Operating loss (26,944) (37,150) (50,179) (92,158)
Net loss (32,293) (45,990) (65,792) (106,921)
Accretion of manditorily redeemable
preferred stock (4,267) (5,629) (7,064) (7,164)
-------- -------- --------- ---------
Net loss attributable to common
equity $(36,560) $(51,619) $(72,856) $(114,085)
======== ======== ======== =========
Net loss attributable to common
equity per share - basic and diluted $( 0.62) $( 0.75) $(0.89) $( 1.29)
======== ======== ======== =========
1998
----
Revenue $ 0 $ 0 $ 0 $ 29
Operating loss (2,655) (6,624) (12,239) (21,373)
Net loss (2,745) (6,843) (15,823) (25,744)
Accretion of manditorily redeemable
preferred stock (17) (190) (3,819) (4,541)
-------- -------- --------- ---------
Net loss attributable to common
equity $( 2,762) $( 7,033) $( 19,643) $( 30,285)
======== ======== ========= =========
Net loss attributable to common
equity per share - basic and diluted(a) $(142.85) $(363.75) $( 1.23) $( 0.51)
======== ======== ========= =========
</TABLE>
(a) Net loss attributable to common equity per share - basic and diluted for the
first and second quarter of 1998 was computed based on the common equity
structure of the predecessor company.
Forward Looking Statements: Cautionary Statements
Statements in this report expressing our expectations and beliefs of the
Company regarding our future results or performance are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 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. Although we believe that the expectations expressed
in such forward-looking statements are based on reasonable assumptions within
the bounds of our knowledge of our business, 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
31
<PAGE>
discussed in our Registration Statement on Form S-1 (Reg. No. 333-89393) and in
our other filings with the Securities and Exchange Commission, including,
without 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 and (15) we expect to incur operating costs due to fraud.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are not exposed to fluctuations in currency exchange rates because 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 December 31, 1999, we had 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, 1999.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the consolidated financial statements listed under the
heading "(a) (1) Consolidated Financial Statements" of Item 14 hereof, which
financial statements are incorporated herein by reference in response to this
Item 8.
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<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Board of Directors," and "Section 16(a)
Beneficial Ownership Reporting" in our Proxy Statement for the 2000 Annual
Meeting of Stockholders to be held on May 24, 2000.
Item 11. Executive Compensation.
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Compensation of Executive Officers" in our
Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on May
24, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Stock Ownership of Certain Beneficial
Owners and Management" in our Proxy Statement for the 2000 Annual Meeting of
Stockholders to be held on May 24, 2000.
Item 13. Certain Relationships and Related Transactions.
The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Certain Transactions", "Compensation of
Executive Officers -- Management Agreement" and "Compensation of Executive
Officers -- Employment Agreement" in our Proxy Statement for the 2000 Annual
Meeting of Stockholders to be held on May 24, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements, Schedules and Exhibits
(1) Consolidated Financial Statements.
The following consolidated financial statements and the Report of
Independent Accountants related thereto are included in Item 8 above.
Page
----
Report of Independent Accountants ....................................... F-2
Consolidated Balance Sheets ............................................. F-3
Consolidated Statements of Operations ................................... F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit) ..... F-5
Consolidated Statements of Cash Flows ................................... F-6
Notes to Consolidated Financial Statements .............................. F-8
33
<PAGE>
(2) Financial Statement Schedules.
None.
(3) Exhibits.
The following exhibits are filed with this report or incorporated by
reference as set forth below.
Exhibit
Number Description of Document
------ -----------------------
2.1 Stock Purchase Agreement by and among TeleCorp PCS, Inc., TeleCorp
Holding Corp., Inc., Gerald T. Vento, Thomas H. Sullivan, and certain
other investors identified therein, dated as of October 18, 1999.
3.1 Fifth Amended and Restated Certificate of Incorporation of TeleCorp
PCS, Inc.
3.2 Second Amended and Restated Bylaws of TeleCorp PCS, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
(b) Reports on Form 8-K:
None.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2000 TELECORP PCS, INC.
By: /s/ Gerald T. Vento
------------------------------
Gerald T. Vento
Chairman of the Board and Chief
Executive Officer
Signature Title Date
--------- ----- ----
/s/ Gerald T. Vento
- -------------------- Chief Executive Officer March 28, 2000
Gerald T. Vento (Principal Executive Officer)
and Chairman
/s/ Thomas H. Sullivan
- ---------------------- Executive Vice President, Chief March 28, 2000
Thomas H. Sullivan Financial Officer (Principal
Financial and Accounting Officer)
and Director
- -------------------- Director March __, 2000
Michael R. Hannon
/s/ Scott Anderson
- -------------------- Director March 28, 2000
Scott Anderson
/s/ Rohit M. Desai
- --------------------
Rohit M. Desai Director March 28, 2000
/s/ James M. Hoak
- -------------------- Director March 28, 2000
James M. Hoak
- -------------------- Director March ___, 2000
Mary Hawkins-Key
/s/ William Kussell
- --------------------
William Kussell Director March 28, 2000
- -------------------- Director March ___, 2000
Michael Schwartz
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2000 TeleCorp Communications, Inc.
By: /s/ Gerald T. Vento
------------------------------
Gerald T. Vento
Chairman of the Board and
Chief Executive Officer
Signature Title Date
--------- ----- ----
/s/ Gerald T. Vento
- -------------------- Chief Executive Officer March 28, 2000
Gerald T. Vento (Principal Executive Officer)
and Chairman
/s/ Thomas H. Sullivan
- ---------------------- Director and President March 28, 2000
Thomas H. Sullivan
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELECORP PCS, INC. AND SUBSIDIARIES
AND PREDCESSOR COMPANY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations................................... F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit)..... F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
TeleCorp PCS, Inc. and Subsidiaries and Predecessor Company:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the financial
position of TeleCorp PCS, Inc. and Subsidiaries and Predecessor Company (the
Company) at December 31, 1999 and 1998 and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
McLean, Virginia
March 10, 2000
F-2
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................................... $ 111,733 $ 182,330
Accounts receivable, net ........................................................................... -- 23,581
Inventory .......................................................................................... 778 15,802
Prepaid expenses ................................................................................... 2,186 3,031
Other current assets ............................................................................... 1,218 797
--------- ---------
Total current assets ......................................................................... 115,915 225,541
Property and equipment, net ........................................................................ 197,469 400,450
PCS licenses and microwave relocation costs, net ................................................... 118,107 267,682
Intangible assets-- AT&T agreements, net ........................................................... 26,285 37,908
Deferred financing costs, net ...................................................................... 8,585 19,577
Other assets ....................................................................................... 283 1,044
--------- ---------
Total assets ................................................................................. $ 466,644 $ 952,202
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................................................................... $ 14,592 $ 38,903
Accrued expenses ................................................................................... 94,872 51,977
Microwave relocation obligation, current portion ................................................... 6,636 36,122
Long-term debt, current portion .................................................................... -- 1,361
Accrued interest ................................................................................... 4,491 1,387
Deferred revenue ................................................................................... -- 1,709
--------- ---------
Total current liabilities .................................................................... 120,591 131,459
Long-term debt ......................................................................................... 243,385 639,210
Microwave relocation obligation ........................................................................ 2,481 2,365
Accrued expenses and other ............................................................................. 196 6,541
--------- ---------
Total liabilities ............................................................................ 366,653 779,575
--------- ---------
Mandatorily redeemable preferred stock, issued 255,999 and 382,539 shares,
respectively; and outstanding, 255,215 and 382,539 shares, respectively,
(liquidation preference $389,966 as of December 31, 1999) ................................... 240,409 360,182
Deferred compensation ............................................................................ (4) --
Treasury stock, 784 shares and none, respectively, at cost ....................................... -- --
Preferred stock subscriptions receivable ......................................................... (75,914) (97,001)
--------- ---------
Total mandatorily redeemable preferred stock, net ...................................... 164,491 263,181
--------- ---------
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 $1 as of
December 31, 1999) ........................................................................ 103 149
Common stock, par value $.01 per share issued 49,357,658 and 85,592,221 shares, .............. 493 856
respectively; and outstanding 48,805,184 and 85,592,221 shares, respectively
Additional paid-in capital ................................................................... -- 267,442
Deferred compensation ........................................................................ (7) (42,811)
Common stock subscriptions receivable ........................................................ (86) (191)
Treasury stock, 552,474 shares and none, respectively, at cost ............................... -- --
Accumulated deficit .......................................................................... (65,003) (315,999)
--------- ---------
Total stockholders' equity (deficit) ................................................... (64,500) (90,554)
--------- ---------
Total liabilities, mandatorily redeemable preferred stock and stockholders' equity
(deficit) ........................................................................... $ 466,644 $ 952,202
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Service revenue ...................................... $ -- $ -- $ 41,319
Roaming revenue ...................................... -- 29 29,010
Equipment revenue .................................... -- -- 17,353
------------ ------------ ------------
Total revenue ............................ -- 29 87,682
------------ ------------ ------------
Operating expenses:
Cost of revenue ...................................... -- -- 39,259
Operations and development (including non cash stock
compensation of $1,472 in 1999) .............. -- 9,772 35,979
Selling and marketing (including non cash stock
compensation of $937 in 1999) ................ 304 6,325 71,180
General and administrative (including non cash stock
compensation of $29,408 in 1999) ............. 2,637 26,239 92,585
Depreciation and amortization ........................ 11 1,584 55,110
------------ ------------ ------------
Total operating expenses ................. 2,952 43,920 294,113
------------ ------------ ------------
Operating loss ........................... (2,952) (43,891) (206,431)
Other (income) expense:
Interest expense ..................................... 396 11,934 51,313
Interest income ...................................... (13) (4,697) (6,464)
Other expense (income) ............................... -- 27 (284)
------------ ------------ ------------
Net loss ............................. (3,335) (51,155) (250,996)
Accretion of mandatorily redeemable preferred stock ...... (726) (8,567) (24,124)
------------ ------------ ------------
Net loss attributable to common equity $ (4,061) $ (59,722) $ (275,120)
============ ============ ============
Net loss attributable to common equity per share--
basic and diluted .................................... $ (111.74) $ (2.19) $ (3.58)
============ ============ ============
Weighted average common equity shares outstanding--
basic and diluted .................................... 36,340 27,233,786 76,895,391
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
($ in thousands)
<TABLE>
<CAPTION>
Additional
Series F Paid-in
Preferred stock Common stock capital
------------------------- -------------------------- ----------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ................................. -- $ -- 43,124 $ 2 $ --
Issuance of common stock for cash .......................... -- -- 6,875 -- --
Accretion of mandatorily redeemable preferred
stock ...................................................... -- -- -- -- --
Noncash redemption of equity interests ..................... -- -- (30,664) (1) --
Net loss ................................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ................................. -- -- 19,335 1 --
Noncash redemption of equity interests ..................... -- -- (19,335) (1) --
Issuance of preferred and common stock for cash,
licenses and AT&T agreements ............................... 10,308,676 103 46,262,185 462 --
Accretion of mandatorily redeemable preferred
stock ...................................................... -- -- -- -- --
Noncash issuance of restricted stock to
employees .................................................. -- -- 3,095,473 31 --
Repurchase of common stock for cash ........................ -- -- -- -- --
Compensation expense related to restricted stock awards .... -- -- -- -- --
Net loss ................................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ................................. 10,308,676 103 49,357,658 493 --
Issuance of preferred stock and common stock for
cash and licenses .......................................... 4,604,102 46 23,231,331 233 21,550
Issuance of common stock in initial public offering ........ -- -- 10,580,000 106 197,211
Costs associated with initial public offering .............. -- -- -- -- (1,801)
Deferred compensation expense related to stock option grants
and restricted stock awards ................................ -- -- -- -- 73,049
Compensation expense related to stock option grants and
restricted stock awards .................................... -- -- -- -- --
Non-cash issuance of restricted stock ...................... -- -- 2,423,232 24 1,558
Repurchase of common stock for cash ........................ (1)
Accretion of manditorily redeemable preferred
stock ...................................................... -- -- -- -- (24,124)
Net loss ................................................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 ................................. 14,912,778 $ 149 85,592,221 $ 856 $ 267,442
=========== =========== =========== =========== ===========
<CAPTION>
Common stock
Deferred Subscriptions
Compensation Receivable Treasury stock
------------ ----------- -------------------------
Shares Amount
----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1996 ................................. $ -- $ -- -- $ --
Issuance of common stock for cash .......................... -- -- -- --
Accretion of mandatorily redeemable preferred
stock ...................................................... -- -- -- --
Noncash redemption of equity interests ..................... -- -- -- --
Net loss ................................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1997 ................................. -- -- -- --
Noncash redemption of equity interests ..................... -- -- -- --
Issuance of preferred and common stock for cash,
licenses and AT&T agreements ............................... -- (86) -- --
Accretion of mandatorily redeemable preferred
stock ...................................................... -- -- -- --
Noncash issuance of restricted stock to
employees .................................................. (10) -- -- --
Repurchase of common stock for cash ........................ 2 -- (552,474) --
Compensation expense related to restricted stock awards .... 1 -- -- --
Net loss ................................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1998 ................................. (7) (86) (552,474) --
Issuance of preferred stock and common stock for
cash and licenses .......................................... -- (105) -- --
Issuance of common stock in initial public offering ........ -- -- -- --
Costs associated with initial public offering .............. -- -- -- --
Deferred compensation expense related to stock option grants
and restricted stock awards ................................ (73,049) -- -- --
Compensation expense related to stock option grants and
restricted stock awards .................................... 31,817 -- -- --
Non-cash issuance of restricted stock ...................... (1,573) -- 959,259 --
Repurchase of common stock for cash ........................ 1 (406,785) --
Accretion of manditorily redeemable preferred
stock ...................................................... -- -- -- --
Net loss ................................................... -- -- -- --
----------- ----------- ----------- -----------
Balance, December 31, 1999 ................................. $ (42,811) $ (191) -- $ --
=========== =========== =========== ===========
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Balance, December 31, 1996 ................................. $ (814) $ (812)
Issuance of common stock for cash .......................... -- --
Accretion of mandatorily redeemable preferred
stock ...................................................... (726) (726)
Noncash redemption of equity interests ..................... -- (1)
Net loss ................................................... (3,335) (3,335)
----------- -----------
Balance, December 31, 1997 ................................. (4,875) (4,874)
Noncash redemption of equity interests ..................... -- (1)
Issuance of preferred and common stock for cash,
licenses and AT&T agreements ............................... (383) 96
Accretion of mandatorily redeemable preferred
stock ...................................................... (8,567) (8,567)
Noncash issuance of restricted stock to
employees .................................................. (21)
Repurchase of common stock for cash ........................ (2) --
Compensation expense related to restricted stock awards .... -- 1
Net loss ................................................... (51,155) (51,155)
----------- -----------
Balance, December 31, 1998 ................................. (65,003) (64,500)
Issuance of preferred stock and common stock for
cash and licenses .......................................... -- 21,724
Issuance of common stock in initial public offering ........ -- 197,317
Costs associated with initial public offering .............. -- (1,801)
Deferred compensation expense related to stock option grants -- --
and restricted stock awards
Compensation expense related to stock option grants and
restricted stock awards .................................... -- 31,817
Non-cash issuance of restricted stock ...................... -- 9
Repurchase of common stock for cash ........................ --
Accretion of manditorily redeemable preferred
stock ...................................................... -- (24,124)
Net loss ................................................... (250,996) (250,996)
----------- -----------
Balance, December 31, 1999 ................................. $ (315,999) $ (90,554)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (3,335) $ (51,155) $(250,996)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................................ 11 1,584 55,110
Noncash compensation expense related to stock option ..................... -- 2 31,817
grants and restricted stock awards
Noncash interest expense ................................................. 134 1,182 32,718
Bad debt expense ......................................................... -- -- 2,962
Noncash general and administrative expense charge
by affiliates ......................................................... -- 197 --
Changes in cash flow from operations resulting from
changes in assets and liabilities:
Accounts receivable ...................................................... -- -- (23,581)
Inventory ................................................................ -- (778) (15,024)
Prepaid expenses ......................................................... -- (2,186) (845)
Other current assets ..................................................... (52) (1,145) 421
Other assets ............................................................. (27) (256) (761)
Accounts payable ......................................................... 619 11,586 24,808
Accrued expenses ......................................................... -- 9,145 17,831
Accrued interest ......................................................... 258 2,046 (3,104)
Deferred revenue ......................................................... -- -- 1,709
--------- --------- ---------
Net cash used in operating activities ................................. (2,392) (29,778) (126,935)
--------- --------- ---------
Cash flows from investing activities:
Expenditures for network under development, wireless
network and property and equipment ....................................... (1,134) (107,542) (298,506)
Capitalized interest on network under development
and wireless network ..................................................... -- (227) (5,317)
Expenditures for microwave relocation ....................................... -- (3,340) (5,654)
Purchase of PCS licenses .................................................... -- (21,000) (114,238)
Partial refund of deposit on PCS licenses ................................... 1,561 -- --
Purchase of intangibles--AT&T agreements .................................... -- -- (17,310)
--------- --------- ---------
Net cash provided by (used in) investing activities ................... 427 (132,109) (441,025)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable
preferred stock .......................................................... 1,500 26,661 70,323
Receipt of preferred stock subscription receivable .......................... -- -- 9,414
Direct issuance costs from sale of mandatorily
redeemable preferred stock ............................................... -- (1,027) (2,500)
Proceeds from sale of common stock and series F preferred stock ............. -- 38 21,724
Proceeds from long-term debt ................................................ 2,809 257,492 407,635
Proceeds associated with initial public offering ............................ -- -- 197,317
Direct issuance cost from the initial public offering ....................... -- -- (1,801)
Purchases of treasury shares ................................................ -- -- --
Payments on long term debt .................................................. -- (2,073) (50,451)
Payments of deferred financing costs ........................................ -- (9,110) (12,742)
Net increase in amounts due to affiliates .................................. 171 (928) (362)
--------- --------- ---------
Net cash provided by financing activities ............................. 4,480 271,053 638,557
--------- --------- ---------
Net increase in cash and cash equivalents ....................................... 2,515 109,166 70,597
Cash and cash equivalents at the beginning of period ............................ 52 2,567 111,733
--------- --------- ---------
Cash and cash equivalents at the end of period .................................. $ 2,567 $ 111,733 $ 182,330
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
($ in thousands, except for per share data)
<TABLE>
<CAPTION>
For the year ended
December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosure of cash flow Information:
Cash paid for income taxes ........................ $ -- $ -- $ --
Cash paid for interest ............................ -- 9,786 24,342
Supplemental disclosure of non-cash investing and financing
activities:
Network under development and
microwave relocation costs
included in accounts payable
and accrued expenses .......................... 2,485 98,092 32,424
Issuance of mandatorily
redeemable preferred stock
and preferred stock in
exchange for PCS licenses and
AT&T agreements ............................... -- 100,900 2,674
Issuance of mandatorily
redeemable preferred stock
and common stock in
exchange for stock
subscriptions receivable ...................... -- 76,000 27,191
U.S. Government financing of
PCS licenses .................................. 9,193 -- 11,551
Discount on U.S. Government
financing ..................................... 1,600 -- 1,631
Conversion of notes payable to
stockholders into preferred
stock ......................................... 499 25,300 --
Accretion of preferred stock
dividends ..................................... 726 8,567 24,124
Redemption of equity interests .................... 6,370 -- --
Distribution of net assets to
Affiliates .................................... 3,645 -- --
Notes payable to affiliates ....................... 2,725 -- --
Capitalized interest .............................. $ 131 $ 2 ,055 $ 5,409
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
1. Organization and Business
TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of
Delaware on July 29, 1996 (date of inception). Holding was formed to participate
in the Federal Communications Commission's (FCC) Auction of F-Block Personal
Communications Services (PCS) licenses (the Auction) in April 1997. Holding
successfully obtained licenses in the New Orleans, Memphis, Beaumont, Little
Rock, Houston, Tampa, Melbourne and Orlando Basic Trading Areas (BTAs). Holding
qualifies as a Designated Entity and Very Small Business under Part 24 of the
rules of the FCC applicable to broadband PCS.
In April 1997, Holding entered into an agreement to transfer the PCS
licenses for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed
entities created by Holding's existing stockholder group: THC of Houston, Inc.;
THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. These
licenses were transferred along with the related operating assets and
liabilities in exchange for investment units consisting of Class A, B and C
common stock and Series A preferred stock in August 1997.
TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on
November 14, 1997 by the controlling stockholders of Holding. TeleCorp is the
exclusive provider of wireless mobility services using equal emphasis
co-branding with AT&T in its licensed regions in connection with a strategic
alliance with AT&T Wireless and its affiliates (collectively AT&T). Upon
finalization of the AT&T Transaction, Holding became a wholly-owned subsidiary
of TeleCorp (see Note 9). TeleCorp and Holding are hereafter referred to as the
Company.
TeleCorp PCS, Inc. is the largest AT&T Wireless affiliate in the United
States in terms of licensed population, with licenses covering markets where
approximately 16.7 million people reside. The Company provides wireless personal
communication services, or PCS, in selected markets in the south-central and
northeast United States and in Puerto Rico, encompassing eight of the 100
largest metropolitan areas in the United States.
Under the terms of the AT&T strategic alliance, the Company is AT&T's
exclusive provider of wireless mobility services in the eight covered markets,
using equal emphasis co-branding with AT&T subject to AT&T's right to resell
services on the Company's network. The Company has the right to use the AT&T
brand name and logo together with the SunCom brand name and logo, giving equal
emphasis to each in its covered markets. The Company is AT&T's preferred roaming
partner for digital customers in the Company's markets. Additionally, the
Company's relationship with AT&T Wireless provides coast-to-coast coverage to
TeleCorp customers.
2. Summary of Significant Accounting Policies
Basis of presentation
Holding was formed to explore various business opportunities in the
wireless telecommunications industry. TeleCorp was formed to continue the
activity of Holding through its strategic alliance with AT&T. For purposes of
the accompanying financial statements, Holding has been treated as a
"predecessor" entity. Therefore, the financial statements for the year ended
December 31, 1997 include the historical financial information of Holding, the
predecessor entity. The financial statements as of and for the year ended
December 31, 1998 and for all periods thereafter, include the historical
financial information of Holding and TeleCorp. The Chief Executive Officer and
President of Holding maintain the positions of Chief Executive Officer and
Executive Vice President and Chief Financial Officer, respectively, of TeleCorp.
In addition, these officers own a majority of the voting stock of TeleCorp and,
prior to the finalization of the AT&T Transaction, owned a majority of the
voting stock of Holding. As a result of this relationship, certain financing
relationships and the similar nature of business activities, Holding and
TeleCorp were considered companies under common control.
F-8
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
Risks and uncertainties
The Company expects to continue to incur significant operating losses and
to generate negative cash flow from operating activities for at least the next
several years while it constructs its network and develops its customer base.
The Company's ability to eliminate operating losses and to generate positive
cash flow from operations in the future will depend upon a variety of factors,
many of which it is unable to control. These factors include: (1) the cost of
constructing its network, (2) changes in technology, (3) changes in governmental
regulations, (4) the level of demand for wireless communications services, (5)
the product offerings, pricing strategies and other competitive factors of the
Company's competitors and (6) general economic conditions. If the Company's is
unable to implement its business plan successfully, it may not be able to
eliminate operating losses, generate positive cash flow or achieve or sustain
profitability which would materially adversely affect its business, operations
and financial results as well as its ability to make payments on its debt
obligations.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, which includes TeleCorp Communications, Inc.,
TeleCorp LLC and Holding. All intercompany accounts and transactions have been
eliminated in consolidation.
Development Stage Company
Prior to January 1, 1999, the Company's activities principally were
planning and participation in the Auction, initiating research and development,
conducting market research, securing capital and developing its proposed service
and network. Since the Auction, the Company has been relying on the borrowing of
funds and the issuance of common and preferred stock rather than recurring
revenues, for its primary sources of cash flow. Accordingly, the Company's
financial statements for all periods prior to January 1, 1999 were presented as
a development stage enterprise, as prescribed by Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises." In the first quarter of 1999, the Company commenced operations and
began providing wireless mobility services for its customers. As a result, the
Company exited the development stage in the quarter ended March 31, 1999.
Fair Value of Financial Instruments
The Company believes that the carrying amount of its financial instruments
approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities on the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
F-9
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. The Company sells products and services to various
customers throughout many regions in the United States and Puerto Rico. The
Company routinely assesses the strength of its customers and maintains
allowances for anticipated losses.
For the years ended December 31, 1997, 1998 and 1999, no one customer
accounted for 10% or more of total revenues or accounts receivable.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity from
purchase date of three months or less to be cash equivalents. Cash equivalents
consist of overnight sweep accounts and U.S. Treasury obligations.
Inventory
Inventory, consisting of handsets and accessories, is valued at the lower
of average cost or market and is recorded net of an allowance for obsolescence,
if required.
Property and Equipment and Network Under Development
Property and equipment are recorded at cost and depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment............................................... 3 to 5 years
Network under development and wireless network................... 5 to 10 years upon commencement of service
Internal use software............................................ 3 years
Furniture, fixtures and office equipment......................... 5 years
Leasehold improvements........................................... Lesser of useful life or lease term
</TABLE>
Expenditures for repairs and maintenance are charged to operations when
incurred. Gains and losses from disposals, if any, are included in the
statements of operations. Network under development includes all costs related
to engineering, cell site acquisition, site development, interest expense and
other development costs being incurred to ready the Company's wireless network
for use.
Internal and external costs incurred to develop the Company's billing,
financial systems and other internal applications during the application
development stage are capitalized as internal use software. All costs incurred
prior to the application development stage are expensed as incurred. Training
costs and all post implementation internal and external costs are expensed as
incurred.
PCS Licenses and Microwave Relocation Costs
PCS licenses include costs incurred, including capitalized interest related
to the U.S. Government financing, to acquire FCC licenses in the 1850-1990 MHz
radio frequency band. Interest capitalization on the U.S. Government financing
began when the activities necessary to get the Company's network ready for its
intended use were initiated and concluded when the wireless networks were ready
for intended use. The PCS licenses are issued conditionally for ten years.
Historically, the FCC has granted license renewals providing the licensees have
complied with
F-10
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
applicable rules, policies and the Communications Act of 1934, as amended. The
Company believes it has complied with and intends to continue to comply with
these rules and policies.
As a condition of each PCS license, the FCC requires each license-holder to
relocate existing microwave users (Incumbents) within the awarded spectrum to
microwave frequencies of equal capacity. Microwave relocation costs include the
actual and estimated costs incurred to relocate the Incumbent's microwave links
affecting the Company's licensed frequencies.
The Company began amortizing the cost of the PCS licenses, microwave
relocation costs, and capitalized interest in March 1999, when PCS services
commenced in certain BTAs. Amortization is calculated using the straight-line
method over 40 years.
Intangible assets--AT&T Agreements
The AT&T Agreements consist of the fair value of various agreements with
AT&T exchanged for mandatorily redeemable preferred stock and Series F preferred
stock (see Notes 9 and 10). The AT&T Agreements are amortized on a straight-line
basis over the related contractual terms, which range from three to ten years.
Long-Lived Assets
The Company periodically evaluates the recoverability of the carrying value
of property and equipment, network under development, intangible assets, PCS
licenses and microwave relocation costs. The Company considers historical
performance and anticipated future results in its evaluation of potential
impairment. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of these assets in relation to the operating
performance of the business and future and undiscounted cash flows expected to
result from the use of these assets. Impairment losses are recognized when the
sum of the present value of expected future cash flows are less than the assets'
carrying value. No such impairment losses have been recognized to date.
Deferred Financing Costs
Deferred finance costs are capitalized and amortized as a component of
interest expense over the term of the related debt.
Revenue Recognition
The Company earns revenue by providing wireless mobility services to both
its subscribers and subscribers of other wireless carriers traveling in the
Company's service area, as well as sale of equipment and accessories.
Wireless mobility services revenue consists of monthly recurring and
non-recurring charges for local, long distance, roaming and airtime used in
excess of pre-subscribed usage. Generally, access fees, airtime roaming and long
distance charges are billed monthly and are recognized when service is provided.
Prepaid service revenue is collected in advance, recorded as deferred revenue,
and recognized as service is provided.
Roaming revenue consists of the airtime and long distance charged to the
subscribers of other wireless carriers for use of the Company's network while
traveling in the Company's service area and is recognized when the service is
provided.
F-11
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
Equipment revenue is recognized upon delivery of the equipment to the
customer and when future obligations are no longer significant.
Advertising Costs
The Company expenses production costs of print, radio and television
advertisements and other advertising costs as such costs are incurred.
Income Taxes
The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce net deferred tax assets to the amount expected to be
realized. The provision for income taxes consists of the current tax provision
and the change during the period in deferred tax assets and liabilities.
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", requires
disclosure of the fair value method of accounting for stock options and other
equity instruments. Under the fair value method, compensation cost is measured
at grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. The Company has chosen,
under provisions of SFAS No. 123, to continue to account for employee
stock-based compensation under Accounting Principles Board (APB) No. 25,
"Accounting for Stock Issued to Employees". The Company discloses in Note 11 to
the financial statements the pro forma net loss and the pro forma basic and
diluted net loss per share as if the Company had applied the method of
accounting prescribed by SFAS No. 123.
The Company periodically issues restricted stock awards and stock option
grants to its employees. Upon reaching a measurement date, the Company records
deferred compensation equal to the difference between the strike price and the
estimated fair value of the stock award. Deferred compensation is amortized to
compensation expense over the related vesting period.
Interest Rate Swaps
The Company uses interest rate swaps to hedge the effects of fluctuations
in interest rates from their Senior Credit Facility (see Note 8). These
transactions meet the requirements for hedge accounting, including designation
and correlation. The interest rate swaps are managed in accordance with the
Company's policies and procedures. The Company does not enter into these
transactions for trading purposes. The resulting gains or losses, measured by
quoted market prices, are accounted for as part of the transactions being
hedged, except that losses not expected to be recovered upon the completion of
hedged transactions are expensed. Gains or losses associated with interest rate
swaps are computed as the difference between the interest expense per the amount
hedged using the fixed rate compared to a floating rate over the term of the
swap agreement.
F-12
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
Net Loss Attributable to Common Equity Per Share
The Company computes net loss attributable to common equity per share in
accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting
Bulletin No. 98 (SAB 98). Under the provisions of SFAS No. 128 and SAB 98, basic
net loss attributable to common equity per share is computed by dividing the net
loss attributable to common equity for the period by the weighted average number
of common equity shares outstanding during the period. The weighted average
number of common shares outstanding includes the Series F Preferred Stock, which
is a participating stock and has no preferential rights over Common Stock, and
all classes of Common Stock. Diluted net loss attributable to common equity per
share is computed by dividing the net loss attributable to common equity for the
period by the weighted average number of common and dilutive common equivalent
shares outstanding during the period. As the Company had a net loss attributable
to common equity in each of the periods presented, basic and diluted net loss
attributable to common equity per share are the same.
Segment Reporting
The Company presently operates in a single business segment as a provider
of wireless mobility services in its licensed regions primarily in the
south-central and northeastern United States and Puerto Rico. The Company
operates in various MTAs including New Orleans, LA, Memphis, TN, Little Rock,
AR, Boston, MA and San Juan, Puerto Rico.
Reclassifications
Certain amounts in the 1997 and 1998 consolidated financial statements have
been reclassified to conform with the presentations of the 1999 consolidated
financial statements.
Recently Issued Accounting Standards
In July 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Deferral of the Effective
Date of FAS 133" which defers the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is in thee process of determining the effect of adopting this standard.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) Number
101, "Revenue Recognition in Financial Statements." This bulletin will become
effective for the Company for the quarter ended March 31, 2000. This bulletin
establishes more clearly defined revenue recognition criteria than previously
existing accounting pronouncements, and specifically addresses revenue
recognition requirements for nonrefundable fees, such as activation fees,
collected by a company upon entering into an arrangement with a customer, such
as an arrangement to provide telecommunications services. The Company is
currently evaluating the full impact of this bulletin to determine the impact on
its financial position and results of operations.
F-13
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
3. Accounts Receivable
Accounts receivables consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
------ --------
<S> <C> <C>
Accounts receivable ..................... $ -- $ 26,203
Allowance for doubtful accounts ......... -- (2,622)
====== ========
$ -- $ 23,581
====== ========
</TABLE>
Bad debt expense for the year ended December 31, 1999 was $2,962.
4. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
------- -------
<S> <C> <C>
Handsets ........................... $ 778 $15,090
Accessories ........................ -- 712
======= =======
Total inventory .................... $ 778 $15,802
======= =======
</TABLE>
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Wireless network ........................... $ -- $ 364,491
Network under development .................. 170,886 21,758
Computer equipment ......................... 10,115 16,888
Internal use software ...................... 11,161 21,648
Leasehold improvements ..................... 3,205 12,011
Furniture, fixtures and office equipment ... 2,924 10,855
Land ....................................... -- 49
--------- ---------
198,291 447,700
Accumulated depreciation ................... (822) (47,250)
========= =========
$ 197,469 $ 400,450
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
was $11, $811, and $46,428, respectively.
F-14
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
6. PCS Licenses and Microwave Relocation Costs
PCS licenses, microwave relocation costs, and capitalized interest consist
of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
--------- ---------
<S> <C> <C>
PCS licenses ........................ $ 104,737 $ 221,650
Microwave relocation costs .......... 12,457 47,835
Capitalized interest ................ 913 1,005
--------- ---------
118,107 270,490
Accumulated amortization ............ -- (2,808)
$ 118,107 $ 267,682
========= =========
</TABLE>
Amortization expense related to PCS licenses, its related capitalized
interest, and microwave relocation costs for the years ended December 31, 1997,
1998 and 1999 was $0, $0, and $2,808, respectively.
7. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
------- -------
<S> <C> <C>
Property and equipment ................. $85,635 $32,725
Sales taxes ............................ -- 8,263
Bonuses and vacation ................... 2,386 6,079
Selling and marketing .................. 347 3,496
Other .................................. 6,700 7,955
------- -------
95,068 58,518
Less: non-current portion .............. 196 6,541
------- -------
$94,872 $51,977
======= =======
</TABLE>
8. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
-------- --------
<S> <C> <C>
Senior subordinated discount notes ......... $ -- $354,291
Senior credit facilities ................... 225,000 225,000
Lucent notes payable ....................... 10,460 43,504
U.S. Government financing .................. 7,925 17,776
-------- --------
243,385 640,571
Less: current portion ...................... -- 1,361
-------- --------
$243,385 $639,210
======== ========
</TABLE>
F-15
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
Senior Subordinated Discount Notes
On April 23, 1999, the Company completed the issuance and sale of 115/8%
Senior Subordinated Discount Notes (the Notes) with an aggregate principal
amount at maturity of $575,000. The total gross proceeds from the sale of the
Notes were $327,635. Offering expenses consisting of underwriting, printing,
legal and accounting fees totaled $10,999. 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 beginning October 15, 2004. The Notes are not collateralized. The
Notes are subordinate to all of the Company's existing and future senior debt
and ranks equally with all other senior subordinated debt, and ranks senior to
all of the Company's existing and future subordinated debt. The Notes are
guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications,
Inc. (see Note 19). As of December 31, 1999 accrued interest added to the
principal was $26,656. In October 1999, the Company registered the Notes with
the Securities and Exchange Commission to become publicly traded securities.
Offering expenses totaled $917 and are accounted for as debt issuance costs.
Senior Credit Facilities
In July 1998, the Company entered into a credit facility (the Senior Credit
Facility) with a group of commercial lenders, under which the Company may borrow
up to $525,000, in the aggregate, consisting of (i) up to $150,000 in revolving
loans (the Senior Revolving Credit Facility) with a maturity date of January
2007, (ii) a $150,000 term loan (the Tranche A Term Loan) with a maturity date
of January 2007, and (iii) a $225,000 term loan (the Tranche B Term Loan) with a
maturity date of January 2008. In October 1999, the Company entered into
amendments to increase the amount of credit available to $560,000. A total of
$225,000 of indebtedness from the Tranche B Term Loan was outstanding as of
December 31, 1998 and 1999. The Senior Credit Facility also provides for an
uncommitted $75,000 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; next four, $9,375; last eight,
$11,250. Quarterly principal repayments for the Tranche B Term Loan are as
follows: first 18, $562, last four, $53,721. 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; last four reductions $25,000. 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 the amount of the
Tranche A Term Loan will be automatically reduced by such excess.
The interest rate applicable to the Senior Credit Facility is based on, at
the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable Margin,
as defined, or (ii) the higher of the administrative agent's prime rate or the
Federal Funds Effective Rate (ABR Loans), plus the Applicable Margin, as
defined. The Applicable Margin for Eurodollar Loans will range from 125 to 325
basis points based upon certain events by the Company, as specified. The
Applicable Margin for ABR Loans will range from 25 to 225 basis points based
upon certain events by the Company, as specified. At December 31, 1998, the
interest rate applicable to the Tranche B Term Loan was 8.75% and interest
incurred for the year ended December 31, 1998 was $9,210 of which $7,710 was
expensed and $1,500 was capitalized. At December 31, 1999, the interest rate
applicable to the Tranche B Term Loan was 9.12%,
F-16
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
and for the year ended December 31, 1999 interest incurred on the Tranche B Term
Loan was $19,110 of which $13,793 was expensed and $5,317 was capitalized.
The loans from the Senior Credit Facility are subject to an annual
commitment fee which ranges from 0.50% to 1.25% of the available portion of the
Tranche A Term Loan and the Senior Revolving Credit Facility. The Company has
expensed $3,306 and $3,817, for the year ended December 31, 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 1999, the Company
hedged 100% of its outstanding indebtedness of $225,000 to take advantage of
favorable interest rate swaps. The six outstanding interest rate swap contracts
fix LIBOR at annual interest rates from 5.20% to 5.26%. The contracts mature in
September of 2003.
Initially, borrowings under the Senior Credit Facility are subject to a
maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio has
been increased to 55% because certain specified operating benchmarks have been
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 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 Notes Payable
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. 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 and 1999, the Company had $10,460 and $43,504, respectively
outstanding under the Series A Notes. During the year ended December 31, 1999,
the Company borrowed and repaid $40,000 on the Lucent Series B Notes plus $228
of accrued interest. Interest expense for the years ended December 31, 1998 and
1999 was $460 and $3,044, respectively.
The Series A and Series B Notes will not amortize and will have a maturity
date six months after the final maturity of the Company's high yield debt
offering, but in no event later than May 1, 2012. The Series A Notes will have a
mandatory redemption at par plus accrued interest from the proceeds of a
subsequent equity offering to the extent the net proceeds exceed an amount
identified in the Lucent Note Agreement. If the Series A Notes and Series B
Notes are not redeemed in full by January 2001 and January 2000, respectively,
the interest rate on each note will increase by 1.5% per annum on January 1.
However, the interest rate applicable to the Subordinated Notes shall not exceed
12.125%. Interest payable on the Series A Notes and the Series B Notes on or
prior to May 11, 2004 shall be payable in additional Series A and Series B
Notes. Thereafter, interest shall be paid in arrears in cash on each six month
and yearly anniversary of the Series A and Series B closing date or, if cash
interest payments are prohibited
F-17
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
under the Senior Credit Facility and/or the Senior Subordinated Discount Notes,
in additional Series A and Series B Notes. As of December 31, 1998 and 1999,
interest accrued under the Series A Notes of $460 and $3,504, respectively has
been included in long-term debt.
The Company may redeem the Subordinated Notes held by Lucent or any of its
affiliates at any time. The Series A Notes that are not held by Lucent or any of
its affiliates may be redeemed by the Company prior to May 2002 and after May
2007. The Series B Notes that are not held by Lucent or any of its affiliates
may be redeemed by the Company prior to May 2000 and after May 2005. Any
redemption after May 2007, in the case of the Series A Notes, and May 2005, in
the case of the Series B Notes, shall be subject to an interest rate premium, as
specified. All of the outstanding notes under the Lucent Note Agreement as of
December 31, 1998 and 1999 are held by Lucent. The Company must comply with
certain operating covenants. As of December 31, 1998 and 1999, the Company was
in compliance with these operating covenants.
In October 1999, the Company entered into an amended and restated note
purchase agreement with Lucent for the issuance of up to $12,500 of new series A
notes and up to $12,500 of new series B notes under a vendor expansion facility
in connection with prior acquisitions of licenses in certain markets. The terms
of these notes issued under these facilities are identical to the original
Lucent series A and series B notes.
In addition, pursuant to the amended and restated note purchase agreement,
Lucent has agreed to make available up to an additional $50.0 million of new
vendor financing not to exceed an amount equal to 30% of the value of equipment,
software and services provided by Lucent in connection with any additional
markets the Company acquires. 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 the
Company's senior credit facilities. Any notes purchased under this facility
would be divided equally between Lucent series A and series B notes. The terms
of Lucent series A and series B notes issued under these expansion facilities
would be identical to the terms of the original Lucent series A and series B
notes as amended, including a maturity date of October 23, 2009.
In addition, any Lucent series B notes issued under the vendor expansion
facility will mature and will be subject to mandatory prepayment on a dollar for
dollar basis out of the net proceeds of any future public or private offering or
sale of debt securities, exclusive of any private placement of notes issued to
finance any additional markets and borrowings under the senior credit facilities
or any replacement facility.
U.S. Government financing
As of December 31, 1998 and 1999, the Company owes the U.S. Government
$9,192 and $20,247, less a discount of $1,268 and $2,471, respectively, for the
acquisition of PCS licenses.
The terms of the notes related to the PCS licenses in New Orleans, Memphis,
Beaumont and Little Rock obtained during the 1997 F-Block auction 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 year ended December 31, 1999, the Company completed the
acquisition of additional PCS licenses from Digital PCS, LLC and Wireless 2000,
Inc. (see Note 10). As part of these acquisitions, the Company assumed
additional U.S. Government financing with the FCC amounting to $11,551, less a
discount of $1,631. The terms of the notes include an interest rate of 6.125%
for notes assumed from Digital PCS, LLC and 7.00% for notes assumed from
Wireless 2000, Inc., quarterly interest payments for a two-year period and then
quarterly principal and interest payments for the remaining eight years.
F-18
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
The notes were discounted using management's best estimate of the
prevailing market interest rate at the time of issuance of 10.25%.
In connection with entering into the senior credit facilities and the
senior-subordinated discount notes, the Company incurred certain debt issuance
costs. The Company capitalized debt issuance costs of $9,110 and $12,742, during
the years ended December 31, 1998 and 1999, respectively. The financing costs
are being amortized using the straight-line method over the term of the related
debt. For the years ended December 31, 1998 and 1999, the Company recorded
interest expense related to the amortization of the deferred financing costs of
$525 and $1,750, respectively.
As of December 31, 1999, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were as
follows:
<TABLE>
<CAPTION>
For the year ending December 31,
<S> <C>
2000 ............................................ $ 1,361
2001 ............................................ 1,448
2002 ............................................ 2,102
2003 ............................................ 5,561
2004 ............................................ 5,785
Thereafter ...................................... 847,494
--------
Total ........................................... $863,751
========
</TABLE>
9. AT&T Transaction
In January 1998, the Company entered into a Securities Purchase Agreement
(the Securities Purchase Agreement) with AT&T Wireless PCS, Inc. and TWR
Cellular, Inc. (both subsidiaries of AT&T Corporation and collectively referred
to as AT&T PCS), the stockholders of Holding and various venture capital
investment firms (the Cash Equity Investors). The Securities Purchase Agreement
allows the Company to be a provider of wireless mobility services in its
licensed regions utilizing the AT&T brand name.
Upon the receipt of FCC approval in July 1998, the Company finalized the
transaction contemplated in the Securities Purchase Agreement (the AT&T
Transaction). As a result, the Company (i) issued preferred stock and paid AT&T
$21,000 in exchange for 20 MHz PCS licenses with a fair value of $94,850 and
certain operating agreements with AT&T for exclusivity, network membership, long
distance and roaming with a fair value of $27,050 (ii) issued preferred and
common stock for 100% of the outstanding ownership interests in Holding, which
includes 10 MHz PCS licenses which was recorded at historical cost; and (iii)
issued preferred and common stock for a cash commitment from the Cash Equity
Investors of $128,000 to be paid over a three year term plus an additional
$5,000 upon the closing of the Digital PCS, Inc. transaction (see Note 10).
The general terms of the operating agreements with AT&T are summarized
below:
AT&T Exclusivity: The Company will be AT&T's exclusive
facilities-based provider of mobile wireless telecommunications
services within the Company's BTAs for an initial ten year period.
This agreement will automatically renew for a one-year term and then
operate on a year-to-year basis unless one party terminates at least
ninety (90) days prior to the end of any one-year term.
F-19
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
The Company has determined the fair value of this agreement to be
$11,870 and is amortizing this value over the initial 10 year term.
Network Membership License Agreement: The Network Membership License
Agreement (the License Agreement) defines that AT&T will make
available to the Company use of the AT&T logo and the right to refer
to itself as a "Member of the AT&T Wireless Network" to market its PCS
services. Through the use of these rights, the Company expects to
participate in and benefit from AT&T promotional and marketing
efforts. The License Agreement has an initial five-year term with a
five-year renewal term if both the Company and AT&T elect to renew at
least ninety 90 days prior to the expiration of the initial term. The
Company determined the fair value of this agreement to be $8,480 and
is amortizing this value over the initial five-year term.
o Intercarrier Roamer Services Agreement: AT&T and the Company have
entered into a twenty-year reciprocal roaming agreement provided that
their customers who own tri-mode phones will roam on the other's
mobile wireless systems at commercially reasonable rates to the extent
commercially and technologically feasible. Thereafter, this agreement
shall renew automatically on a year-to-year basis unless either the
Company or AT&T terminates this agreement by written notice at least
90 days prior to the conclusion of the original or any subsequent
term. After ten years, this agreement may be terminated by the Company
or AT&T at any time upon 90 days prior written notice.
The Company has determined the value of this roaming agreement to be
$3,500 and is amortizing this value over the initial 10-year term.
o Long Distance Agreement: The long distance agreement provides that
AT&T will be the exclusive provider for long distance services to the
Company's customers within the Company's licensed regions for an
initial three year period. The long distance agreement requires that
the Company meet a minimum traffic volume commitment during the term
of the agreement. If the Company fails to meet such volume
commitments, the Company must pay to AT&T the difference between the
expected fee based on the volume of the commitment and the fees based
on actual volume.
The Company had determined the fair value of this agreement to be
$3,200 and is amortizing this value over the initial three-year term.
Triton PCS, Inc. (Triton), Tritel Communications (Tritel), and the Company
have adopted a common brand, SunCom, which is co-branded with equal emphasis
with the AT&T brand name and logo. On April 16, 1999, Triton, Tritel and
TeleCorp Communications formed a new company, Affiliate License Co., L.L.C., to
own, register and maintain the marks SunCom, SunCom Wireless and other SunCom
and Sun formative marks (SunCom Marks) and to license the SunCom marks to
Triton, Tritel and the Company. Triton, Tritel and TeleCorp Communications each
have a 33% membership interest in Affiliate License Co., L.L.C. On April 16,
1999, Triton entered into an agreement to settle a potential dispute regarding
prior use of the SunCom brand. In connection with this settlement, Triton agreed
to pay $975 to acquire the SunCom Marks that were contributed to Affiliate
License Co., L.L.C. The Company paid $325 in royalty payments to reimburse
Triton for the contributed SunCom marks.
10. 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 $6,114 was
F-20
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
comprised of $2,335 of mandatorily redeemable preferred stock and common stock
of the Company, the assumption of U.S. Government financing with the FCC of
$4,102 less a discount of $609, and $286 in cash as reimbursement to Digital
PCS, LLC, for interest due to the FCC incurred prior to close and legal costs.
The entire purchase price has been allocated to the PCS license.
As a result of completing the transaction with Digital PCS, LLC, the Cash
Equity Investors have irrevocably committed to contribute $5,000 in exchange for
mandatorily redeemable preferred stock and common stock over a two year period
from the close of this transaction. As of December 31, 1999 the Company has
received $2,200 of the $5,000 commitment.
On May 24, 1999, the Company sold mandatorily redeemable preferred stock
and preferred stock to AT&T for $40,000. 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 in cash plus legal fees of $252. The purchase
price has been allocated to the assets acquired, based upon their estimated fair
value as follows:
<TABLE>
<S> <C>
PCS licenses ..................................................... $70,421
Intangible assets--AT&T Agreements ............................... 17,310
Cell sites site acquisition, switching facility assets
and other assets ............................................... 9,015
Microwave relocation costs ....................................... 3,200
-------
$99,946
</TABLE>
As a result of completing this transaction, the Company's available
borrowings under the Lucent Note Agreement increased by $15,000 ($7,500 of
Series A and $7,500 of Series B) and certain Cash Equity Investors committed
$39,997 in cash in exchange for mandatorily redeemable preferred and common
stock. The Cash Equity Investors cash commitment of $39,997 will be funded over
a three-year period from the close of this transaction. As of December 31, 1999,
the Company received $17,999 of this cash commitment. As a part of obtaining
this additional preferred and common stock financing, the Company paid $2,000 to
a Cash Equity Investor upon the closing of the transaction. In addition, certain
officers, the Chief Executive Officer and the Executive Vice President and Chief
Financial Officer of the Company were issued fixed and variable awards of 5,318
and 2,380,536 restricted shares of mandatorily redeemable Series E preferred
stock and Class A common stock, respectively, in exchange for their interest in
Puerto Rico Acquisition Corporation. Puerto Rico Acquisition Corporation was a
special purpose entity wholly-owned by the Company's Chief Executive Officer and
Executive Vice President and Chief Financial Officer. The fixed awards typically
vest over a five-year period. The estimated fair value of these shares has been
recorded as deferred compensation and is being amortized over the related
vesting periods. The variable awards vested based upon the completion of the
Company's initial public offering.
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 was comprised of $371 of mandatorily redeemable
preferred stock and common stock of the Company, the assumption of U.S.
Government financing with the FCC of $7,449 less a discount of $1,022 and $650
in cash as reimbursement of microwave relocation costs and reimbursement of FCC
interest and legal costs. The entire purchase price has been allocated to the
PCS licenses acquired.
In February 1999, Viper Wireless, Inc. (Viper), was formed to participate
in the C-Block PCS license reauction for additional spectrum in most of the
Company's markets. Viper was initially capitalized for $100 and was
equally-owned by the Company's Chief Executive Officer and Executive Vice
President-Chief Financial Officer. In order to
F-21
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
participate in the reauction, the Company paid the FCC an initial deposit of
$17,819, on behalf of Viper. Simultaneously, the Company transferred this
initial deposit to Viper in exchange for an 85% ownership interest which
represented a 49.9% voting interest.
On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz
licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico
and Jackson, Tennessee and 30 MHz licenses in Beaumont, Texas. The total auction
price is $32,286 plus legal fees of $47. During the year ended December 31,
1999, the FCC refunded $11,361 of the initial deposit; however, the Company was
required to pay the FCC $11,059 as a final deposit on behalf of Viper. As of and
for the year ended December 31, 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 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 to an affiliate of a Cash Equity Investor for closing this preferred and
common stock financing. In May and July 1999, AT&T and certain Cash Equity
Investors funded approximately $17,516 of their commitment to the Company. The
Company made its final payment of $14,770 to the FCC on September 13, 1999 with
respect to these licenses and received the remaining funding commitments from
AT&T and the certain Cash Equity Investors on September 29, 1999.
11. Mandatorily Redeemable Preferred Stock and Stockholders' Equity
Holding
Holding's authorized capital stock consisted of 6,000 shares of no par
value mandatorily redeemable Series A preferred stock, 125,000 shares of no par
value Class A common stock, 175,000 shares of no par value Class B common stock
and 175,000 shares of no par value Class C common stock. This capital stock was
in existence during 1996, 1997, and through July 1998, the closing of the AT&T
Transaction, at which time Holding became a wholly-owned subsidiary of the
Company. Subsequent to the AT&T Transaction, the authorized and outstanding
shares of Holding were cancelled and replaced with 1,000 authorized shares of
common stock of which 100 shares were issued to the Company.
F-22
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
TeleCorp
On May 14, 1999, TeleCorp restated its Certificate of Incorporation, which
was subsequently amended. The Restated Certificate of Incorporation, as amended,
provides the Company with the authority to issue 918,339,090 shares of stock,
consisting of the following:
<TABLE>
<CAPTION>
Par Shares Par Shares
Preferred Stock Value Authorized Common Stock Value authorized
----- ---------- ------------ ----- ----------
<S> <C> <C> <S> <C> <C>
Mandatorily redeemable
Series A .................. $0.01 100,000 Class A ................. $0.01 608,550,000
Mandatorily redeemable
Series B .................. $0.01 200,000 Class B ................. $0.01 308,550,000
Mandatorily redeemable
Series C .................. $0.01 215,000 Class C tracked ......... $0.01 309,000
Mandatorily redeemable
Series D .................. $0.01 50,000 Class D tracked ......... $0.01 927,000
Mandatorily redeemable
Series E .................. $0.01 30,000 Voting Preference ....... $0.01 3,090
Series F ...................... $0.01 15,450,000
---------- -----------
Total ................. 16,045,000 Total ................ 918,339,090
========== ===========
</TABLE>
The following schedules represent the transactions that took place with
respect to Holding's mandatorily redeemable preferred stock and common stock for
the year ended December 31, 1998.
<TABLE>
<CAPTION>
Series A preferred stock
----------------------------
Shares Amount
----------- -----------
<S> <C> <C>
Balance, December 31, 1997 ................... 367 $ 4,144,340
Accretion of preferred stock dividends ....... -- 224,484
Recapitalization of Holding .................. (367) (4,368,824)
----------- -----------
Balance, December 31, 1998 ................... -- $ --
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class C
Common stock Common stock Common stock Common stock
------------------ ------------------ ------------------ --------------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 .. 4,834 856 1,974 -- 12,527 856
Recapitalization of Holding . (4,834) (856) (1,974) -- (12,527) -- 100 -- (856)
Elimination of 100% of equity
interests in Holding .... -- -- -- -- -- -- (100) -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1998 .. -- $ -- -- $ -- -- $ -- -- $ -- $ --
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-23
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
($ in thousands, except for per share data)
The following schedule represents the transactions that took place with
respect to TeleCorp's mandatorily redeemable preferred stock, Series F preferred
stock and common stock for the period July 1998 to December 31, 1999:
<TABLE>
<CAPTION>
Series A Series C Series D
Preferred stock Preferred stock Preferred stock
Shares Amount Shares Amount Shares Amount
------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Mandatorily redeemable
preferred stock
Issuance of preferred stock to AT&T PCS for
licenses
and AT&T Agreements ................... 66,723 $ 66,723 -- $ -- 34,267 $ 34,143
Issuance of preferred stock to cash Equity
Investors, net of issuance costs of
$1028 ................................. -- -- 128,000 126,848 -- --
Accretion of preferred stock
dividends ............................. -- 3,040 -- 3,819 -- 946
Noncash issuance of
restricted stock ...................... -- -- -- -- -- --
Repurchase of restricted stock for cash ... -- -- -- -- -- --
Noncash issuance of preferred stock for
equity of
Holding ................................... -- -- 7,348 4,334 -- --
------ -------- ------- -------- ------ --------
Balance, December 31, 1998 ................ 66,723 69,763 135,348 135,001 34,267 35,089
Issuance of preferred stock
for cash, net of issuance
costs of $2,500 ....................... 30,750 30,454 72,382 51,089 15,150 11,080
Issuance of preferred stock
for PCS licenses and
operating agreements .................. -- -- 2,878 2,674 -- --
Accretion of preferred stock
dividends ............................. -- 9,124 -- 10,939 -- 2,646
Noncash issuance of
restricted stock ...................... -- -- -- -- -- --
Repurchase of restricted stock or cash .... -- -- -- -- -- --
------ -------- ------- -------- ------ --------
Balance, December 31,
1999 .................................. 97,473 $109,341 210,608 $199,703 49,417 $ 48,815
====== ======== ======= ======== ====== ========
<CAPTION>
Series E
Preferred stock
Shares Amount Total
------- --------- ---------
<S> <C> <C> <C>
Mandatorily redeemable
preferred stock
Issuance of preferred stock to AT&T PCS for
licenses
and AT&T Agreements ................... -- $ -- $ 100,866
Issuance of preferred stock to cash Equity
Investors, net of issuance costs of
$1,028 ................................ -- -- 126,848
Accretion of preferred stock
dividends ............................. -- 541 8,346
Noncash issuance of
restricted stock ...................... 5,505 6 6
Repurchase of restricted stock for cash ... (784) (1) (1)
Noncash issuance of preferred stock for
equity of
Holding ................................... 14,156 10 4,344
------- --------- ---------
Balance, December 31, 1998 ................ 18,877 556 240,409
Issuance of preferred stock
for cash, net of issuance
costs of $2,500 ....................... -- -- 92,623
Issuance of preferred stock
for PCS licenses and
operating agreements .................. -- -- 2,674
Accretion of preferred stock
dividends ............................. -- 1,415 24,124
Noncash issuance of
restricted stock ...................... 6,741 353 353
Repurchase of restricted stock or cash .... (577) (1) (1)
------- --------- ---------
Balance, December 31,
1999 .................................. 25,041 $ 2,323 $ 360,182
======= ========= =========
</TABLE>
F-24
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
<TABLE>
<CAPTION>
Class C Class D Voting
tracked tracked Preference
Series F Class A Common stock Common stock Common stock
Preferred stock Common stock --------------- -------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Total
---------- ------ ----------- ------ ------- ------ ------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Series F preferred and
Common stock
Issuance of common
Stock to Cash Equity
Investors for cash ............. -- $ -- 37,540,390 $375 110,549 $1 827,487 $8 -- $ -- $ 384
Issuance of preferred
Stock to AT&T PCS
For licenses and
AT&T agreements ................ 10,308,676 103 -- -- -- -- -- -- -- -- 103
Exchange of 100% of
Equity interests in
Predecessor Company
For equity in the
Company ........................ -- -- 7,583,463 76 173,264 2 23,942 -- 3,090 -- 78
Noncash issuance of
Restricted stock ............... -- -- 3,095,473 31 -- -- -- -- -- -- 31
Repurchase of restricted
Stock for cash ................. -- -- (552,474) -- -- -- -- -- -- -- --
---------- ---- ----------- ---- ------- -- ------- -- ----- ---- ------
Balance, December 31,
1998 ........................... 10,308,676 103 47,666,852 482 283,813 3 851,429 8 3,090 596
Issuance of common
Stock and preferred
Stock for cash ................. 4,604,102 46 22,366,242 224 -- -- -- -- -- -- 270
Issuance of Common
Stock in Initial
Public Offering ................ -- -- 10,580,000 106 106
Issuance of common
Stock for PCS
Licenses and operating
Agreements ..................... -- -- 865,089 9 -- -- -- -- -- -- 9
Noncash issuance of-
Restricted stock ............... -- -- 3,382,493 24 -- -- -- -- -- -- 24
Repurchase of restricted
Stock for cash ................. -- -- (406,787) -- -- -- -- -- -- -- --
---------- ---- ----------- ---- ------- -- ------- -- ----- ---- ------
Balance, December 31,
1999 ........................... 14,912,778 $149 84,453,889 $845 283,813 $3 851,429 $8 3,090 $ -- $1,005
========== ==== =========== ==== ======= == ======= == ===== ==== ======
</TABLE>
Stock Split
On August 27, 1999 and on November 5, 1999, the Company filed amendments to
its certificate of incorporation with the Delaware Secretary of State to effect
a 100 for 1 stock split and 3.09 for 1 stock split respectively, of its
outstanding and authorized Series F preferred stock and all classes of its
common stock. The stock splits have been retroactively reflected in the
financial statements for all periods presented. In addition, the amendment to
the Company's certificate of incorporation increased the authorized number of
shares of each of the Class A common stock and the Class B common stock by 15
million. In addition, the Board of Directors and the stockholders approved
further amendments and restatements to the Company's certificate of
incorporation becoming effective upon the closing of the Company' initial public
offering, including a 300 million increase in the number of authorized shares of
the Company's class A common stock.
F-25
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
Initial Public Offering and Concurrent Offering
On November 23, 1999 in an initial public offering of 10.58 million shares
of Class A common stock for $20.00 per share, the Company raised proceeds of
approximately $197,317, net of underwriter's discount of $3,703. Offering costs,
including legal, accounting and printing costs associated with the offering
totaled $1,801, and these costs were charged directly against paid-in capital.
In a concurrent offering to AT&T Wireless, the Company issued 2,245,000
shares of Class A common stock for $18.65 per share. The Company raised proceeds
of $41,869, which was received on January 18, 2000.
There are no issued or outstanding shares of Series B preferred stock,
Senior common stock or Class B common stock as of December 31, 1999.
F-26
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
The conversion features and conversion prices of the Company's issued stock
are summarized below:
<TABLE>
<CAPTION>
Convertible Security Convertible Into Conversion Price
-------------------- ---------------- ----------------
<S> <C> <C>
Series A preferred stock After July 2006, at the The Series A conversion rate
holders' option, into Class A is equal to the liquidation
common stock Preference of the Series A
preferred stock on the
conversion date Divided by the
market price of the Class A
common stock on the Conversion
date.
Series C preferred stock At the option of the Company The liquidation preference of
at the IPO date into either the Series C preferred stock
Class A or B common stock divided By the IPO price of
$20.00 per share.
Series D preferred stock If Series C preferred stock is The liquidation preference
Converted then automatically divided by the IPO price of
at the IPO date into Senior $20.00 per share.
common stock
Series E preferred stock At the option of the Company The liquidation preference of
at the IPO date into either the Series E preferred stock
Class A or Class B common divided By the IPO price of
stock $20.00 per share.
Series F preferred stock and At the holders' option, into One share of Series F
Senior common stock Class A, Class B or Class D preferred stock or Senior
common stock, Depending upon common stock for One share of
the occurrence of certain either Class A, Class B or
defined events Class D common stock.
Class A common stock At the holders' option into One share of Class B common
Class B common stock stock for one share of Class A
Common stock.
Class C tracked common Subject to FCC constraints and One share of Class A or Class
Stock Board approval, at the B common stock for one share
holders' option and by of Class C tracked common
affirmative vote of at least stock.
66 2/3% of Class A common stock
into Class A or Class B common
stock
Class D tracked common Subject to FCC constraints and One share of Class A or Class
Stock Board approval, at the B common stock for one share
holders' option and by of Class D tracked common
affirmative vote of at least stock.
66 2/3% of Class A common stock
into Class A or Class B common
stock
</TABLE>
F-27
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
The conversion features and conversion prices of the Company's issued stock
are summarized below:
Liquidation rights
In the event of any liquidation, dissolution or winding up of the Company,
as defined, the stockholders of the Company are entitled to liquidation
preferences as follows:
Order of
Distribution Stock Classification Distribution Preference
- ------------ -------------------- -----------------------
Second Series C and Series D Series C: actual paid-in
preferred stock capital per share plus accrued
and unpaid dividends plus
interest of 6% per annum on
the actual paid-in capital,
compounded quarterly, less
amount of dividends declared
and paid.
Series D: $1,000 per share
plus accrued and unpaid
dividends plus an amount equal
to interest on $1,000 per
share at a rate of 6% per
annum, compounded quarterly,
less amount of dividends
declared and paid.
Third Series E preferred stock Accrued and unpaid dividends,
plus an amount equal to
interest on $1,000 per share
at 6% per annum, compounded
quarterly, less dividends
declared and paid.
Fourth Series F preferred stock Series F preferred: $0.000032
and Senior per share plus accrued and
common stock unpaid dividends.
Senior common stock: The sum
of the liquidation preference
of each share of Series D and
Series F preferred stock
converted in Senior common
stock divided by the aggregate
number of shares of Senior
common stock issued upon
conversion of shares of Series
D and Series F preferred stock
Dividends and voting rights
The holders of the Series A and Series B preferred stock are entitled to
cumulative quarterly cash dividends at an annual rate of 10% of the liquidation
preference of the then outstanding shares. The holders of the remaining shares
of preferred and common stock are entitled to dividends if and when declared.
F-28
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
The Class A common stock has 15,419,100 voting rights and the Voting
Preference common stock has 15,480,900 voting rights. The remaining shares of
preferred and common stock shall have no voting rights, except as provided by
law or in certain limited circumstances.
Call and Redemption features
The preferred stock is callable at the option of the Company at a price
equal to the liquidation preference on the redemption date. The Series A
preferred stock is callable thirty days after the 10th anniversary of the
issuance of such shares. The Series B preferred stock is callable at any time.
The Series C and Series D preferred stock are callable at any time, provided
that the Series C and Series D Preferred Stock are called concurrently.
The Series A, Series B, Series C, Series D and Series E preferred stock are
redeemable thirty days after the 20th anniversary of the issuance of such shares
at the option of the holder at a price equal to the liquidation preference on
the redemption date. The Series F preferred stock is not redeemable. Pursuant to
a Management Agreement, the Company may redeem certain shares of Class A common
stock and Series E preferred stock held by the Company's Chief Executive Officer
and Executive Vice President (the TMC officers). For the period from the
finalization of the AT&T Transaction to December 31, 1998, the Company accreted
$8,345 of dividends in connection with this redemption feature.
Tracked common stock
The Class C and Class D common stock have been designated as Tracked common
stock. The holders of the Tracked common stock are entitled to a dividend, when
available, equal to the excess of the fair value of the net assets of Holding
over the aggregate par value of the outstanding shares of the Tracked common
stock. After all other preferential liquidating distributions have been made,
the holders of the Tracked common stock will be entitled to a liquidation
preference equal to the excess of the fair value of the net assets of Holding.
Participating stock
The Series F preferred stock, the Senior common stock and the Class A and B
common stock are participating stock, and the Board of Directors may not declare
dividends on or redeem, purchase or otherwise acquire for consideration any
shares of the Participating Stock, unless the Board of Directors makes such
declaration or payment on the same terms with respect to all shares of
participating stock, ratably in accordance with each class and series of
participating stock then outstanding.
F-29
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss $ (3,335) $ (51,155) $ (250,996)
Less: accretion of manditorily
redeemable preferred stock (726) (8,567) (24,124)
------------ ------------ ------------
Net loss attributable to common equity $ (4,061) $ (59,722) $ (275,120)
============ ============ ============
Denominator:
Basic and diluted net loss per share-
weighted average shares 36,340 27,233,786 76,895,391
============ ============ ============
Net loss attributable to common equity per
share - basic and diluted $ (111.74) $ (2.19) $ (3.58)
============ ============ ============
</TABLE>
The following equity instruments were not included in the diluted net loss per
share calculation because their effect would be anti-dilutive.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Manditorily redeemable preferred stock series A -- -- 97,473
Stock options -- -- 545,497
</TABLE>
12. Restricted Stock Plan and Restricted Stock Awards
In July 1998, the Company adopted a Restricted Stock Plan (the Plan) to
attract and retain key employees and to reward outstanding performance. Key
employees selected by management may elect to become participants in the Plan by
entering into an agreement which provides for issuance of fixed and variable
units consisting of Series E mandatorily redeemable preferred stock and Class A
common stock. The fixed units typically vest over a five or six year period. The
variable units vest based upon certain events taking place, such as buildout
milestones, Pop coverage, the completion of an initial public offering and other
events. Unvested shares are forfeited upon termination of employment. The shares
issued under the Plan shall consist of units transferred to participants without
payment as additional compensation for their services to the Company. The total
number of units that may be awarded to key employees shall not exceed 7,085
units and 4,000,000 shares of Series E preferred stock and Class A common stock,
respectively, as determined upon award. Any units not granted on or prior to
July 17, 2003 shall be awarded to two officers of the Company. Each participant
has voting, dividend and distribution rights with respect to all shares of both
vested and unvested common stock. After the Class A shares become publicly
traded, the right of first offer will no longer exist for the Series E preferred
shares. In addition the shares contain rights of inclusion and first
negotiation. The Company may repurchase unvested shares, and under certain
circumstances, vested shares of
F-30
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
participants whose employment with the Company
terminates. The repurchase price is equal to $0.01 and $0.00003 per share for
the Series E preferred and common stock, respectively.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Series E Estimated Estimated
preferred fair value Class A fair value
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Shares awarded ................................. 5,505 $ 1.00 3,095,473 $ .003
Repurchases .................................... (784) -- (552,474) --
----- ------------- --------- ------------
Balance, December 31, 1998 ..................... 4,721 $ 1.00 2,542,999 $ .003
Shares awarded ................................. 2,677 $52.00-$72.98 1,748,609 $.003-$20.00
Repurchases .................................... (577) -- (406,787) --
----- ------------- --------- ------------
Balance, December 31, 1999 ..................... 6,821 $ 1.00-$72.98 3,884,821 $.003-$20.00
===== =========
</TABLE>
Deferred compensation and compensation expense related to the issuance of
restricted stock to employees, based on the estimated fair value of the
preferred and common stock, was immaterial for the year ended December 31, 1998.
Certain awards granted under the Plan were variable awards. Upon the
initial offering, the variable stock awards became fixed. At that point, the
Company recorded deferred compensation expense based on the difference between
the estimated fair value and the exercise price of the award in the amount of
$61,999. For the year ended December 31, 1999, the Company recorded compensation
expense related to those restricted stock awards of $29,997. The remaining
deferred compensation balance related to the restricted stock awards of $32,000
will be recognized as compensation expense over the remaining vesting period.
Outstanding fixed awards and variable awards as of December 31, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
--------- ---------
<S> <C> <C>
Series E preferred stock:
Fixed awards ........................... 3,664 6,821
Variable awards ........................ 1,057 --
--------- ---------
Total Series E awards .......... 4,721 6,821
========= =========
Class A common stock:
Fixed awards ........................... 1,152,605 3,884,821
Variable awards ........................ 1,390,394 --
--------- ---------
Total Class A awards ........... 2,542,999 3,884,821
========= =========
</TABLE>
The Chief Executive Officer and the Executive Vice President were issued
variable restricted stock awards outside of the Restricted Stock Plan. Upon the
initial public offering, the variable stock awards became fixed. At that point,
the Company recorded deferred compensation expense based the difference between
the estimated fair value and the exercise price of the award. The company
recorded $19,613 as deferred compensation related to these awards and will
recognize that as compensation expense over the related vesting periods, of
which $14,809 was recorded as compensation expense for the year ended December
31, 1999.
13. Employee and Director Stock Option Plan
On July 22, 1999, the Company implemented the 1999 Stock Option Plan to
allow employees and members of the Board of Directors to acquire shares of Class
B common stock. The options have an option term of 10 years, ratable vesting
over a three to four year period, exercise prices equal to the estimated fair
value of the underlying
F-31
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
Class B common stock on the date of award and restrictions on exercisability
until (i) a qualified initial public offering (IPO) to which the Class A voting
common stock has been registered under the Securities Act of 1933 for aggregate
proceeds of $20,000, (ii) the sale of all or substantially all of the assets of
the Company or (iii) the sale of all or substantially all of the outstanding
capital stock of the Company. The Company has reserved 1,814,321 shares of Class
A common stock for issuance under this plan.
The 581,967 stock options awarded during the period from July 22, 1999 to
November 23, 1999 represented variable awards since their exercisability was
restricted until the completion of the initial public offering, sale of assets
or sale of the Company. Therefore, the measurement date occurred when the
exercisability restrictions were relieved, upon the initial public offering. At
that point, the Company recorded deferred compensation expense based on the
difference between the initial public offering of $20.00 per share and the
exercise price of the award. All awards after the initial public offering are
fixed awards. The Company recorded $11,050 as deferred compensation related to
the stock option awards and will recognize expense over the related vesting
periods, of which $1,473 was recorded as compensation expense for the year ended
December 31, 1999.
A summary of the status of the Company's stock option plan is presented below:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Remaining Average
Option Price Contractual Exercise
Shares Range per share Life (Years) Price
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1998 -- $ -- -- $ --
Granted 611,967 0.0065 - $37.88 3.2 $ 128
Exercised -- -- -- --
Forfeited (66,470) $ 0.0065 3.1 $ 0.0065
------------------ ------------------ ------------------ ------------------
Outstanding at December 31, 1999 545,497 $ 0.0065 - $37.88 3.2 $ 1.43
================== ================== ================== ==================
Options vested at December 31, 1999 76,801 $ 0.0065 3.1 $ 0.0065
================== ================== ================== ==================
</TABLE>
No options were exercisable as of December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1999
------------------------------------------------------
Weighted Average
Remaining
Weighted Average Contractual Life
Exercise Price Number of Shares Remaining
-------------- ---------------- ---------
<S> <C> <C>
$ .0065 515,497 3.1
$ 20.00 20,000 4.0
$ 37.88 10,000 4.0
--------- --------- ---------
$ 1.43 545,497 3.2
========= ========= =========
</TABLE>
F-32
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
During the year ended December 31, 1999, the Company granted options to purchase
611,967 shares of common stock, of which options to purchase 601,967 shares of
common stock were granted at exercise prices below fair market value.
<TABLE>
<CAPTION>
Options Granted for the Year Ended December 31, 1999
-------------------------------------------------------------------------------------------
Market Price Weighted average
Weighted Average of Stock on Fair Value of remaining
Shares Exercise Price Grant Date options life (year)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
581,967 $ 0.0065 $20.00 $20.00 3.1
10,000 $ 20.00 $20.00 $18.34 3.9
10,000 $ 20.00 $36.97 $34.82 4.0
10,000 $ 37.88 $39.25 $36.09 4.0
-------------- -------------- -------------- -------------- --------------
611,967 $ 1.28 $20.00- $39.25 $18.34 - $36.09 3.2
============== ============== ============== ============== ==============
</TABLE>
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company has elected to continue to follow the provisions of Accounting Principle
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and
to adopt the disclosure only provision of SFAS No. 123. If compensation expense
had been recorded based on the fair value at the grant dates for awards under
the Plan, the Company's pro forma net loss, pro forma basic net loss per share
and pro forma diluted net loss per share would have been the same as their
respective reported balances disclosed in the financial statements.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants issued during the year ended December 31, 1999: volatility factor of
100%, weighted average expected life of 10 years, weighted -average risk free
interest rate of 6%, and no dividend yield. The weighted average fair value of
grants made during the year ended December 31, 1999 was $20.52.
14. Preferred and Common Stock Subscriptions Receivable
In connection with the AT&T Transaction described in Note 9 and the
acquisitions described in Note 10, the Company received various cash commitments
from the Cash Equity Investors in exchange for Series C preferred stock and
various classes of common stock. Through December 31, 1998 and 1999 the Company
received $52,000 and $23,696 of the commitment. The Company has recorded a
preferred stock subscription receivable of $75,914 and $97,001 as of December
31, 1998 and 1999, respectively, as a reduction to the mandatorily redeemable
preferred stock and a common stock subscription receivable of $86 and $191 as of
December 31, 1998 and 1999, respectively, as a reduction to stockholders' equity
(deficit) for the unpaid commitment.
As of December 31, 1999, the agreements require the Cash Equity Investors
to fund their unconditional and irrevocable obligations in installments in
accordance with the following schedules:
<TABLE>
<CAPTION>
For the year ended December 31, Amount
------------------------------- ------
<S> <C>
2000 ................................................. $37,650
2001 ................................................. 48,351
2002 ................................................. 11,000
-------
Total ................................................ $97,001
=======
</TABLE>
F-33
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
15. Income Taxes
There was no provision for income tax for the years ended December 31,
1997, 1998 and 1999, respectively. The tax effect of temporary differences which
gives rise to significant portions of the deferred tax assets as of December 31,
1998 and 1999, respectively, are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1999
--------- ---------
<S> <C> <C>
Capitalized start-up costs ................. $ 17,599 $ 13,517
Net operating losses ....................... 3,635 92,579
Depreciation and amortization .............. 289 (14,180)
Original Issue Discount .................... 175 11,461
Other ...................................... (843) 1,402
--------- ---------
20,855 104,779
Less valuation allowance ................... (20,855) (104,779)
========= =========
$ -- $ --
========= =========
</TABLE>
For federal income tax purposes, start-up costs are being amortized over
five years starting January 1, 1999 when active business operations commenced.
As of December 31, 1999, the Company had approximately $244,000 of net operating
losses. The net operating losses will begin to expire in 2012. There may be a
limitation on the annual utilization of net operating losses and capitalized
start-up costs as a result of certain ownership changes that have occurred since
the Company's inception. A valuation allowance is recognized if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized. Based on the Company's
financial results, management has concluded that a full valuation allowance for
all of the Company's deferred tax assets is appropriate.
A reconciliation between income taxes from operations computed using the
federal statutory income tax rate and the Company's effective tax rate is as
follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Federal tax at statutory rates ............................ 34.0%
State tax expense
3.5%
Stock based compensation .................................. (4.1%)
Change in valuation allowance ............................. (33.4%)
====
0.0%
====
</TABLE>
16. 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 of radio, switching and related equipment and services
for the development of the Company's wireless communications network. At
December 31, 1998 and 1999, the Company has purchased approximately $90,900 and
$294,500, respectively, of equipment and services from Lucent since the
inception of the Vendor Procurement Contract.
The Company has operating leases primarily related to retail store
locations, distribution outlets, office space, and rent for the Company's
network build-out. The terms of some of the leases include a reduction of rental
payments and scheduled rent increases at specified intervals during the term of
the leases. The Company is recognizing rent
F-34
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
expense on a straight-line basis over the life of the lease, which establishes
deferred rent on the balance sheet. As of December 31, 1999, the aggregate
minimum rental commitments under non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31;
<S> <C>
2000 ................................ $ 21,605
2001 ................................ 21,375
2002 ................................. 21,057
2003 ................................. 18,374
2004 ................................. 10,330
Thereafter ........................... 27,999
--------
Total ........................ $120,740
========
</TABLE>
Rental expense was approximately $157, $3,193 and $13,792 for the years
ended December 31, 1997, 1998, and 1999, respectively.
The Company has entered into letters of credit to facilitate local business
activities. The Company is liable under the letters of credit for nonperformance
of certain criteria under the individual contracts. The total amount of
outstanding letters of credit was $1,425 and $1,576 at December 31, 1998 and
1999, respectively. The outstanding letters of credit reduce the amount
available to be drawn under the Senior Credit Facility (see Note 8). The Company
is unaware of any events that would have resulted in nonperformance of a
contract during the years ended December 31, 1998 and 1999.
The Company has minimum purchase commitments of 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.
Additionally, the Company has 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.
17. Related Parties
The Executive Vice President serves as a consultant to ML Strategies, a
division of the law firm, Mintz, Levin, Cohn, Ferris, Glozsky, and Popeo, PC
(the Firm). The Firm also provides services for the Company. The Company
incurred $506 during the year ended December 31, 1999 related services performed
by the Firm and the Company owed the Firm $50 at December 31, 1999.
The Company receives site acquisition, construction management, program
management, microwave relocation, and engineering services pursuant to a Master
Services Agreement with WFI. The Chief Executive Officer and Executive Vice
President and Chief Financial Office of the Company were formerly stockholders
and senior officers of WFI. Fees for the above services are as follows: $12 per
site for site acquisition services, $7 per site for construction management
services, $9 per site for program management and $1 for microwave relocation
services for all of the Company's existing regions. Fees for engineering
services are based upon WFI's customary hourly rates. For the years ended
December 31, 1997, 1998 and 1999, the Company paid $1,940, $30,720 and $75,975,
respectively, to WFI for these services. As of December 31, 1997, 1998 and 1999,
the Company owed WFI $171, $21,178 and $15,053, respectively. Subsequent to
December 31, 1997, the Chief Executive Officer and Executive Vice President sold
100% of their interests in WFI.
F-35
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
In April 1997, Holding entered into an agreement to transfer PCS licenses,
operating assets, liabilities and U.S. Government financing, for the Houston,
Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by
Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa, Inc.;
THC of Melbourne, Inc.; and THC of Orlando, Inc. (the THC entities). These
assets and liabilities were transferred in exchange for investment units of the
newly-formed THC entities which consisted of Class A, B and C common stock and
Series A preferred stock in August 1997. The carrying amount of the total assets
and liabilities transferred was $15,679 and $12,034, respectively.
Simultaneously, Holding reacquired shares of its preferred and common stock in a
$6,370 partial stock redemption through the exchange of the investment units in
the newly-formed companies of $3,645, which represented the net difference
between the cost of the assets and liabilities transferred and the issuance of
an aggregate of $2,725,of notes payable to those newly-formed THC entities.
As a result of this transfer, Holding no longer retains any ownership
interest in the THC entities. Because this transaction was non-monetary in
nature and occurred between entities with the same stockholder group, the
transaction was recorded at historical cost. Subsequent to the transfer, the
Company reduced the notes payable by $653 which represented certain costs
incurred by the Company on behalf of the THC entities for the year ended
December 31, 1997 pursuant to Transfer Agreements and Management Agreements. The
combined amounts owed THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc.,
and THC Orlando, Inc. of $2,073 as of December 31, 1997 were repaid in full
during 1998. As of December 31, 1998 and December 31, 1999, the combined amounts
owed by the Company to THC Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc.,
and THC Orlando, Inc. were $547 and $0, respectively.
As of December 31, 1997, the Company had amounts payable of $824, to
TeleCorp WCS, Inc. (WCS), an affiliate, formerly TeleCorp Management
Corporation, Inc. The amount payable to WCS represented $1,200 of funds received
by the Company on behalf of WCS related to wireless communications service
licenses owned by WCS reduced by expenses and other payments owed by WCS to the
Company. The entire balance due WCS as of December 31, 1997 was repaid during
1998.
Pursuant to a Management Agreement, TeleCorp Management Corp. (TMC)
provides assistance to the Company in the form of administrative, operational,
marketing, regulatory and general business services. For these services,
beginning in July 1998, the Company pays a management fee to TMC of $550 per
year plus reimbursement of certain business expenses, payable in equal monthly
installments, plus an annual bonus. The management agreement has a five-year
term, but may be terminated by the Company upon the occurrence of certain
defined events. TMC may terminate the agreement at any time with proper notice.
The Officers of TMC own all of the ownership interest in TMC. For the years
ended December 31, 1998 and 1999, the Company paid approximately $533 and 1,665
respectively, to TMC for these services.
The Company has entered into a Master Site Lease Agreement with American
Towers, Inc., a company partially owned by certain stockholders of the Company.
Under this arrangement American Towers provides network site leases for PCS
deployment. The Company has incurred $17 and $77 expense for the years ended
December 31, 1998 and 1999, respectively.
18. Defined Contribution Plan
During 1998, the Company established the TeleCorp Communications, Inc.
401(k) Plan (the 401(k) Plan), a defined contribution plan in which all
employees over the age of 21 are immediately eligible to participate in the
401(k) Plan. TeleCorp Communications, Inc. is a wholly-owned subsidiary of the
Company. Under the 401(k) Plan, participants may elect to withhold up to 15% of
their annual compensation, limited to $160 of total compensation as adjusted for
inflation. The Company may make a matching contribution based on a percentage of
the participant's contributions. Participants vest in the Company's matching
contributions as follows: 20% after one year; 60% after two years and 100% after
three years. Total Company contributions to the 401(k) Plan were $505 and $888
for the years ended December 31, 1998 and 1999, respectively.
F-36
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
19. Subsidiary Guarantee
On April 23, 1999, the Company completed the issuance and sale of 115/8% Senior
Subordinated Discount Notes. The Notes are fully and unconditionally guaranteed
on a joint and several basis by TeleCorp Communications, Inc., one of the
Company's wholly-owned subsidiaries. Summarized financial information of
TeleCorp, TeleCorp Communications, Inc. and non-guarantor subsidiaries as of
December 31, 1998 and 1999, and for the years ended December 31, 1998 and 1999
are as follows:
F-37
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
Balance Sheet Information as of December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--
Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
--------- --------- ------------- ------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 93,047 $ 21,441 $ (2,755) $ -- $ 111,733
Accounts receivable ......................... -- -- -- -- --
Inventory ................................... -- 778 -- -- 778
Intercompany receivables .................... 279,078 -- -- (279,078) --
Prepaid expenses ............................ -- 812 1,374 -- 2,186
Other current assets ........................ 637 581 -- -- 1,218
--------- --------- --------- --------- ---------
Total current assets .................. 372,762 23,612 (1,381) (279,078) 115,915
Property and equipment, net ........................ 1,499 90,072 105,915 (17) 197,469
PCS licenses and microwave relocation
Costs .......................................... -- 12,457 105,650 -- 118,107
Intangible assets--AT&T agreements ................. -- -- 26,285 -- 26,285
Deferred financing costs, net ...................... 8,585 -- -- -- 8,585
Other assets ....................................... 4,370 7 276 (4,370) 283
--------- --------- --------- --------- ---------
Total assets .......................... $ 387,216 $ 126,148 $ 236,745 $(283,465) $ 466,644
========= ========= ========= ========= =========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Due to affiliates ........................... $ -- $ 92,923 $ 186,155 $(279,078) $ --
Accounts payable ............................ -- 8,331 6,261 -- 14,592
Accrued expenses ............................ 13 41,645 53,214 -- 94,872
Microwave relocation obligation ............. -- 6,636 -- -- 6,636
Accrued interest ............................ 3,992 -- 499 -- 4,491
--------- --------- --------- --------- ---------
Total current liabilities ............. 4,005 149,535 246,129 (279,078) 120,591
Long-term debt ..................................... 235,460 -- 7,925 -- 243,385
Microwave relocation obligation .................... -- 2,481 -- -- 2,481
Accrued expenses and other ......................... -- -- 196 -- 196
--------- --------- --------- ---------
Total liabilities ..................... 239,465 152,016 254,250 (279,078) 366,653
--------- --------- --------- --------- ---------
Mandatorily redeemable preferred
stock .......................................... 240,409 -- -- -- 240,409
Deferred compensation .............................. -- (4) -- -- (4)
Treasury stock ..................................... -- -- -- -- --
Preferred stock subscriptions
Receivable ..................................... (75,914) -- -- -- (75,914)
--------- --------- --------- --------- ---------
Total mandatorily redeemable
preferred stock .................... 164,495 (4) -- -- 164,491
--------- --------- --------- --------- ---------
Series F preferred stock ........................... 103 -- -- -- 103
Common stock ....................................... 493 -- -- -- 493
Additional paid in capital ......................... -- -- 4,370 (4,370) --
Deferred compensation .............................. -- (7) -- -- (7)
Common stock subscriptions
Receivable ..................................... (86) -- -- -- (86)
Treasury stock ..................................... -- -- -- -- --
Accumulated deficit ................................ (17,254) (25,856) (21,875) (17) (65,003)
--------- --------- --------- --------- ---------
Total shareholders' equity
(deficit) .......................... (16,744) (25,864) (17,505) (4,387) (64,500)
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity
(deficit) .......................... $ 387,216 $ 126,148 $ 236,745 $(283,465) $ 466,644
========= ========= ========= ========= =========
</TABLE>
F-38
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except for per share data)
Balance Sheet Information as of December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--
Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................... $ 186,110 $ (2,724) $ (1,056) $ -- $ 182,330
Accounts receivable ......................... -- 23,443 138 -- 23,581
Inventory ................................... -- 15,802 -- -- 15,802
Intercompany receivables .................... 831,623 (415,728) (415,895) -- --
Prepaid expenses ............................ -- 1,099 1,932 -- 3,031
Other current assets ........................ 146 226 425 -- 797
----------- ----------- ----------- ----------- -----------
Total current assets .................. 1,017,879 (377,882) (414,456) -- 225,541
Property and equipment, net ........................ 6,058 176,116 218,347 (71) 400,450
PCS licenses and microwave relocation
costs .......................................... 2,119 47,835 217,728 -- 267,682
Intangible assets--AT&T agreements ................. -- -- 37,908 -- 37,908
Deferred financing costs, net ...................... 19,389 188 -- -- 19,577
Other assets ....................................... 4,385 601 17,944 (21,886) 1,044
----------- ----------- ----------- ----------- -----------
Total assets .......................... $ 1,049,830 $ (153,142) $ 77,471 $ (21,957) $ 952,202
=========== =========== =========== =========== ===========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................ $ 96 $ 12,222 $ 26,585 $ -- $ 38,903
Accrued expenses ............................ (23) 48,983 3,017 -- 51,977
Microwave relocation obligation ............. -- 36,122 -- -- 36,122
Long-term debt, current portion ............. -- -- 1,361 -- 1,361
Accrued interest ............................ 675 -- 712 -- 1,387
Deferred revenue ............................ -- 1,709 -- -- 1,709
----------- ----------- ----------- ----------- -----------
748 99,036 31,675 -- 131,459
Total current liabilities
Long-term debt ..................................... 622,795 -- 16,415 -- 639,210
Microwave relocation obligation .................... -- 2,365 -- -- 2,365
Accrued expenses ................................... -- -- 6,541 -- 6,541
----------- ----------- ----------- ----------- -----------
Total liabilities ..................... 623,543 101,401 54,631 -- 779,575
----------- ----------- ----------- ----------- -----------
Mandatorily redeemable preferred
Stock .......................................... 360,182 -- -- -- 360,182
Preferred stock subscriptions
Receivable ..................................... (97,001) -- -- -- (97,001)
----------- ----------- ----------- ----------- -----------
Total MRPS ........................... 263,181 -- -- -- 263,181
----------- ----------- ----------- ----------- -----------
Stockholders' equity (deficit):
Series F preferred stock ........................... 149 -- -- -- 149
Common stock ....................................... 856 -- -- -- 856
Additional paid in capital ......................... 267,442 -- 21,886 (21,886) 267,442
Deferred compensation .............................. (42,811) -- -- -- (42,811)
Common stock subscriptions
Receivable ..................................... (191) -- -- -- (191)
Treasury stock
Accumulated deficit ................................ (62,339) (254,543) 954 (71) (315,999)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity
(deficit) .......................... 163,106 (254,543) 22,840 (21,957) (90,554)
----------- ----------- ----------- ----------- -----------
Total liabilities, mandatorily
redeemable preferred stock and
shareholders' equity (deficit) ........ $ 1,049,830 $ (153,142) $ 77,471 $ (21,957) $ 952,202
=========== =========== =========== =========== ===========
</TABLE>
F-39
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Notes to Consolidated Financial Statements
($ in thousands, except for per share data)
Statement of Operations Information for the year ended December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--
Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue .................................. $ -- $ -- $ -- $ -- $ --
Roaming revenue .................................. -- 29 -- -- 29
Equipment revenue ................................ -- 777 261 (1,038) --
-------- -------- -------- -------- --------
Total revenue .................................... -- 806 261 (1,038) 29
-------- -------- -------- -------- --------
Operating expenses:
Cost of revenue .................................. -- -- -- -- --
Operations and development ....................... -- 5,218 4,675 (121) 9,772
Selling and marketing ............................ -- 4,920 1,405 6,325
General and administrative ....................... 975 16,137 10,027 (900) 26,239
Depreciation and amortization .................... -- 459 1,125 -- 1,584
-------- -------- -------- -------- --------
Total operating expense .................... 975 26,734 17,232 (1,021) 43,920
-------- -------- -------- -------- --------
Operating loss ............................. (975) (25,928) (16,971) (17) (43,891)
Other (income) expense:
Interest expense ................................. 11,923 -- 11 -- 11,934
Interest income .................................. (4,427) (87) (183) -- (4,697)
Other expense .................................... 21 5 1 -- 27
-------- -------- -------- -------- --------
Net loss ................................... (8,492) (25,846) (16,800) (17) (51,155)
Accretion of mandatorily redeemable
Preferred stock ..................................... (8,567) -- -- -- (8,567)
-------- -------- -------- -------- --------
Net loss attributable to common
equity .................................. $(17,059) $(25,846) $(16,800) $ (17) $(59,722)
======== ======== ======== ======== ========
</TABLE>
F-40
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Description of Unaudited Proforma
Condensed Consolidated Financial Statements
($ in thousands, except for per share data)
Statement of Operations Information for the year ended December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.-
Guarantor Non-Guarantor
TeleCorp Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Service revenue ........................ $ -- $ 41,100 $ 4,282 $ (4,063) $ 41,319
Equipment revenue ...................... -- 29,010 -- -- 29,010
Roaming revenue ........................ -- 17,353 -- -- 17,353
--------- --------- --------- --------- ---------
Total Revenue .................... -- 87,463 4,282 (4,063) 87,682
Operating expenses:
Cost of revenue ........................ -- 39,259 -- -- 39,259
Operations and development ............. 1,472 26,833 11,682 (4,008) 35,979
Selling and marketing .................. 937 69,514 729 -- 71,180
General and administrative ............. 30,579 59,296 2,710 -- 92,585
Depreciation and amortization .......... 787 20,910 33,413 -- 55,110
--------- --------- --------- --------- ---------
Total operating expense .......... 33,775 215,812 48,534 (4,008) 294,113
--------- --------- --------- --------- ---------
Operating loss ................... (33,775) (128,349) (44,252) (55) (206,431)
Other (income) expense:
Interest expense ....................... 49,356 15 1,942 -- 51,313
Interest income ........................ (6,200) (243) (21) -- (6,464)
Other expense .......................... -- (147) (137) -- (284)
--------- --------- --------- --------- ---------
Net loss ......................... (76,931) (127,974) (46,036) (55) (250,996)
Accretion of mandatorily redeemable
Preferred stock ........................... (24,124) -- -- -- (24,124)
Net loss attributable to
common equity ................. $(101,055) $(127,974) $ (46,036) $ (55) $(275,120)
========= ========= ========= ========= =========
</TABLE>
F-41
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Description of Unaudited Proforma
Condensed Consolidated Financial Statements
($ in thousands, except for per share data)
December 31, 1998 Cash Flow Information:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--
Guarantor
TeleCorp Subsidiary
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................................................... $ (8,496) $ (26,645)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................................. -- 581
Noncash interest expense associated with Lucent notes and senior subordinated debt ........ 460 --
Amortization of deferred financing costs .................................................. 525 --
Changes in cash flow from operations resulting from changes in assets and
liabilities:
Accounts receivable ....................................................................... (57) (473)
Inventory ................................................................................. -- (778)
Prepaid expenses .......................................................................... -- (816)
Other current assets ...................................................................... (580) (104)
Other assets .............................................................................. -- (7)
Accounts payable .......................................................................... -- 2,260
Accrued expenses .......................................................................... 13 16,211
Accrued interest .......................................................................... 3,992 --
--------- ---------
Net cash used in operating activities ............................................... (4,143) (9,771)
--------- ---------
Cash flows from investing activities:
Expenditures for network under development, wireless network and property and
Equipment .............................................................................. -- (58,205)
Capitalized interest on network under development and wireless network .................... (227) --
Expenditures for microwave relocation ..................................................... -- (3,339)
Purchase of PCS licenses .................................................................. (21,000) --
Partial refund of deposit on PCS licenses ................................................. -- (61,544)
--------- ---------
Net cash used in investing activities ............................................... 21,227) (61,544)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock .............................. 26,661 --
Direct issuance costs from sale of mandatorily redeemable preferred stock ................. (1,027) --
Proceeds from sale of common stock ........................................................ 38 --
Proceeds from long-term debt .............................................................. 235,000 --
Payments of deferred financing costs ...................................................... (9,109) --
Proceeds from cash transfers from and expenses paid by affiliates ......................... 1,065 121,750
Payments on behalf of and transfers to affiliates ......................................... (134,215) (28,994)
--------- ---------
Net cash provided by financing activities ........................................... 118,417 92,756
--------- ---------
Net increase in cash and cash equivalents ................................................. 93,047 21,440
Cash and cash equivalents at the beginning of period ...................................... -- --
--------- ---------
Cash and cash equivalents at the end of period ............................................ $ 93,047 $ 21,441
========= =========
</TABLE>
F-42
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
Description of Unaudited Proforma
Condensed Consolidated Financial Statements
($ in thousands, except for per share data)
December 31, 1999 Flow Information:
<TABLE>
<CAPTION>
TeleCorp
Communications,
Inc.--
Guarantor
TeleCorp Subsidiary
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................................................ $ (76,931) $(127,974)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................................ 787 18,102
Noncash compensation expense associated with the issuance of restricted common stock and
preferred stock ........................................................................... 31,817 --
Noncash accretion of Series E preferred stock
Noncash interest expense associated with Lucent Notes and High Yield facility ................ 26,895
Noncash general and administrative expense charged by affiliates ............................. 2,962
Amortization of deferred financing costs .....................................................
Amortization of discount on notes payable ....................................................
Changes in cash flow from operations resulting from changes in assets and
liabilities:
Accounts receivable .......................................................................... -- (23,443)
Inventory .................................................................................... -- (15,024)
Prepaid expenses ............................................................................. -- (287)
Other current assets ......................................................................... 491 355
Other assets ................................................................................. (15) 6,343
Accounts payable ............................................................................. 96 3,891
Accrued expenses ............................................................................. (36) 7,338
Accrued interest ............................................................................. (3,317) --
Deferred revenue ............................................................................. -- 1,709
--------- ---------
Net cash used in operating activities ..................................................... (20,213) (126,028)
--------- ---------
Cash flows from investing activities:
Expenditures for network under development, wireless network and property and equipment ...... (5,016) (92,575)
Capitalized interest on network under development and wireless network ....................... (5,317) --
Expenditures for microwave relocation ........................................................ -- (5,654)
Purchase of PCS licenses ..................................................................... (2,146) --
--------- ---------
Net cash used in investing activities ..................................................... (12,479) (98,229)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of mandatorily redeemable preferred stock ................................. 70,323 --
Proceeds from sale of common stock and series F preferred stock .............................. 21,725 --
Receipt of preferred stock subscription receivable ........................................... 9,414 --
Direct issuance costs from sale of mandatorily redeemable preferred stock .................... 0 --
Redeemable Preferred stock ................................................................... (2,500) --
Proceeds associated with IPO ................................................................. 197,317 --
Costs associated with IPO .................................................................... (1,801) --
Proceeds from long-term debt ................................................................. 236,502 --
Purchases of treasury shares ................................................................. -- --
Payments on notes payable
Payments of deferred financing costs ......................................................... (12,742) --
Proceeds from cash transfers from and expenses paid by affiliates ............................ (392,483) 200,092
--------- ---------
Net cash provided by financing activities ................................................. 125,755 200,092
--------- ---------
Net increase in cash and cash equivalents ................................................. 93,063 (24,165)
Cash and cash equivalents at the beginning of period ...................................... 93,047 21,441
--------- ---------
Cash and cash equivalents at the end of period ............................................... $ 186,110 $ (2,724)
========= =========
</TABLE>
F-43
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ In thousands, except for per share data)
20. Subsequent Events
Deferred Compensation
Certain employees, the Chief Executive Officer and the Executive Vice
President of the Company will be issued a total of 1,111 shares and 503,022
shares of mandatorily redeemable Series E preferred stock and Class A common
stock, respectively, pending final FCC approval of the share issuance related to
the Viper Wireless transaction. The Chief Executive Officer's and the Executive
Vice President's shares vest immediately and the employees' shares vest ratably
over five years. The total fair value of these shares will be based on fair
market value of the stock when issued. As of December 31, 1999, the estimated
fair value of the Series E preferred stock was $72.98 per share and the fair
value of the class A common stock was $38.00 per share.
Pending Acquisitions
On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc.
(TeleCorp LMDS) through a purchase of all of the outstanding stock of TeleCorp
LMDS for an estimated aggregate purchase price of approximately $19,200. The
consideration will be comprised of Series C preferred stock and Class A common
stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price has been
preliminarily allocated to the acquired licenses, subject to adjustment, based
on a final valuation. TeleCorp LMDS' stockholders are Mr. Vento, Mr. Sullivan
and three of our Cash Equity Investors. By acquiring TeleCorp LMDS, the Company
will gain local multipoint distribution service, or LMDS. The LMDS licenses will
provide the Company with additional airwaves to use as back-haul portions of the
Company's PCS network traffic in several of the Company's markets.
On October 14, 1999, the Company agreed to purchase 15 MHz of additional
airwaves in the Lake Charles, Louisiana basic trading area from Gulfstream
Telecomm, L.L.C. Total consideration approximates $2,700 and consists of
approximately $400 in cash plus the assumption of approximately $2,300 in debt
related to the license. Additionally, the Company will reimburse Gulf Telecomm
for all interest it paid to the FCC on debt related to the license from June
1998 until the date the transaction is completed.
Each of these agreements are subject to governmental approvals and other
customary conditions to closing, but no assurance can be given that they will be
closed on schedule or at all.
Tritel Merger and Concurrent Property Swap with AT&T Wireless
On February 28, 2000, the Company agreed to merge with Tritel, Inc. through
a merger of each of us and Tritel into a newly formed subsidiary of a new
holding company. The merger will result in the exchange of 100% of the
outstanding common and preferred stock of the Company and Tritel for common and
preferred stock of the newly-formed entity, to be called TeleCorp PCS, Inc. The
new entity will be controlled by the Company's voting preference common
stockholders, and the Company and Tritel will become subsidiaries of the holding
company.
F-44
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ In thousands, except for per share data)
This transaction will be accounted for using the purchase method of
accounting. The purchase price for Tritel will be determined based on the fair
value of the shares of the new holding company issued to the former shareholders
of Tritel plus cash, the fair value associated with the conversion of
outstanding Tritel options and warrants, holding company options and warrants,
liabilities assumed, and merger related costs. The fair value of the shares
issued will be determined based on the existing market price of the Company's
Class A common stock, which is publicly traded, and, for those shares that do
not have a readily available market price, through valuation by an investment
banking firm. The purchase price for this transaction will be allocated to the
assets acquired based on their estimated fair values. The excess of the purchase
price over the assets acquired will be recorded as goodwill and amortized over
20 years. The purchase price and the excess of the purchase price over the
assets acquired has not yet been determined.
The proposed merger has been unanimously approved by the Company's and
Tritel's boards of directors, with three of our directors abstaining. In
addition, shareholders with greater than 50% of the voting power of each company
have agreed to vote in favor of the merger. The merger is subject to regulatory
approval and other conditions and is expected to close in the last quarter of
2000.
In connection with the Company's merger with Tritel, the Company has agreed to
exchange certain other assets with AT&T Wireless Services. This exchange will
result in the Company acquiring various assets in exchange for the consideration
issued as follows:
The Company acquires:
$20 million cash from AT&T Wireless Services and a two year extension
of the Company's and AT&T's brand sharing and limited exclusivity
rights agreements.
The right to acquire all of the common and preferred stock of Indus,
Inc. (Indus).
The right to acquire additional wireless properties and assets from
Airadigm, Inc. (Airadigm).
Consideration issued:
9.3 million shares of Class A common stock of the new holding company
formed from the Tritel merger to AT&T Wireless Services.
F-45
<PAGE>
TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ In thousands, except for per share data)
Cash to the shareholders of Indus.
Cash to Airadigm.
Separately, AT&T Wireless and the Company entered into an Asset Exchange
Agreement pursuant to which the Company has agreed to exchange certain assets
with AT&T Wireless, among other consideration.
The Company is receiving certain consideration in exchange for assets as
follows:
The Company acquires:
$80 million in cash from AT&T Wireless.
AT&T Wireless' 10MHz licenses in the areas covering part of the Wisconsin
market, in addition to adjacent licenses.
AT&T Wireless' existing 10MHz licenses in Fort Dodge and Waterloo, Iowa.
The right to acquire additional wireless properties from Polycell
Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC Wireless).
Consideration issued:
The Company's markets and infrastructure in the Boston-Providence MTA to
AT&T Wireless.
A "right of first refusal" with respect to certain markets contributed by
AT&T Wireless triggered in the event of a sale of the Company to a third
party.
Cash or class A common stock to Polycell and cash to ABC Wireless.
These transactions will be accounted for using the purchase method of
accounting. The purchase price will be determined based on cash paid, the fair
value of the shares issued, and the net book value of the assets relinquished.
The purchase price will be allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The excess of the purchase price
over the assets acquired will be recorded as goodwill and amortized over 20
years. This transaction is also subject to regulatory approval and other
conditions and is expected to close in the second half of 2000. The failure of
these transactions to occur does not prevent the Tritel merger from occurring.
F-46
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT, dated as of October 18, 1999, by and among
TeleCorp PCS, Inc., a Delaware corporation ("TeleCorp"), TeleCorp Holding Corp.,
Inc., a Delaware corporation and wholly-owned subsidiary of TeleCorp ("THC"),
Gerald T. Vento and Thomas H. Sullivan (each, a "Management Stockholder"), and
the other investors referred to on Schedule I attached hereto (the
"Stockholders" and together with the Management Stockholders, the "Investors").
WHEREAS, immediately prior to the Closing of the sale of the Shares
pursuant hereto, LMDS (defined below) will effect a sale of its local multipoint
distribution services B Block license for the Orlando, BTA to THC of Orlando
LMDS, Inc. in exchange for shares ("Newco Stock") of such corporation's capital
stock (the "Spin-Off");
WHEREAS, after the Spin-Off, the Investors will continue to own all of the
issued and outstanding shares (the "Shares") of Class A Common Stock, no par
value per share ("Class A Common Stock"), Class C Common Stock, no par value per
share ("Class C Common Stock"), and Series A Preferred Stock, no par value per
share ("Series A Preferred Stock"), of TeleCorp LMDS, Inc., a Delaware
corporation ("LMDS");
WHEREAS, the Investors wish to sell and THC and TeleCorp wish for THC to
purchase all of the Shares in exchange for the shares of TeleCorp capital stock
set forth below;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. DEFINITIONS
1.1 "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.
1.2 "Business Day" means any day other than a Saturday, Sunday or a legal
holiday in New York, New York or any other day on which commercial banks in New
York, New York are authorized by law or governmental decree to close.
1.3 "Claim" has the meaning set forth in Section 7.4(a).
1.4 "Class A Common Stock" has the meaning set forth in the second recital.
1.5 "Class C Common Stock" has the meaning set forth in the second recital.
<PAGE>
1.6 "Closing" has the meaning set forth in Section 2.2.
1.7 "Closing Date" has the meaning set forth in Section 2.2.
1.8 "Consents" means all consents and approvals of Governmental Authorities
or other third parties necessary to authorize, approve or permit the parties
hereto to consummate the Transactions.
1.9 "Distribution Agreement" means that certain Distribution Agreement of
even date herewith by and among the Investors and LMDS by which LMDS shall
transfer ownership of the Newco Stock to the Investors.
1.10 "FCC " means the Federal Communications Commission.
1.11 "Governmental Authority" means a Federal, state or local court,
legislature, governmental agency (including, without limitation, the United
States Department of Justice), commission or regulatory or administrative
authority or instrumentality.
1.12 "Indemnified Party" has the meaning set forth in Section 7.4(a).
1.13 "Indemnifying Party" has the meaning set forth in Section 7.4(a).
1.14 "Investors' Rights Agreement" means that certain Investors' Rights
Agreement by and among LMDS and the Investors, dated as of February 2, 1998.
1.15 "Law" means applicable common law and any statute, ordinance, code or
other law, rule, permit, permit condition, regulation, order, decree, technical
or other standard, requirement or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Authority.
1.16 "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, right of first refusal or right of others therein, or
encumbrance of any nature whatsoever in respect of such asset.
1.17 "LMDS" has the meaning set forth in the second recital.
1.18 "Losses" has the meaning set forth in Section 7.2.
1.19 "Management Stockholders" has the meaning set forth in the preamble.
1.20 "Material Adverse Effect" means a material adverse effect on the
business, financial condition, assets, liabilities or results of operations or
prospects of the Person specified.
1.21 "Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, Governmental Authority,
business trust, unincorporated organization, or other legal entity.
1.22 "Related Agreement" has the meaning set forth in Section 3.1(b).
-2-
<PAGE>
1.23 "Section 7.2 Indemnified Party" has the meaning set forth in Section
7.2.
1.24 "Section 7.3 Indemnified Party" has the meaning set forth in Section
7.3.
1.25 "Securities Act" means the Securities Act of 1933, as amended.
1.26 "Series A Preferred Stock" has the meaning set forth in the first
recital.
1.27 "Shares" has the meaning set forth in the recitals.
1.28 "Spin-Off" has the meaning set forth in the recitals.
1.29 "Stockholders" has the meaning set forth in the preamble.
1.30 "Stockholders' Agreement" means that certain Stockholders' Agreement
by and among LMDS and each of the Investors, dated as of February 2, 1998.
1.31 "TeleCorp" has the meaning set forth in the preamble.
1.32 "TeleCorp Stock" means an aggregate of 2,700 shares of TeleCorp's
Series C Preferred Stock, $.01 par value per share, and an aggregate of 270,000
shares of Class A Voting Common Stock, $.01 par value per share, as the same may
be adjusted from time to time in conjunction with a stock split,
recapitalization, reorganization, reclassification, or other change in the
capital structure of TeleCorp affecting such series and classes of capital stock
of TeleCorp after the date hereof.
1.33 "TeleCorp Investors Stockholders' Agreement" means that certain
Investors Stockholders' Agreement by and among AT&T Wireless PCS, LLC, the Cash
Equity Investors, as defined therein, and the Management Stockholders, dated as
of July 17, 1998, as the same may be amended, modified or supplemented in
accordance with the terms thereof.
1.34 "TeleCorp Stockholders' Agreement" means that certain Stockholders'
Agreement by and among TeleCorp, AT&T Wireless PCS, LLC, TWR Cellular, Inc., the
Cash Equity Investors, as defined therein, and the other parties named therein,
as stockholders, dated as of July 17, 1998, as the same may be amended, modified
or supplemented in accordance with the terms thereof.
1.35 "THC" has the meaning set forth in the preamble.
1.36 "Transactions" means the transactions contemplated by this Agreement.
1.37 "Transfer Agreement " means that certain Agreement of even date
herewith by and between LMDS and THC of Orlando LMDS, Inc. by which the Spin-Off
is to be effected.
2. PURCHASE PRICE; CLOSING DATE; DELIVERY
-3-
<PAGE>
2.1 Purchase of Shares. In consideration of the ownership of the Shares
being transferred to THC, TeleCorp shall issue to each Investor the amount of
TeleCorp Stock determined as set forth on Schedule I attached hereto on the
Closing Date.
2.2 Closing Date. The closing of the purchase and sale of the Shares (the
"Closing") shall occur on the fifth Business Day following the receipt of the
final consent necessary under Section 6.1(h) and 6.2(e) and immediately
following the closing of the Spin-Off at the offices of McDermott, Will & Emery,
28 State Street, Boston, MA 02109 at 10:00 am EST, or on such other date and at
such other time and/or place as the parties may agree (the "Closing Date").
2.3 Delivery. At the Closing, (a) each Investor shall deliver to THC stock
certificates, representing the Shares owned by him or it, duly endorsed in blank
or accompanied by stock transfer powers transferring the Shares to THC, and (b)
TeleCorp shall issue and deliver to each Investor one or more certificates
representing the TeleCorp Stock to be received by him or it.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Stockholders (severally as to itself and jointly and severally
with the other Investors as to LMDS), and each of the Management Stockholders
(severally as to himself, except with respect to the representations contained
in Sections 3.1(a), 3.1(c), and 3.1(d), and jointly and severally with the other
Investors as to LMDS) represents and warrants to TeleCorp and THC as of the date
hereof and as of the Closing Date with respect to itself and LMDS that:
3.1 Formation and Standing.
(a) It is a limited liability company or limited partnership, as
applicable, duly formed, validly existing and in good standing under the Laws of
its jurisdiction of formation and has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted.
(b) It has the requisite power and authority to execute, deliver and
perform this Agreement and each other instrument, document, certificate and
agreement required or contemplated to be executed, delivered and performed
hereunder (each a "Related Agreement") to which it is or will be a party.
(c) It is duly qualified to do business in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary other than any such jurisdiction
in which the failure to be so qualified would not have a Material Adverse Effect
on it or materially adversely affect the Transactions or its ability to perform
its obligations hereunder.
(d) The execution and delivery of this Agreement or any Related Agreement
by it and the consummation of the Transactions by it have been duly and validly
authorized by its General Partner, Manager or Management Board (or other
equivalent body or authorized person) and no other proceedings on its part which
have not been taken (including, without limitation, approval of its
stockholders, partners or members) are necessary to authorize this Agreement or
any Related Agreement or to consummate the Transactions.
-4-
<PAGE>
(e) This Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and may be subject to general
principles of equity. Each Related Agreement to which it is a party shall be
duly executed and delivered by it at (or prior to) the Closing and, upon such
execution and delivery, shall constitute its valid and binding obligation,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and may be subject to general principles of equity.
(f) As of the Closing Date, after giving effect to the Transactions, he/it
is not in breach of any obligation under this Agreement or any Related Agreement
to which he or it is a party or any other agreement by and between he or it and
LMDS or any of the other Investors regarding LMDS and/or the Shares.
(g) As of the Closing Date, he/it is the record and beneficial owner of the
Shares determined pursuant to Schedule I, and has good and marketable title
thereto, free and clear of all Liens, and he/it has the right, power and
authority to assign, transfer and deliver all such record and beneficial
ownership of the Shares owned by him/it to THC pursuant to this Agreement.
3.2 Consents; No Conflicts. Neither the execution, delivery and performance
by it of this Agreement or any Related Agreement to which it is a party nor the
consummation of the Transactions will (a) conflict with, or result in a breach
or violation of, any provision of its organizational documents or the
Certificate of Incorporation or Bylaws of LMDS; (b) constitute, with or without
the giving of notice or passage of time or both, a breach, violation or default,
create a Lien, or give rise to any right of termination, modification,
cancellation, prepayment or acceleration, under (i) any Law or (ii) any note,
bond, mortgage, indenture, lease, agreement or other instrument, in each case
which is applicable to or binding upon it or any of its assets; or (c) require
any consent or the approval of its board of directors, general partner, members,
stockholders or similar constituent bodies, as the case may be (which approvals
have been obtained), except in each case, where such breach, violation, default,
Lien, right, or the failure to obtain or give such consent would not have a
Material Adverse Effect on it or materially adversely affect the Transactions or
its ability to perform its obligations under the Agreement and any Related
Agreement. There is no fact relating to it or its Affiliates that would be
reasonably expected to prevent it from consummating the Transactions or
performing its obligations under this Agreement or any Related Agreement.
3.3 Organization and Standing of LMDS. LMDS is a corporation duly organized
and validly existing under, and by virtue of, the laws of the State of Delaware
and is in good standing as a domestic corporation under the laws of said state.
LMDS has no subsidiaries.
3.4 Shares. The Shares are, and when issued in compliance with the
provisions of this Agreement, will be, validly issued, fully paid and
nonassessable and will be free and clear of any and all Liens.
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3.5 Authorized Capital Stock. The authorized capital stock of LMDS consists
of 12,500 shares of Class A Common Stock, of which 12,500 are issued and
outstanding as of the date hereof and of which 12,375 shall be issued and
outstanding as of the Closing Date, 37,500 shares of Class C Common Stock, of
which 37,500 are issued and outstanding as of the date hereof and of which
37,125 shall be issued and outstanding as of the Closing Date, and 420 shares of
Series A Preferred Stock, of which 420 are issued and outstanding as of the date
hereof, and as of the Closing Date, such number of shares shall be issued and
outstanding as are determined pursuant to the redemption provisions of the
Distribution Agreement, which in the aggregate shall comprise as of the Closing
Date all of the Shares. On the Closing Date, after giving effect to the
Transactions, there will not be any existing options, warrants, calls,
subscriptions, or other rights, or other agreements or commitments, obligating
LMDS to issue, transfer or sell any shares of capital stock of LMDS.
3.6 No Liabilities. As of the Closing Date before giving effect to the
Transactions, LMDS has no indebtedness or liability of any nature whatsoever,
absolute or contingent, liquidated or unliquidated. LMDS has no other business
or operations other than owning local multipoint distribution services licenses.
3.7 FCC Compliance. LMDS complies with all eligibility rules issued by the
FCC to hold LMDS licenses, including without limitation, FCC rules on foreign
ownership and the CMRS spectrum cap.
3.8 Compliance with Laws. LMDS has operated in compliance with all
applicable Laws, including all FCC Laws, environmental Laws and Laws relating to
taxes, except for noncompliance that, individually or in the aggregate, has not
and would not reasonably be expected to have a Material Adverse Effect. LMDS has
not received notice to the effect that, or otherwise been advised that, it is
not in compliance with any Laws with respect to the Shares, its business or its
operations, and it has not taken any action or failed to take any action that is
a violation of any such Laws with respect to the Shares or any of its assets,
its business or its operations, except for actions or failures to take action
that, individually or in the aggregate, have not and would not reasonably be
expected to have a Material Adverse Effect or a materially adversely affect the
Transactions.
3.9 Litigation. There are no actions, suits, proceedings or investigations
pending or, to the best of his/its knowledge, threatened against him/it or LMDS
or any of LMDS's properties before or by any court or arbitrator or any
government body, agency or official in which there is a reasonable likelihood of
an adverse decision that could have a Material Adverse Effect on LMDS's
properties or assets or the business of LMDS as presently conducted or proposed
to be conducted.
3.10 No Material Change. Since LMDS's incorporation, there has been no
material adverse change in business, prospects, financial condition, net worth
or results of operations, other than changes occurring in the ordinary course of
business which have not, individually or in the aggregate, had a Material
Adverse Effect on the business, prospects, properties or financial condition of
LMDS.
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3.11 Taxes. Since LMDS's incorporation, it has timely filed, or caused to
be timely filed, or will timely file or cause to be timely filed on or prior to
the Closing Date, all tax returns required to be filed on or prior to the
Closing Date (taking into account any extensions of time to file granted to or
on behalf of LMDS). All taxes for the respective periods covered by such returns
have been or prior to the Closing Date will be, timely paid.
3.12 Investor Acknowledgments. (a) He/it is an "accredited investor" as
defined in Regulation D of the Securities Act. His/its representatives have been
provided an opportunity to ask questions of, and have received answers thereto
from, THC and TeleCorp and their representatives regarding the terms and
conditions of his/its sale of the Shares in consideration of the issuance of the
TeleCorp Stock, and THC and TeleCorp and their proposed business generally, and
have obtained all additional information requested by him/it to verify the
accuracy of all information furnished to him/it in connection with such sale and
issuance.
(b) He/it has such knowledge and experience in financial and business
affairs that it is capable of evaluating the merits and risks of selling the
Shares in consideration of the issuance of the TeleCorp Stock hereunder.
(c) He/it is not relying on and acknowledges that no representation is
being made by any other Investor, TeleCorp, THC or any of their officers,
employees, Affiliates, agents or representatives, except for representations and
warranties expressly set forth in this Agreement, and, in particular, he/it is
not relying on, and acknowledges that no representation is being made in respect
of, (x) any projections, estimates or budgets delivered to or made available to
them of future revenues, expenses or expenditures, or future results of
operations and (y) any other information or documents delivered or made
available to him/it or his/its representatives, except for representations and
warranties expressly set forth in this Agreement and the Related Agreements and
such information and documents obtained by him/it as a stockholder of TeleCorp
and through his/its representatives who serve as members of TeleCorp's board of
directors, as the case may be.
(d) In deciding to invest in TeleCorp, he/it has relied exclusively on the
representations and warranties expressly set forth in this Agreement, and the
investigations made by himself/itself and his/its representatives and his/its
and such representatives' knowledge of the industry in which TeleCorp proposes
to operate. Based solely on such representations and warranties and such
investigations and knowledge and such information obtained by him/it by virtue
of his/its status as a stockholder of TeleCorp, and through his/its
representatives who serve as members of TeleCorp's board of directors, as the
case may be, he/it has determined that the TeleCorp Stock he/it is acquiring is
a suitable investment for him/it.
(e) He/it is acquiring the TeleCorp Stock hereunder for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof (other than in compliance with the Securities Act and all
applicable state securities laws).
4. REPRESENTATIONS AND WARRANTIES OF TELECORP AND THC
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Each of TeleCorp and THC, jointly and severally, represents and warrants to
the Investors as of the Closing Date as follows:
4.1 Organization, Power and Authority.
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted.
(b) It has the requisite power and authority to execute, deliver and
perform this Agreement and any Related Agreement to which it is a party.
(c) The execution and delivery of this Agreement or any Related Agreement
and the consummation of the Transactions by it have been duly and validly
authorized by its Board of Directors and no other proceedings which have not
been taken are necessary to authorize this Agreement or any Related Agreement to
which it is a party or to consummate the Transactions.
(d) This Agreement has been duly executed and delivered by it and
constitutes the valid and binding obligation of it, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to enforcement of creditors' rights generally and may be subject to general
principles of equity. Each Related Agreement to which it is a party shall be
duly executed and delivered by it at (or prior to) the Closing and, upon such
execution and delivery, shall constitute the valid and binding obligation of it,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights generally
and may be subject to general principles of equity.
(e) As of the Closing Date, after giving effect to the Transactions, it is
not in breach of any obligation under this Agreement or any Related Agreement to
which it is a party.
4.2 Consents; No Conflicts. Neither the execution, delivery and performance
of this Agreement and any Related Agreement to which it is a party nor the
consummation of the Transactions will (a) conflict with, or result in a breach
or violation of, any provision of its organizational documents; (b) with or
without the giving of notice or passage of time or both, a breach, violation or
default, create a Lien, or give rise to any right of termination, modification,
cancellation, prepayment or acceleration, under (i) any Law or (ii) any note,
bond, mortgage, indenture, lease, agreement or other instrument, in each case
which is applicable to or binding upon it or any of its assets; or (c) require
any consent or the approval of its Board of Directors or its stockholders (which
approval has been obtained), except in each case where such breach, violation,
default, Lien, right, or the failure to obtain or give such consent would not
have a Material Adverse Effect on it or materially adversely affect the
Transactions, its ability to perform its obligations under this Agreement or any
Related Agreement or the operation of its business after the Closing Date. To
its knowledge, there is no fact relating to it or its Affiliates
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that would be reasonably expected to prevent it from consummating the
Transactions or performing its obligations under this Agreement or any Related
Agreement.
4.3 Litigation. There is no action, proceeding or investigation pending or,
to its knowledge, threatened against it or any of its properties or assets that
would have a Material Adverse Effect on its ability to consummate the
Transactions to which it is a party or to fulfill its obligations under this
Agreement or any Related Agreement to which it is a party, or to operate its
business after the Closing Date, or which seeks to prevent or challenge the
Transactions. There is no judgment, decree, injunction, rule or order
outstanding against it which would limit in any material respect its ability to
operate its business in the manner currently contemplated.
4.4 TeleCorp Stock. The TeleCorp Stock, when issued in compliance with the
provisions of this Agreement will be validly issued fully paid and
nonassessable, and shall be free of any Liens caused or created by TeleCorp,
except as set forth in that certain Stockholders Agreement by and among the
Investors, TeleCorp and the other TeleCorp stockholders named therein dated as
of July 17, 1998, as amended, and TeleCorp's Amended and Restated Certificate of
Incorporation.
4.5 Authorized Capital Stock. The authorized capital stock of TeleCorp as
of the date hereof consists of: (a) 12,595,000 shares of preferred stock, $.01
par value per share, consisting of (i) 100,000 shares of Series A Convertible
Preferred Stock, (ii) 200,000 shares of Series B Preferred Stock, (iii) 215,000
shares of Series C Preferred Stock, (iv) 50,000 shares of Series D Preferred
Stock, (v) 30,000 shares of Series E Preferred Stock, (vi) 5,000,000 shares of
Series F Preferred Stock and (vii) 7,000,000 shares of Senior Common Stock; and
(b) 190,401,000 shares of common stock, $.01 par value per share, consisting of
(i) 95,000,000 shares of Class A Voting Common Stock, (ii) 95,000,000 shares of
Class B Non-Voting Common Stock, (iii) 100,000 shares of Class C Common Stock,
(iv) 300,000 shares of Class D Common Stock, and (v) 1,000 shares of Voting
Preference Common Stock. As of the Closing Date, the authorized, issued and
outstanding shares of Preferred Stock and Common Stock of TeleCorp shall be
changed to the extent necessary in order to effect TeleCorp's initial public
offering of its Class A Voting Common Stock, and to the extent the TeleCorp
Stock is issued pursuant hereto.
5. COVENANTS
5.1 Consummation of Transactions. Each party shall use all commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable and consistent with
applicable Law to carry out all of its/his respective obligations under this
Agreement and any Related Agreement to which it/he is a party and to consummate
the Transactions, which efforts shall include, without limitation, the
following:
(a) The parties shall use all commercially reasonable efforts to cause the
Closing to occur and the Transactions to be consummated in accordance with the
terms hereof, and, without limiting the generality of the foregoing, to obtain
all necessary Consents including the approval of this Agreement and the
Transactions by all Governmental Authorities and agencies and third parties,
including the FCC, and to make all filings with and to give all notices
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to third parties which may be necessary or reasonably required in order for the
parties to consummate the Transactions.
(b) Each party shall furnish to the other parties all information
concerning such party and its Affiliates reasonably required for inclusion in
any application or filing to be made by the Company or any other party in
connection with the Transactions or otherwise to determine compliance with
applicable FCC Law.
(c) Upon the request of any other party, each party shall forthwith execute
and deliver, or cause to be executed and delivered, such further instruments of
assignment, transfer, conveyance, endorsement, direction or authorization and
other documents as may reasonably be requested by such party in order to
effectuate the purposes of this Agreement.
5.2 No Action. During the period from the date hereof until the Closing
Date, other than as required pursuant to the Transfer Agreement, the
Distribution Agreement and any documents related thereto, LMDS and the Investors
shall not (i) sell, transfer, assign or dispose of, or offer to, or enter into
any agreement, arrangement or understanding to, sell, transfer, assign or
dispose of any of the Shares or any interest therein or any of LMDS' properties
or assets, or negotiate therefor, or (ii) create, incur or suffer to exist any
Lien of any nature whatsoever relating to any of the foregoing or any interest
therein.
5.3 Waiver of Rights Under the Stockholders' Agreement. With respect to the
Transactions (i) each of the Management Stockholders hereby waives his right of
first refusal and notice requirements set forth in Section 2 of the
Stockholders' Agreement and (b) each of the Investors hereby waives its co-sale
rights and notice requirements set forth in Section 10 of the Stockholders'
Agreement.
6. CONDITIONS TO CLOSING
6.1 Conditions to Obligations of TeleCorp and THC. The obligation of
TeleCorp and THC to consummate the Transactions shall be further conditioned
upon the satisfaction or fulfillment, at or prior to the Closing, of the
following conditions by each of the other parties, unless waived by TeleCorp and
THC at or prior to the Closing:
(a) The representations and warranties of each Investor contained herein
shall be true and correct in all material respects (except for representations
and warranties that are qualified as to materiality, which shall be true and
correct), in each case when made and at and as of the Closing (except for
representations and warranties made as of a specified date, which shall be true
and correct as of such date) with the same force and effect as though made at
and as of such time, except for inaccuracies in respect of the representations
and warranties set forth in Section 3.9 (disregarding any qualifications as to
materiality contained therein), that in the aggregate would not be reasonably
expected to have a Material Adverse Effect on LMDS or such Investor or to
materially adversely affect the Transactions.
(b) Each Investor shall have performed in all material respects all
agreements contained herein or required to be performed by it at or before the
Closing.
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(c) An officer of each Investor shall have delivered to TeleCorp and THC a
certificate, dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in paragraphs (a) and (b) above as to the party delivering
such certificate.
(d) All limited liability or limited partnership and other proceedings of
each of the Investors in connection with the Transactions, and all documents and
instruments incident thereto, shall be reasonably satisfactory in form and
substance to TeleCorp and THC, and each of the Investors shall have delivered to
TeleCorp and THC such receipts, documents, instruments and certificates, in form
and substance reasonably satisfactory to TeleCorp and THC which TeleCorp and THC
shall have reasonably requested in order to consummate the Transactions.
(e) All directors serving on the Board of Directors of LMDS and all of the
officers of LMDS shall resign from their respective positions except for Thomas
H. Sullivan and Gerald T. Vento.
(f) All of the agreements among the Investors and LMDS, including but not
limited to the Stockholders' Agreement and the Investors' Rights Agreement,
shall be terminated as of the Closing Date without liability.
(g) Each Investor shall deliver to THC on the Closing Date stock
certificates, representing the Shares owned by it, duly endorsed in blank or
accompanied by stock transfer powers transferring the Shares to THC.
(h) All Consents by any Governmental Authority required to permit the
consummation of the Transactions, the failure to obtain or make which would be
reasonably expected to have a Material Adverse Effect on TeleCorp, THC or LMDS
or materially adversely affect the Transactions or TeleCorp's or THC's ability
to perform its obligations under this Agreement or any Related Agreement shall
have been obtained or made.
(i) The Spin-Off and the transfer of the Newco Stock to the Investors shall
have been consummated.
(j) Each Stockholder not currently a party to the TeleCorp Investor
Stockholders' Agreement shall have executed and delivered a joinder agreement to
the TeleCorp Investor Stockholders' Agreement in form and substance reasonably
satisfactory to TeleCorp.
(k) The Investors shall certify in writing to TeleCorp and THC the number
and classification of capital stock of LMDS issued and outstanding as of the
Closing Date and that the Investors own such stock.
6.2 Conditions to the Obligations of the Investors. The obligation of each
Investor to consummate the Transactions contemplated to occur at the Closing
shall be further conditioned upon the satisfaction or fulfillment, at or prior
to the Closing, of the following conditions, unless waived by such Investor at
or prior to the Closing:
(a) The representations and warranties of TeleCorp and THC and each other
Investor contained herein shall be true and correct in all material respects
(except for representations and warranties that are qualified as to materiality,
which shall be true and
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correct), in each case when made and at and as of the Closing (except for
representations and warranties made as of a specified date, which shall be true
and correct as of such date) with the same force and effect as though made at
and as of such time, except for inaccuracies in respect of the representations
and warranties set forth in Section 4.3 (disregarding any qualifications as to
materiality contained therein) that in the aggregate would not be reasonably
expected to have a Material Adverse Effect on TeleCorp, THC or such other
Investor or to materially adversely affect the Transactions.
(b) Each of TeleCorp, THC and each other Investor shall have performed in
all material respects all agreements contained herein or required to be
performed by it at or before the Closing.
(c) An officer of TeleCorp, THC and of each other Investor, respectively,
shall have delivered to such Investor a certificate, dated the Closing Date,
certifying as to the fulfillment of the conditions set forth in paragraphs (a)
and (b) above as to the party delivering such certificate.
(d) TeleCorp shall issue and deliver to each Investor the shares of
TeleCorp Stock he or it is entitled to receive hereunder.
(e) All Consents by any Governmental Authority required to permit the
consummation of the Transactions, the failure to obtain or make which would be
reasonably expected to have a Material Adverse Effect on such Investor or
materially adversely affect the Transactions or its ability to perform its
obligations under this Agreement or any Related Agreement shall have been
obtained or made.
(f) All corporate and other proceedings of each other Investor, TeleCorp
and THC in connection with the Transactions, and all documents and instruments
incident thereto, shall be reasonably satisfactory in form and substance to such
Investor, and each other Investor, TeleCorp and THC shall have delivered to such
Investor all such receipts, documents, instruments and certificates, in form and
substance reasonably satisfactory to such Investor, which such Investor shall
have reasonably requested in order to consummate the Transactions.
(g) The Spin-Off and the transfer of the Newco Stock to the Investors shall
have been consummated.
7. SURVIVAL AND INDEMNIFICATION
7.1 Survival. The representations and warranties made in this Agreement
shall survive the Closing without regard to any investigation made by any of the
parties hereto until the second anniversary thereof and shall thereupon expire
together with any right to indemnification in respect thereof (except to the
extent a written notice asserting a claim for breach of any such representation
or warranty and describing such claim in reasonable detail shall have been given
prior to the expiration of the applicable survival period to the party which
made such representation or warranty). The covenants and agreements contained
herein to be performed or complied with prior to the Closing shall expire at the
Closing. The covenants and agreements contained in this Agreement to be
performed or complied with after the Closing shall
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survive the Closing; provided that the right to indemnification pursuant to this
Article VII in respect of a breach of a representation or warranty shall expire
upon the application of the applicable survival period of the Closing (except to
the extent written notice asserting a claim thereunder and describing such claim
in reasonable detail shall have been given prior to such expiration to the party
from whom such indemnification is sought); provided further, that the
representations and warranties made in Section 4 of this Agreement by TeleCorp
and THC to the Management Stockholders shall not survive the Closing. After the
Closing, the sole and exclusive remedy of the parties for any breach or
inaccuracy of any representation or warranty contained in this Agreement, or any
other claim (whether or not alleging a breach of this Agreement) that arises out
of the facts and circumstances constituting such breach or inaccuracy, shall be
the indemnity provided in this Article VII.
7.2 Indemnification by the Investors. Each Investor shall indemnify and
hold harmless each other Investor, TeleCorp and THC and their respective
Affiliates, and the shareholders, members, managers, directors, officers,
employees, agents and/or the legal representatives of any of them (each, a
"Section 7.2 Indemnified Party"), against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as fines
and penalties, and as counsel fees) (collectively, "Losses") incurred by him or
it in connection with the investigation, defense, or disposition of any action,
suit or other proceeding in which any Section 7.2 Indemnified Party may be
involved or with which he or it may be threatened (whether arising out of or
relating to matters asserted by third parties against a Section 7.2 Indemnified
Party or incurred or sustained by such party in the absence of a third-party
claim), that arises out of or results from (a) any representation or warranty of
such indemnifying party contained in this Agreement being untrue in any material
respect as of the date on which it was made or (b) any material default by such
indemnifying party or any of its Affiliates in the performance of their
respective obligations under this Agreement; except to the extent (but only to
the extent) any such Losses arise out of or result from the gross negligence or
willful misconduct of such Section 7.2 Indemnified Party or its Affiliates;
provided that the aggregate liability of each Management Stockholder to
indemnify Section 7.2 Indemnified Parties against Losses arising out of or
resulting from (x) the untruth in any material respect of any representation or
warranty as to LMDS made by such Management Stockholder in this Agreement, (y)
any material default by such Management Stockholder in the performance of his
obligations under this Agreement, shall be limited to the surrender to TeleCorp
of the shares of TeleCorp Stock such Management Stockholder receives hereunder
for his shares of Class A Common Stock, and Section 7.2 Indemnified Parties
seeking indemnification against any Management Stockholder for such Losses
hereunder shall not have recourse to any other assets of such Management
Stockholder.
7.3 Indemnification by TeleCorp and THC. TeleCorp and THC shall jointly and
severally indemnify and hold harmless each of the Investors and their respective
Affiliates, and the shareholders, members, managers, officers, employees, agents
and/or the legal representatives of any of them (each, a "Section 7.3
Indemnified Party"), against all Losses incurred by him or it in connection with
the investigation, defense, or disposition of any action, suit or other
proceeding in which any Section 7.3 Indemnified Party may be involved or with
which he or it may be threatened (whether arising out of or relating to matters
asserted by third parties against a Section 7.3 Indemnified Party or incurred or
sustained by such party in the absence of a third-party claim), that arises out
of or results from (a) any representation or
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warranty of TeleCorp and/or THC contained in this Agreement being untrue in any
material respect as of the date on which it was made or (b) any material default
by TeleCorp and/or THC or any of their respective Affiliates in the performance
of their respective obligations under this Agreement, except to the extent (but
only to the extent) any such Losses arise out of or result from the gross
negligence or willful misconduct of such Section 7.3 Indemnified Party or its
Affiliates; provided, that TeleCorp and THC shall not be obligated to indemnify
the Management Stockholders for any Losses arising from a breach of any
representation or warranty made in Section 4.
7.4 Procedures.
(a) The terms of this Section 7.4 shall apply to any claim (a "Claim") for
indemnification under the terms of Sections 7.2 or 7.3. The Section 7.2
Indemnified Party or Section 7.3 Indemnified Party (each, an "Indemnified
Party"), as the case may be, shall give prompt written notice of such Claim to
the indemnifying party (the "Indemnifying Party") under the applicable Section,
which party may assume the defense thereof, provided that any delay or failure
to so notify the Indemnifying Party shall relieve the Indemnifying Party of its
obligations hereunder only to the extent, if at all, that it is materially
prejudiced by reason of such delay or failure. The Indemnified Party shall have
the right to approve any counsel selected by the Indemnifying Party and to
approve the terms of any proposed settlement, such approval not to be
unreasonably delayed or withheld (unless, in the case of approval of a proposed
settlement, such settlement provides only, as to the Indemnified Party, the
payment of money damages actually paid by the Indemnifying Party and a complete
release of the Indemnified Party in respect of the claim in question).
Notwithstanding any of the foregoing to the contrary, the provisions of this
Article VII shall not be construed so as to provide for the indemnification of
any Indemnified Party for any liability to the extent (but only to the extent)
that such indemnification would be in violation of applicable law or that such
liability may not be waived, modified or limited under applicable law, but shall
be construed so as to effectuate the provisions of this Article VII to the
fullest extent permitted by law.
(b) In the event that the Indemnifying Party undertakes the defense of any
Claim, the Indemnifying Party will keep the Indemnified Party advised as to all
material developments in connection with such Claim, including, but not limited
to, promptly furnishing the Indemnified Party with copies of all material
documents filed or served in connection therewith.
(c) In the event that the Indemnifying Party fails to assume the defense of
any Claim within ten business days after receiving written notice thereof, the
Indemnified Party shall have the right, subject to the Indemnifying Party's
right to assume the defense pursuant to the provisions of this Article VII, to
undertake the defense, compromise or settlement of such Claim for the account of
the Indemnifying Party. Unless and until the Indemnified Party assumes the
defense of any Claim, the Indemnifying Party shall advance to the Indemnified
Party any of its reasonable attorneys' fees and other costs and expenses
incurred in connection with the defense of any such action or proceeding. Each
Indemnified Party shall agree in writing prior to any such advancement that, in
the event he or it receives any such advance, such Indemnified Party shall
reimburse the Indemnifying Party for such fees, costs and expenses to the extent
that it shall be determined that he or it was not entitled to indemnification
under this Article VII.
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(d) In no event shall an Indemnifying Party be required to pay in
connection with any Claim for more than one firm of counsel (and local counsel)
for each of the following groups of Indemnified Parties: (i) the Stockholders,
their respective Affiliates, and the shareholders, members, managers, officers,
employees, agents and/or the legal representatives of any of them; (ii) the
Management Stockholders, their respective successors, assigns, heirs, personal
representatives, beneficiaries, agents and/or the legal representatives of any
of them; and (iii) TeleCorp and THC and their respective Affiliates, and the
shareholders, members, managers, officers, employees, agents and/or the legal
representatives of any of them.
8. TERMINATION
8.1 Termination. In addition to any other rights of termination set forth
herein, this Agreement may be terminated, and the Transactions abandoned,
without further obligation of any party (except as set forth herein), at any
time prior to the Closing Date:
(a) by mutual written consent of the parties;
(b) by any party by written notice to the other parties, if the Closing
shall not have occurred on or before the date that is nine months after the date
hereof, provided that the party electing to exercise such right is not otherwise
in breach of its obligations under this Agreement; or
(c) by any party by written notice to the other parties, if the
consummation of the Transactions shall be prohibited by a final, non-appealable
order, decree or injunction of a court of competent jurisdiction.
8.2 Effect of Termination.
(a) In the event of a termination of this Agreement, no party hereto shall
have any liability or further obligation to any other party to this Agreement,
except as set forth in paragraph (b) below, and except that nothing herein will
relieve any party from liability for any breach by such party of this Agreement.
(b) In the event of a termination of this Agreement pursuant to Section
8.1, all provisions of this Agreement shall terminate, except Articles VII and
IX.
(c) Whether or not the Closing occurs, except as otherwise expressly
provided in this Agreement, all costs and expenses incurred in connection with
this Agreement, any Related Agreement and the Transactions shall be paid by the
party incurring such expenses.
9. MISCELLANEOUS
9.1 Amendment and Modification. This Agreement may be amended, modified or
supplemented only by written agreement of each of the parties.
9.2 Waiver of Compliance; Consents. Any failure of any of the parties to
comply with any obligation, covenant, agreement or condition herein may be
waived by the party or parties entitled to the benefits thereof only by a
written instrument signed by the party granting
-15-
<PAGE>
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
9.3 Parties in Interest; Assignment. This Agreement is binding upon and is
solely for the benefit of the parties hereto and their respective permitted
successors, legal representatives and permitted assigns. Neither the Investors
nor TeleCorp or THC may assign its rights and obligations hereunder without the
prior written consent of each of the other parties, provided that TeleCorp and
THC may assign their respective obligations to any of their Affiliates, and
provided, further, that TeleCorp and THC shall have the right to assign their
respective rights under this Agreement to the lenders (the "Lenders") named in
the Credit Agreement, dated as of July 17, 1998, by an among TeleCorp PCS, Inc.,
the lenders party thereto and the Chase Manhattan Bank, as Administrative Agent,
TD Securities (USA) Inc., as Syndication Agent, and Bankers Trust Company, as
Documentation Agent (the "Credit Agreement"), as security pursuant to the terms
of the Credit Agreement and the documents and instruments executed therewith, it
being understood that, in connection with any such assignment to the Lenders,
the Lenders shall not assume any obligations of TeleCorp or THC hereunder.
9.4 Broker's Fee. Each of the parties hereto hereby represents that, on the
basis of any actions and agreements by it, there are no brokers or finders
entitled to compensation in connection herewith.
9.5 Governing Law. This Agreement shall be governed in all respects by the
laws of the Commonwealth of Virginia without regard to the conflict of laws, and
the rules thereof.
9.6 Survival. The representations, warranties, covenants, and agreements
made in this Agreement shall survive any investigation made by the Investors,
TeleCorp or THC.
9.7 Entire Agreement. This Agreement, including the exhibits and schedules
hereto and thereto and the certificates and instruments delivered pursuant to
the terms of this Agreement, constitute the entire agreement and understanding
of the parties hereto in respect of the Transactions. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
Transactions.
9.8 Notices, etc. All notices and other communications required or
permitted under this Agreement shall be in writing and shall be delivered by
hand, overnight courier or given by electronic facsimile transmission or mailed
by first class, certified or registered mail, return receipt requested, postage
prepaid:
If to the Stockholders, at the address set forth in Schedule I hereto.
If to the Management Stockholders, to the address set forth below for
TeleCorp.
If to TeleCorp or THC, to: TeleCorp PCS, Inc.
1010 N. Glebe Road, Suite 800
Arlington, VA 22201
Attention: Thomas H. Sullivan
Telephone: (703) 236-1100
Facsimile: (703) 236-1376
-16-
<PAGE>
With a copy to: Friedman Kaplan & Seiler LLP
875 Third Avenue, 8th Floor
New York, New York 10022
Attention: Gregg S. Lerner
Facsimile: (212) 355-6401
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Attention: Mark S. Wojciechowski
Facsimile: (212) 262-1910
All notices and other communications shall be effective upon the earlier of
actual receipt thereof and (a) in the case of notices and communications sent by
personal delivery or telecopy, three hours after such notice or communication
arrives at the applicable address or was successfully sent to the applicable
telecopy number, (b) in the case of notices and communications sent by overnight
delivery service, at noon (local time) on the first business day following the
day such notice or communication was sent, and (c) in the case of notices and
communications sent by U.S. mail, five days after such notice or communication
shall have been deposited in the U.S. mail.
9.9 Severability of this Agreement. If any provision of this Agreement
shall be found by any court of competent jurisdiction to be invalid or
unenforceable, the parties waive such provision to the extent that it is found
to be invalid or unenforceable. Such provision shall, to the maximum extent
allowable by law, be modified by such court so that it becomes enforceable and,
as modified, shall be enforced as any other provision hereof, all the other
provisions hereof continuing in full force and effect.
9.10 Headings. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.12 Further Assurances. Each party hereto shall do and perform or cause to
be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
the other party hereto may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
Transactions.
9.13 Expenses. Each party hereto shall bear its own expenses incurred on
its behalf with respect to this Agreement and the Transactions, including fees
of legal counsel.
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<PAGE>
IN WITNESS WHEREOF, the foregoing agreement is hereby executed as of the
date first above written.
TELECORP PCS, INC.
By: /s/ Thomas H. Sullivan
---------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
TELECORP HOLDING CORP., INC.
By: /s/ Thomas H. Sullivan
---------------------------------
Name: Thomas H. Sullivan
Title: President
INVESTORS:
NORTHWOOD VENTURES LLC
By: /s/ Peter Schiff
---------------------------------
Name: Peter G. Schiff
Title: President
NORTHWOOD CAPITAL PARTNERS LLC
By:
---------------------------------
Name: Peter G. Schiff
Title: President
ONELIBERTY FUND IV, L.P.
By: OneLiberty Partners IV, LLC
By:/s/ Stephen Ricci
---------------------------------
Name: Stephen Ricci
Title: Managing Member
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<PAGE>
/s/ Thomas Sullivan
------------------------------------
Thomas Sullivan
/s/ Gerald Vento
------------------------------------
Gerald Vento
-19-
<PAGE>
SCHEDULE I
Series C Preferred Stock:
<TABLE>
<CAPTION>
Name of Stockholder Shares
- ------------------- ------
<S> <C>
OneLiberty Fund IV, L.P. 1,350
One Liberty Square
Boston, Massachusetts 02109
Northwood Ventures LLC 1,181.25
485 Underhill Boulevard
Syosset, New York 11791-3419
Northwood Capital Partners LLC 168.75
485 Underhill Boulevard
Syosset, New York 11791-3419
----------
Total: 2,700
</TABLE>
Class A Voting Common Stock:
An aggregate of 270,000 shares of Class A Voting Common Stock shall be issued as
follows:
Stockholders:
Each Stockholder shall receive shares of Class A Voting Common Stock equal
to 270,000 multiplied by a fraction, the numerator of which shall be the
Accreted Value and denominator of which shall be the Fair Market Value.
For the purposes hereof, the term "Accreted Value" shall mean an amount
equal to the accreted value of the LMDS Series A Preferred Stock held by a
Stockholder, post-Spin-Off, less the aggregate face amount of the Series C
Preferred Stock of TeleCorp to be received by such Stockholder at Closing.
For the purposes hereof, the term "Fair Market Value" shall mean an amount
equal to the product of the per share average daily trading price of TeleCorp's
Class A Voting Common Stock for the three business days immediately preceding
the Closing Date times 270,000.
Investors:
Each Investor shall receive a number of shares of Class A Voting Common
Stock equal to the product of its pro rata common stock ownership in LMDS times
the difference between 270,000 shares and the number of shares of Class A Voting
Common Stock issued to the Stockholders above.
The parties hereto acknowledge that the Management Stockholders, in the
aggregate, own fifteen percent (15%) of the issued and outstanding common stock
of LMDS and that the Stockholders, in the aggregate, own eighty five percent
(85%) of the issued and outstanding common stock of LMDS.
<PAGE>
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TELECORP PCS, INC.
TeleCorp PCS, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is TeleCorp PCS, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware (the "Secretary of
State") on November 14, 1997 and was amended and restated pursuant to a Restated
Certificate of Incorporation filed with the Secretary of State on July 16, 1998,
a Second Amended and Restated Certificate of Incorporation filed with the
Secretary of State on April 20, 1999, a Third Amended and Restated Certificate
of Incorporation filed with the Secretary of State on May 14, 1999 and amended
by Amendment No. 1 to the Third Amended and Restated Certificate filed with the
Secretary of State on August 27, 1999 (the "Third Amended and Restated
Certificate"), a Fourth Amended and Restated Certificate of Incorporation filed
with the Secretary of State on August 27, 1999, and amended by Amendment No. 1
to the Fourth Amended and Restated Certificate filed with the Secretary of State
on November 8, 1999 (the "Fourth Amended and Restated Certificate").
SECOND: This Fifth Amended and Restated Certificate of Incorporation (the
"Amended and 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 Amended and Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Corporation's Fourth Amended and
Restated Certificate, as amended, by amending Articles IV and VI and by adding
Article IX, all as set forth in this Amended and Restated Certificate of
Incorporation.
ARTICLE I
The name of the Corporation shall be TeleCorp PCS, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III
The purpose of the Corporation is to engage in, carry on and conduct any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
4.1 Classes of Stock. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 935,384,090, consisting
of (a) 17,045,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), consisting of 100,000 shares designated "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"), 200,000 shares
designated "Series B Preferred Stock" (the "Series B Preferred Stock"), 215,000
shares designated "Series C Preferred Stock" (the "Series C Preferred Stock"),
50,000 shares designated "Series D Preferred Stock" (the "Series D Preferred
Stock"), 30,000 shares designated "Series E Preferred Stock" (the "Series E
Preferred Stock"), 15,450,000 shares designated "Series F Preferred Stock" (the
"Series F Preferred Stock"), and 1,000,000 undesignated shares available for
designation and issuance pursuant to Section 4.2, and (b) 918,339,090 shares of
common stock, par value $0.01 per share (the "Common Stock"), consisting of
608,550,000 shares designated "Class A Voting Common Stock" (the "Class A Common
Stock"), 308,550,000 shares designated "Class B Non-Voting Common Stock" (the
"Class B Common Stock"), 309,000 shares designated "Class C Common Stock" (the
"Class C Common Stock"), 927,000 shares designated "Class D Common Stock" (the
"Class D Common Stock") and 3,090 shares designated "Voting Preference Common
Stock" (the "Voting Preference Common Stock"). (Capitalized terms used herein
and not otherwise defined shall have the meanings set forth in Section 4.13.)
4.2 Additional Series of Preferred Stock.
(a) Subject to approval by holders of shares of any class or series of
Preferred Stock to the extent such approval is required by its terms, the Board
of Directors of the Corporation (the "Board of Directors") is hereby expressly
authorized, by resolution or resolutions, to provide, out of the unissued shares
of Preferred Stock, for series of Preferred Stock in addition to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock, and the Series F
Preferred Stock. Before any shares of any such series are issued, the Board of
Directors shall fix, and hereby is expressly empowered to fix, by resolutions,
the following provisions of the shares thereof:
(i) the designation of such series, the number of shares to constitute such
series and the stated value thereof if different from the par value thereof;
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<PAGE>
(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 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.
-3-
<PAGE>
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 Amended and Restated Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration and for
such corporate purposes as the Board of Directors may from time to time
determine.
4.3 Powers, Preferences and Rights of the Series A Preferred Stock. The
powers, preferences and rights of the Series A Preferred Stock and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series A Preferred Stock shall, with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, rank on a parity with the Series B Preferred Stock, and rank
senior to Junior Stock.
(b) Dividends and Distributions.
(i) Dividends. The holders of shares of Series A Preferred Stock shall be
entitled to receive, as and when declared by the Board of Directors, out of
funds legally available therefor, dividends on each outstanding share of Series
A Preferred Stock, at an annual rate per share equal to ten percent (10%) of the
Liquidation Preference, calculated on the basis of a 360-day year consisting of
twelve 30-day months. Dividends shall be paid quarterly in arrears on the
Dividend Payment Date commencing September 30, 1998 in the manner provided in
paragraph (iii) below.
(ii) Accrued Dividends, Record Date. Dividends payable pursuant to
paragraph (i) above shall begin to accrue and be cumulative from the date on
which shares of Series A Preferred Stock are issued, and shall begin to accrue
on a daily basis, in each case whether or not earned or declared. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of the dividends payable
pursuant to paragraph (i) above, which record date shall not be more than 60
days prior to the Dividend Payment Date.
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<PAGE>
(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 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.
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<PAGE>
(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
Amended and 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 Amended and Restated Certificate of Incorporation so as to
affect the shares of Series A Preferred Stock adversely, or (D) authorize or
issue any security convertible into, exchangeable for or evidencing the right to
purchase or otherwise receive any shares of any class or classes of Senior Stock
or Parity Stock.
(iii) So long as the Initial Holders own in the aggregate at least
two-thirds (2/3) of the number of shares of Series A Preferred Stock owned by
them on July 17, 1998, holders of shares of Series A Preferred Stock shall have
the exclusive right, voting separately as a single class, to nominate one
director of the Corporation. The foregoing right to nominate one director may be
exercised at any annual meeting of stockholders or a special meeting of
stockholders or holders of Series A Preferred Stock held for such purpose or any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of a majority of the issued and outstanding
shares of Series A Preferred Stock. Notwithstanding the foregoing, the Initial
Holders shall have the right, exercisable at any time by written notice
delivered to the Secretary of the Corporation, to surrender and cancel
irrevocably such right to nominate one director of the Corporation. So long as
the Initial Holders own in the aggregate at least two-thirds (2/3) of the number
of shares of Series A Preferred Stock owned by them on July 17, 1998, in the
event any director so nominated by the Initial Holders ceases to be a director
of the Corporation during such director's term (whether or not such director
resigns, is removed from the Board of Directors with or without cause or ceases
to be a director by reason of death, disability or for any other reason), the
Initial Holders shall have the right to designate a replacement for such
director, and the Corporation shall cause to be elected
-6-
<PAGE>
or appointed for the remainder of the term of any director so replaced any
person designated by the Initial Holders, upon written notice to the Corporation
and the other members of the Board of Directors which notice shall set forth the
name of the member being replaced and the name of the new member.
(e) Redemption at Option of the Corporation. The Corporation shall have the
right to redeem shares of Series A Preferred Stock pursuant to the following
provisions:
(i) The Corporation shall not have any right to redeem shares of the Series
A Preferred Stock prior to, with respect to any share of the Series A Preferred
Stock, the 30th day after the tenth anniversary of the issuance of such share.
Thereafter, subject to the restrictions in Section 4.3(c)(i), the Corporation
shall have the right, at its sole option and election, to redeem the shares of
the Series A Preferred Stock, in whole but not in part, at any time at a
redemption price (the "Series A Redemption Price") per share equal to the
Liquidation Preference as of the redemption date;
(ii) Notice of any redemption of the Series A Preferred Stock shall be
mailed at least ten, but not more than 60, days prior to the date fixed for
redemption to each holder of Series A Preferred Stock to be redeemed, at such
holder's address as it appears on the books of the Corporation. In order to
facilitate the redemption of the Series A Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of Series A
Preferred Stock to be redeemed, or may cause the transfer books of the
Corporation to be closed for the transfer of the Series A Preferred Stock, not
more than 60 days prior to the date fixed for such redemption;
(iii) Within two Business Days after the redemption date specified in the
notice given pursuant to paragraph (ii) above and the surrender of the
certificate(s) representing shares of Series A Preferred Stock, the Corporation
shall pay to the holder of the shares being redeemed the Series A Redemption
Price therefor. Such payment shall be made by wire transfer of immediately
available funds to an account designated by such holder or by overnight delivery
(by a nationally recognized courier) of a bank check to such holder's address as
it appears on the books of the Corporation; and
(iv) Effective upon the date of the notice given pursuant to paragraph (ii)
above, notwithstanding that any certificate for such shares shall not have been
surrendered for cancellation, the shares represented thereby shall no longer be
deemed outstanding, the rights to receive dividends thereon shall cease to
accrue from and after the date of redemption designated in the notice of
redemption and all rights of the holders of the shares of the Series A Preferred
Stock called for redemption shall cease and terminate, excepting only the right
to receive the Series A Redemption Price therefor in accordance with paragraph
(iii) above and the right to convert such shares into shares of Class A Common
Stock until the close of business on the third Business Day preceding the
redemption date, as provided in Section 4.3(i).
(f) Redemption at Option of Holder.
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<PAGE>
(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 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
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<PAGE>
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
Amended and Restated Certificate of Incorporation, the Corporation shall not be
required to issue fractions of shares upon conversion of any shares of Series A
Preferred Stock or to distribute certificates which evidence fractional shares.
In lieu of fractional shares, the Corporation may pay therefor, at the time of
any conversion of shares of Series A Preferred Stock as herein provided, an
amount in cash equal to such fraction multiplied by the Market Price of a share
of Class A Common Stock on such date.
(iv) Mechanics of Conversion. The Initial Holders or Qualified Transferee
may exercise its option to convert by surrendering for such purpose to the
Corporation, at its principal office or such other office or agency maintained
by the Corporation for that purpose, certificates representing the shares of
Series A Preferred Stock to be converted,
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accompanied by a written notice, delivered in accordance with the terms of the
Stockholders Agreement, stating that such holder elects to convert such shares
in accordance with this Section 4.3(i). The date of receipt of such certificates
and notice by the Corporation at such office shall be the conversion date (the
"Series A Conversion Date"). If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. Within ten Business Days after the Series A Conversion Date (or, if at
the time of such surrender the shares of Class A Common Stock are not listed or
admitted for trading on any national securities exchange and are not quoted on
NASDAQ or any similar service, within ten Business Days of the determination of
the Market Price pursuant to the Appraisal Procedure), the Corporation shall
issue to such holder a number of shares of Class A Common Stock into which such
shares of Series A Preferred Stock are convertible pursuant to paragraph (ii)
above. Certificates representing such shares of Class A Common Stock shall be
delivered to such holder at such holder's address as it appears on the books of
the Corporation.
(v) Termination of Rights. All shares of Series A Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Series A Conversion Date, except only the right of the holders
thereof to receive shares of Class A Common Stock in exchange therefor and
payment of any declared and unpaid dividends thereon.
(vi) No Conversion Charge or Tax. The issuance and delivery of certificates
for shares of Class A Common Stock upon the conversion of shares of Series A
Preferred Stock shall be made without charge to the holder of shares of Series A
Preferred Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
(vii) Reorganization, Reclassification and Merger Adjustment. If there
occurs any capital reorganization or any reclassification of the Class A Common
Stock of the Corporation, the consolidation or merger of the Corporation with or
into another Person (other than a merger or consolidation of the Corporation in
which the Corporation is the continuing corporation and which does not result in
any reclassification or change of outstanding shares of its Class A Common
Stock) or the sale or conveyance of all or substantially all of the assets of
the Corporation to another Person, then each share of Series A Preferred Stock
shall thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Class A Common Stock of the
Corporation upon such reorganization, reclassification, consolidation, merger,
sale or conveyance, in respect of that number of shares of Class A Common Stock
into which such share of
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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 Holder or Qualified
Transferee desires to sell, transfer or otherwise dispose of shares of Series A
Preferred Stock pursuant to a Qualified Transfer, it shall, with respect to each
such proposed transfer, give written notice (a "Qualified Transfer Notice") to
the Corporation at its principal executive office specifying up to ten
prospective transferees. Upon receipt of such notice, the Corporation shall have
ten days to give written notice to the Initial Holders or Qualified Transferee
specifying its disapproval of (A) any or all of such prospective transferees if
it has good reason for such disapproval and specifying such reason and (B) up to
two of such prospective transferees with or without good reason.
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(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 Amended and Restated Certificate of Incorporation and to
enforce specifically the terms and provisions of this Amended and Restated
Certificate of Incorporation in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
such holder may be entitled at law or in equity.
4.4 Powers, Preferences and Rights of the Series B Preferred Stock. The
Series B Preferred Stock shall rank on a parity with the Series A Preferred
Stock, and the powers, preferences and rights of the Series B Preferred Stock,
and the qualifications, limitations, and restrictions thereof, shall be
identical to those of the Series A Preferred Stock, except that (a) shares of
Series B Preferred Stock shall not be, pursuant to the terms of Section 4.3(i)
or otherwise, convertible into shares of Common Stock or any other security
issued by the Corporation, (b) the Corporation may redeem shares of Series B
Preferred Stock in accordance with the terms of Section 4.3(e) at any time
without regard to whether the redemption date is before, on or after the date
referred to in Section 4.3(e)(i), (c) shares of Series B Preferred Stock may be
issued by the Corporation in accordance with the terms of Section 4.11, (d)
holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or
otherwise, have the right to elect any directors of the Corporation and (e) the
words "Series B Preferred Stock" and "Series A Preferred Stock" shall be
substituted for all references in Section 4.3 to Series A Preferred Stock and
Series B Preferred Stock, respectively.
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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 before any payment
shall be made or any assets distributed to the holders of Common
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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 Amended and 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 Amended and 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.
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(e) Redemption at Option of the Corporation. The Corporation shall have the
right to redeem shares of Series C Preferred Stock pursuant to the following
provisions:
(i) Subject to the restrictions set forth in Section 4.5(g)(i), the
Corporation shall have the right, at its sole option and election, to redeem the
shares of the Series C Preferred Stock, in whole but not in part, at any time at
a redemption price per share equal to the Liquidation Preference thereof as of
the redemption date; provided, that concurrently with such redemption, the
Corporation shall redeem the shares of Series D Preferred Stock, in whole and
not in part, at a redemption price per share equal to the Liquidation Preference
thereof as of the redemption date; provided, further, that if the funds legally
available to the Corporation are insufficient to effect the redemption of the
Series C Preferred Stock and the Series D Preferred Stock in full, such funds
shall be allocated among the shares of Series C Preferred Stock and Series D
Preferred Stock ratably in accordance with the number of shares of each Series
outstanding as of the redemption date;
(ii) Notice of any redemption of the Series C Preferred Stock and Series D
Preferred Stock shall be mailed at least ten but not more than 60 days prior to
the date fixed for redemption to each holder of Series C Preferred Stock and
Series D Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Corporation. In order to facilitate the redemption of the
Series C Preferred Stock and Series D Preferred Stock, the Board of Directors
may fix a record date for the determination of holders of Series C Preferred
Stock and Series D Preferred Stock to be 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
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Series C Redemption Price or the Series D Redemption Price therefor in
accordance with paragraph (iii) above.
(f) Redemption at Option of Holder.
(i) No holder of shares of Series C Preferred Stock shall have any right to
require the Corporation to redeem any shares of Series C Preferred Stock prior
to, with respect to any share of Series C Preferred Stock, the 30th day after
the twentieth anniversary of the issuance of such share. Thereafter, subject to
the restrictions set forth in Section 4.5(g)(i), each holder of shares of Series
C Preferred Stock shall have the right, at the sole option and election of such
holder, to require the Corporation to redeem all (but not less than all) of the
shares of Series C Preferred Stock owned by such holder at a price per share
equal to the Series C Redemption Price;
(ii) The holder of any shares of the Series C Preferred Stock may exercise
such holder's right to require the Corporation to redeem such shares by
surrendering for such purpose to the Corporation, at its principal office or at
such other office or agency maintained by the Corporation for that purpose,
certificates representing the shares of Series C Preferred Stock to be redeemed,
accompanied by a written notice stating that such holder elects to require the
Corporation to redeem all (but not less than all) of such shares in accordance
with the provisions of this Section 4.5(f), which notice may specify an account
for delivery of the Series C Redemption Price;
(iii) Within two Business Days after the surrender of such certificates,
the Corporation shall pay to the holder of the shares being redeemed the Series
C Redemption Price therefor. Such payment shall be made by wire transfer of
immediately available funds to an account designated by such holder or by
overnight delivery (by a nationally recognized courier) of a bank check to such
holder's address as it appears on the books of the Corporation; and
(iv) Such redemptions shall be deemed to have been made at the close of
business on the date of the receipt of such notice and of such surrender of the
certificates representing the shares of the Series C Preferred Stock to be
redeemed and the rights of the holder thereof, except for the right to receive
the Series C Redemption Price therefor in accordance herewith, shall cease on
such date of receipt and surrender.
(g) Certain Restrictions.
(i) Notwithstanding the provisions of Sections 4.5(b) or (f), cash
dividends on the Series C Preferred Stock may not be declared, paid or set apart
for payment, nor may the Corporation redeem, purchase or otherwise acquire any
shares of Series C Preferred Stock, if (A) the Corporation is not solvent or
would be rendered insolvent thereby or (B) at such time the terms and provisions
of any law or agreement of the Corporation, including any agreement relating to
its indebtedness, specifically prohibit such declaration, payment or setting
apart for payment or such redemption, purchase or other acquisition, or provide
that such declaration, payment or setting apart for payment or such redemption,
purchase or other
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acquisition would constitute a violation or breach thereof or a default
thereunder.
(ii) So long as shares of Series C Preferred Stock are outstanding or
dividends payable on shares of Series C Preferred Stock have not been paid in
full in cash, the Corporation shall not declare or pay cash dividends on, or
redeem, purchase or otherwise acquire for consideration, any shares of Common
Stock or other shares of capital stock of the Corporation ranking junior to or
on a parity basis with the Series C Preferred Stock, except with the prior
written consent of holders of a majority of the outstanding shares of Series C
Preferred Stock, except that the Corporation may acquire, in accordance with the
terms of any agreement between the Corporation and its employees, shares of
Common Stock from its employees at a price equal to such employee's purchase
price therefor without such consent.
(iii) The Corporation shall not permit any Subsidiary of the Corporation,
or cause any other Person, to make any distribution with respect to, or purchase
or otherwise acquire for consideration, any shares of Common Stock or other
shares of capital stock of the Corporation ranking junior to or on a parity
basis with the Series C Preferred Stock unless the Corporation could, pursuant
to paragraph (i) above, make such distribution or purchase or otherwise acquire
such shares at such time and in such manner.
4.6 Powers, Preferences and Rights of the Series D Preferred Stock.
(a) General. The powers, preferences and rights of the Series D Preferred
Stock, and the qualifications, limitations, and restrictions thereof, shall be
identical to those of the Series C Preferred Stock, except that (i) the Series D
Preferred Stock shall rank with respect to the other series and classes of
capital stock of the Corporation as provided in paragraph (b) below, (ii) the
shares of Series D Preferred Stock shall be subject to redemption, pro rata with
the Series C Preferred Stock, in accordance with Section 4.5(e), and (iii) the
words "Series D Preferred Stock" and "Series C Preferred Stock" shall be
substituted for all references in Section 4.5 to Series C Preferred Stock and
Series D Preferred Stock, respectively.
(b) Ranking. The Series D Preferred Stock shall rank (i) junior to the
Series A Preferred Stock and the Series B Preferred Stock with respect to the
payment of dividends and the distribution of assets on liquidation, dissolution
or winding up, (ii) senior to the Series C Preferred Stock with respect to the
distribution of assets on a Statutory Liquidation, (iii) on a parity with the
Series C Preferred Stock with respect to the distribution of assets on
liquidation, dissolution or winding up (other than on a Statutory Liquidation),
(iv) on a parity with the Series C Preferred Stock and the Common Stock with
respect to the payment of dividends, and (v) senior to the Common Stock and any
series or class of the Corporation's common or preferred stock, now or hereafter
authorized (other than Series A Preferred Stock, Series B Preferred Stock or
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Series C Preferred Stock), with respect to the distribution of assets on
liquidation, dissolution and winding up.
4.7 Powers, Preferences and Rights of the Series E Preferred Stock. The
powers, preferences and rights of the Series E Preferred Stock, and the
qualifications, limitations and restrictions thereof, shall be identical to
those of the Series C Preferred Stock, except that (a) the Series E Preferred
Stock shall rank, with respect to the payment of dividends and the distribution
of assets on liquidation, dissolution or winding up, (i) junior to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock and (ii) senior to the Series F Preferred Stock and the Common
Stock and any series or class of the Corporation's common or preferred stock,
now or hereafter authorized (other than the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock), (b) the
provisos to Section 4.5(e)(i) shall not apply to a redemption of the Series E
Preferred Stock, and (c) the words "Series E Preferred Stock" and "Series C
Preferred Stock" shall be substituted for all references in Section 4.5 to
Series C Preferred Stock and Series E Preferred Stock, respectively.
4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The
powers, preferences and rights of the Series F Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
(a) Ranking. The Series F Preferred Stock shall rank (i) junior to the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock with
respect to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, (ii) on a parity with the Common Stock
with respect to the distribution of assets on liquidation, dissolution or
winding up (other than on a Statutory Liquidation), (iii) senior to the Common
Stock with respect to the distribution of assets on a Statutory Liquidation (iv
on a parity with the Common Stock with respect to the payment of dividends, and
(v) senior to any series or class of the Corporation's common or preferred stock
hereafter authorized (other than Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, or Common Stock), with respect to the payment of dividends and the
distribution of assets on liquidation, dissolution and winding up.
(b) Dividends. Holders of Series F Preferred Stock shall be entitled to
dividends in cash or property when, as and if, declared by the Board of
Directors of the Corporation.
(c) Liquidation Preference.
(i) In the event of any liquidation, dissolution or winding up of the
Corporation, the holders of Series F Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such assets are capital or
surplus of any nature, after payment is made to holders of all series of
preferred stock ranking senior to the Series F Preferred Stock with respect to
rights on liquidation, dissolution or winding up, but
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before any payment shall be made or any assets distributed to the holders of
Common Stock or any series of preferred stock ranking junior to the Series F
Preferred Stock with respect to rights on liquidation, dissolution or winding
up, an amount equal to the Liquidation Preference and no more.
(ii) If upon any liquidation, dissolution or winding up of the Corporation
the assets of the Corporation to be distributed are insufficient to permit the
payment to all holders of Series F Preferred Stock and any other series of
preferred stock ranking on a parity with Series F Preferred Stock with respect
to rights on liquidation, dissolution or winding up, to receive their full
preferential amounts, the entire assets of the Corporation shall be distributed
among the holders of Series F Preferred Stock and all such other series ratably
in accordance with their respective Liquidation Preference.
(iii) After payment to the holders of Series F Preferred Stock of the
amounts set forth in paragraph (i) above, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Participating Stock in proportion to the
shares of Participating Stock then held by them as of the date of the
liquidation, dissolution or winding up of the Corporation.
(iv) Neither the consolidation or merger of the Corporation with or into
any other Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 4.8(c).
(d) Voting Rights.
(i) The holders of shares of Series F Preferred Stock shall not have any
right to vote on any matters to be voted on by the stockholders of the
Corporation, except as otherwise provided in paragraph (ii) below or as provided
by law, and the shares of Series F Preferred Stock shall not be included in
determining the number of shares voting or 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 Amended and 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 Amended and
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Restated Certificate of Incorporation so as to affect the shares of Series F
Preferred Stock adversely, or (D) authorize or issue any security convertible
into, exchangeable for or evidencing the right to purchase or otherwise receive
any shares of any class or classes of stock senior to or pari passu with the
Series F Preferred Stock.
(e) Conversion. The shares of Series F Preferred Stock shall be convertible
into shares of Common Stock as follows:
(i) Optional Conversion. Each share of Series F Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into one fully paid and non-assessable share of Non-Tracked Common Stock;
provided that, unless and until the Tracked Common Stock shall be convertible
into Class A Common Stock in accordance with Section 4.9(e)(i), each of the
first 195,062.43 shares of Series F Preferred Stock converted pursuant to this
paragraph shall be convertible into one fully paid and non-assessable share of
Class D Common Stock.
(ii) Mechanics of Optional Conversion. In order for a holder of Series F
Preferred Stock to convert such shares into shares of Common Stock, such holder
shall surrender the certificate(s) for such shares of Series F Preferred Stock
at the office of the transfer agent for the Series F Preferred Stock (or if the
Corporation serves as its own transfer agent, at the principal office of the
Corporation), together with written notice that such holder elects to convert
all or any number of the shares of the Series F Preferred Stock represented by
such certificate(s). If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or his or its attorney duly authorized in writing. The
date of receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date (the "Optional Conversion Date"). The Corporation shall, within
ten Business Days after the Optional Conversion Date, issue and deliver at such
office to such holder of Series F Preferred Stock, or to his or its nominees,
one or more certificates for the number of whole shares of Common Stock (and any
shares of Series F Preferred Stock represented by the certificate delivered to
the Corporation by the holder thereof that are not converted into Common Stock)
issuable upon such conversion in accordance with the provisions hereof.
(iii) Reservation of Shares. The Corporation shall at all times when the
Series F Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series F Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series F Preferred Stock. Before taking any action
which would cause Common Stock upon the conversion of Series F Preferred Stock,
to be issued below the then par value of the shares of Common Stock the
Corporation will take any corporate action that may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully
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paid and non-assessable shares of Common Stock, as the case may be, to the
holders of Series F Preferred Stock.
(iv) Adjustments for Dividends. Upon any conversion of Series F Preferred
Stock, no adjustment to the conversion ratio shall be made for declared and
unpaid dividends on the Series F Preferred Stock surrendered for conversion or
on the Common Stock delivered upon conversion.
(v) Termination of Rights. All shares of Series F Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Optional Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment of
any declared and unpaid dividends thereon. On and as of the Optional Conversion
Date, the shares of Common Stock issuable upon such conversion shall be deemed
to be outstanding, and the holder thereof shall be entitled to exercise and
enjoy all rights with respect to such shares of Common Stock including the
rights, if any, to receive notices and to vote. Shares of Series F Preferred
Stock converted into Common Stock will be restored to the status of authorized
but unissued shares of Common Stock or preferred stock without designation as to
class or series, and may thereafter be issued, whether or not designated as
shares of Class A Common Stock or Series F Preferred Stock.
(vi) No Conversion Charge or Tax. The issuance and delivery of certificates
for shares of Common Stock upon the conversion of shares of Series F Preferred
Stock shall be made without charge to the holder of shares of Series F Preferred
Stock for any issue or transfer tax, or other incidental expense in respect of
the issuance or delivery of such certificates or the securities represented
thereby, all of which taxes and expenses shall be paid by the Corporation.
(vii) Reorganization, Reclassification and Merger Adjustment. If there
occurs any capital reorganization or any reclassification of the Common Stock of
the Corporation, the consolidation or merger of the Corporation with or into
another Person (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,
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appropriate adjustments (as determined in good faith by the Board of Directors
of the Corporation, whose determination shall be conclusive) shall be made to
assure that the provisions set forth herein shall thereafter be applicable, as
nearly as reasonably may be practicable, in relation to any securities or other
assets thereafter deliverable upon the conversion of the Series F Preferred
Stock.
(f) Certain Restrictions.
(i) Notwithstanding the provisions of Sections 4.8(b), cash dividends on
the Series F Preferred Stock may not be declared, paid or set apart for payment,
nor may the Corporation redeem, purchase or otherwise acquire any shares of
Series F Preferred Stock, if (A) the Corporation is not solvent or would be
rendered insolvent thereby or (B) at such time the terms and provisions of any
law or agreement of the Corporation, including any agreement relating to its
indebtedness, specifically prohibit such declaration, payment or setting apart
for payment or such redemption, purchase or other acquisition, or provide that
such declaration, payment or setting apart for payment or such redemption,
purchase or other acquisition would constitute a violation or breach thereof or
a default thereunder.
(ii) The Corporation shall not permit any Subsidiary of the Corporation, or
cause any other Person, to make any distribution with respect to, or purchase or
otherwise acquire for consideration, any shares of Common Stock or other shares
of capital stock of the Corporation ranking junior to or on a parity basis with
the Series F Preferred Stock unless the Corporation could, pursuant to paragraph
(i) above, make such distribution or purchase or otherwise acquire such shares
at such time and in such manner.
(g) Redemption. The Series F Preferred Stock is not redeemable.
(h) Sinking Fund. There shall be no sinking fund for the payment of
dividends or Liquidation Preferences on the Series F Preferred Stock.
4.9 Common Stock.
(a) General. Except as otherwise provided herein, all shares of Common
Stock issued and outstanding shall be identical, and shall entitle the holders
thereof to the same rights, powers and privileges of stockholders under Delaware
law. For purposes of this Section 4.9 (and the definitions relating thereto),
the Class A Common Stock and the Class B Common Stock are herein collectively
referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and
the Class D Common Stock are herein collectively referred to as the "Tracked
Common Stock".
(b) Dividends. Subject to Section 4.10(b) and the express terms of any
outstanding series of Preferred Stock, dividends may be paid in cash or
otherwise with respect to each class of Common Stock out of the assets of the
Corporation, upon the
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terms, and subject to the limitations, provided in this Section 4.9(b), as the
Board of Directors may determine.
(i) Dividends on the Non-Tracked Common Stock. Dividends on the Non-Tracked
Common Stock may be declared and paid only out of the excess of (A) the funds of
the Corporation legally available therefor over (B) the Tracked Business
Available Dividend Amount (the "Non-Tracked Business Available Dividend
Amount").
(ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common
Stock may be declared and paid only out of the lesser of (A) the funds of the
Corporation legally available therefor and (B) the Tracked Business Available
Dividend Amount. The Corporation shall not declare or pay cash dividends on, or
redeem, purchase or otherwise acquire for consideration, any shares of Tracked
Common Stock unless concurrently therewith the Corporation shall declare or pay
cash dividends on, or redeem, purchase or otherwise acquire for consideration,
as the case may be, on the same terms, all shares of Tracked Common Stock
ratably in accordance with the number of shares of each class of Tracked Common
Stock then outstanding.
(iii) Discrimination in Dividends Among the Tracked and Non-Tracked Common
Stock. The Board of Directors may at any time, subject to the provisions of
Sections 4.9(b)(i) and (ii) and Section 4.10, declare and pay dividends
exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common
Stock or on both such categories of Common Stock in equal or unequal amounts,
notwithstanding the relative amounts of the Non-Tracked Business Available
Dividend Amount and the Tracked Business Available Dividend Amount.
(c) Voting.
(i) The holders of shares of Common Stock shall be entitled to such voting
rights as hereinafter provided, and shall be entitled to notice of any
stockholders' meeting and to vote upon such matters as provided herein and in
the Bylaws of the Corporation, and as may be provided by law. Holders of any
class of Common Stock shall not be entitled to cumulate their votes for any
purpose. Except as otherwise required by law or provided herein, regardless of
the number of shares of any class of Common Stock then outstanding, each class
of Common Stock shall be entitled to the number of votes enumerated below and
the number of votes or fractional votes to which each share of a particular
class of Common Stock shall be entitled shall be the quotient determined by
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.
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(ii) A quorum for the transaction of business shall be present when a
majority of the shares of Voting Preference Common Stock outstanding as of the
record date are present and when shares of all classes of Common Stock with at
least 5,010,000 votes are present, except that (x) with respect to actions
requiring a majority vote of the Class A Common Stock, the presence of a
majority of the outstanding shares of Class A Common Stock shall also be
required for a quorum to be present, (y) with respect to actions requiring the
vote of a majority vote of the Class C Common Stock, the presence of a majority
of the outstanding shares of Class C Common Stock shall also be required for a
quorum to be present and (z) with respect to actions requiring the vote of a
majority vote of the Class D Common Stock, the presence of a majority of the
outstanding shares of Class D Common Stock shall also be required for a quorum
to be present. Except as otherwise required by law or provided herein, the
majority vote of the Voting Preference Common Stock present at any meeting at
which a quorum is present shall be sufficient to approve any action required to
be approved by the holders of the Common Stock.
(iii) In any matter requiring a separate class vote of holders of any class
of Common Stock or a separate vote of two or more classes of Common Stock voting
together as a single class, for the purposes of such a class vote, each share of
Common Stock of such classes shall be entitled to one vote per share.
(iv) In the event that the Corporation shall have received an opinion of
regulatory counsel of nationally recognized standing to the effect that the
rules, regulations or policies of the Federal Communications Commission (the
"FCC") permit the Class A Common Stock and the Voting Preference Common Stock
(x) to be voted as a single class on all matters, (y) to be treated as a single
class for purposes of all quorum requirements and (z) to have one vote per
share, then, unless the Board of Directors of the Corporation shall have
determined, within 30 days after the date of receipt of such opinion, that
obtaining the FCC consent described below would be reasonably expected to have a
significant detrimental effect on the Corporation, the Corporation shall, upon
the affirmative vote of 66-2/3% or more of the Class A Common Stock, seek
consent from the FCC to permit the Class A Common Stock and Voting Preference
Common Stock to vote and act as a single class in the manner described above.
From and after the date that such consent is obtained, the Class A Common Stock
and the Voting Preference Common Stock shall be voted as a single class on all
matters, shall be treated as a single class for purposes of all quorum
requirements, and shall have one vote per share; provided, that the voting
rights of the the Class B Common Stock, Class C Common Stock and Class D Common
Stock and the Preferred Stock shall remain unaffected.
(v) The holders of shares of Class B Common Stock shall be entitled to vote
as a separate class on any amendment, repeal or modification of any provision of
this Amended and Restated Certificate of Incorporation that adversely affects
the powers, preferences or special rights of the holders of the Class B Common
Stock.
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(d) Dissolution, Liquidation or Winding Up. Upon the dissolution,
liquidation or winding up of the Corporation, after any preferential amounts to
be distributed to the holders of the Preferred Stock and any other class or
series of stock having a preference over the Common Stock then outstanding have
been paid or declared and funds sufficient for the payment thereof in full set
apart for payment, (i) the holders of the Tracked Common Stock shall be entitled
to receive pro rata the Tracked Business Available Liquidation Amount and (ii)
the holders of the Non-Tracked Common Stock shall be entitled to receive pro
rata the excess of (A) all the remaining assets of the Corporation available for
distribution to its stockholders over (B) the Tracked Business Available
Liquidation Amount.
(e) Conversion.
(i) Each share of Class B Common Stock may, at the option of the holder
thereof, at any time, be converted into one fully paid and non-assessable share
of Class A Common Stock.
(ii) Each share of Class A Common Stock may, at the option of the holder
thereof, at any time, be converted into one fully paid and non-assessable share
of Class B Common Stock.
(iii) In the event that the Corporation shall have received an opinion of
regulatory counsel of nationally recognized standing to the effect that the
rules, regulations or policies of the FCC permit the conversion of shares of
Tracked Common Stock into Class A Common Stock or Class B Common Stock, then,
unless the Board of Directors of the Corporation shall have determined, within
30 days after receipt of such opinion, that permitting such conversion would be
reasonably expected to have a significant detrimental effect on the Corporation,
shares of Class C Common Stock and Class D Common Stock shall, upon the
affirmative vote of 66-2/3% or more of the Class A Common Stock, be convertible
as follows: (x) each share of Class C Common Stock may, at the option of the
holder thereof, be converted into one fully paid and non-assessable share of
Class A Common Stock or or Class B Common Stock, and (y) each share of Class D
Common Stock may, at the option of the holder thereof, be converted into one
fully paid and non-assessable share of Class A Common Stock or Class B Common
Stock.
4.10 Participating Stock.
(a) Changes in Capital Stock. The Corporation shall not effect any change
in or reclassification of any class or series of the outstanding Participating
Stock, whether through stock dividends, stock splits, reverse stock splits,
combinations or otherwise, without the payment to the Corporation of any
consideration therefor in money, services or property, unless concurrently
therewith the Corporation shall effect a corresponding change in each other
class and series of the outstanding Participating Stock.
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(b) Dividends and Distributions. The Corporation shall not declare or pay
cash dividends on, or redeem, purchase or otherwise acquire for consideration,
any shares of Participating Stock unless concurrently therewith the Corporation
shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire
for consideration, as the case may be, on the same terms, all shares of
Participating Stock ratably in accordance with the number of shares of each
class and series of Participating Stock then outstanding.
(c) Notices. Any written notice or communication by the Corporation to
holders of any class or series of Participating Stock shall be sent to all
holders of Participating Stock.
4.11 Exchange of Capital Stock. Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation to the contrary, in the event
that AT&T Wireless PCS, LLC terminates its obligations under Section 8.6 of the
Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any
Overlap Territory (as defined therein) (any such termination being referred to
hereinafter as the "Exchange Event"), the following provisions shall apply:
(a) Right to Exchange. The Corporation shall have the right, exercisable in
its sole discretion by written notice (the "Exchange Notice") given to the
Initial Holders and Section 4.11 Transfers within 60 days after the Exchange
Event, to:
(i) require the Initial Holders and each Section 4.11 Transferee to
exchange for an equivalent number of shares of Series B Preferred Stock either
(A) all of the shares of Series A Preferred Stock then owned by the Initial
Holders and each Section 4.11 Transferee or (B) a number of shares of Series A
Preferred Stock then owned by each such holder equal to the product of (x) the
number of shares of Series A Preferred Stock then owned by such holder
multiplied by (y) a fraction, the numerator of which is equal to the number of
POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the
denominator of which is equal to the total number of POPs in the Territory (as
defined in the Stockholders Agreement); and
(ii) require the Initial Holders and each Section 4.11 Transferee to
exchange, for a number of shares of Series B Preferred Stock determined in
accordance with paragraph (b) below, either (A) all of the shares of Series D
Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial
Holder on July 17, 1998 (or shares of Common Stock into which such shares of
Series D Preferred Stock, and Series F Preferred Stock shall have been
converted) and that the Initial Holders or a Section 4.11 Transferee continues
to own on the date of delivery of the Exchange Notice (any such shares of Series
D Preferred Stock, Series F Preferred Stock or Common Stock being referred to
hereinafter collectively as "Original Shares") or (B) a number of Original
Shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock
equal to the product of (x) the number of Original Shares of Series D Preferred
Stock, Series F Preferred Stock and Common Stock, as the case may be, then owned
by each such holder, multiplied by (y) a fraction, the numerator of which is
equal to the number
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of POPs in the Overlap Territory and the denominator of which is equal to the
total number of POPs in the Territory; provided, that (x) if the Corporation
exercises its right under clause (i)(A) of this paragraph (a), it shall be
required to exercise its right under clause (ii)(A) of this paragraph (a), and
vice-versa; and if the Corporation exercises its right under clause (i)(B) of
this paragraph (a), it shall be required to exercise its right under clause
(ii)(B) of this paragraph (a), and vice-versa and (y) the provisions of this
Section 4.11(a) shall not apply to any Section 4.11 Transferee which is a Cash
Equity Investor.
(Shares of Series A Preferred Stock, Series D Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock (and shares of Common Stock into
which such shares shall have been converted) and shares of Common Stock subject
to exchange pursuant to this Section 4.11 are hereinafter referred to
collectively as "Exchange Shares.")
(b) Number of Shares of Series B Preferred Stock Issuable in Exchange. The
number of shares of Series B Preferred Stock issuable in exchange for Original
Shares pursuant to clause (ii) of paragraph (a) above shall be equal to the
quotient of the aggregate purchase price paid by the Initial Holders for the
Original Shares being exchanged, divided by $1,000.
(c) Fractional Shares. Notwithstanding any other provision of this Amended
and Restated Certificate of Incorporation, the Corporation shall not be required
to issue fractions of shares upon exchange of any Exchange Shares or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Corporation may pay therefor, at the time of any exchange of
Exchange Shares as herein provided, an amount in cash equal to such fraction
multiplied by the Market Price of a share of Common Stock on such date.
(d) Mechanics of Exchange. The Exchange Notice shall specify the date fixed
for the exchange (the "Exchange Date"), which shall be at least ten but no more
than 60 days following delivery of the Exchange Notice, and the place designated
for exchange of the Exchange Shares pursuant to this Section 4.11. Such notice
will be sent by first class or registered mail, postage prepaid, to the Initial
Holders and each Section 4.11 Transferee at such holder's address last shown on
the records of the transfer agent for the Exchange Shares (or the records of the
Corporation if it serves as its own transfer agent). On or before the Exchange
Date, the Initial Holders and each Section 4.11 Transferee shall surrender its
certificate or certificates for all such shares to the Corporation at the place
designated in such notice. If required by the Corporation, certificates
surrendered for exchange shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the Initial Holders and each Section 4.11 Transferee or its
attorney duly authorized in writing.
(e) Termination of Rights. On and after the Exchange Date (whether or not
the applicable certificates have theretofore been surrendered), all rights with
respect to the Exchange Shares, including the rights, if any, to receive notices
and to vote, will
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terminate, except only the rights of the Initial Holders and Section 4.11
Transferees to receive certificates for the number of shares of Series B
Preferred Stock into which such Exchange Shares have been exchanged, upon
surrender of its certificate or certificates therefor, and payment of any
declared but unpaid dividends thereon (which shall accrue and be payable at the
times and on the other terms applicable to such dividends when declared) and
payment of any deferred dividends in respect of Series A Preferred Stock which
shall be payable as set forth in Section 4.3(b)(iii). Within ten Business Days
after the Exchange Date, the Corporation shall issue and deliver to the Initial
Holders and each Section 4.11 Transferee, or on its written order to its
nominees, a certificate or certificates for the number of whole shares of Series
B Preferred Stock issuable upon such exchange in accordance with the provisions
hereof, together with cash in lieu of fractional shares calculated in accordance
with paragraph (c) of this Section 4.11.
(f) Reservation of Shares. The Corporation shall at all times reserve and
keep available for issuance upon the exchange of Exchange Shares the maximum
number of its authorized but unissued shares of Series B Preferred Stock as is
reasonably anticipated to be sufficient to permit the exchange of all
outstanding Exchange Shares, and shall take all action required to increase the
authorized number of shares of Series B Preferred Stock if at any time there
shall be insufficient authorized but unissued shares of Series B Preferred Stock
to permit such reservation or to permit the exchange of all outstanding Exchange
Shares.
(g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no
adjustment to the rate of conversion shall be made for accrued and unpaid
dividends (whether or not declared) on the Exchange Shares, as the case may be,
surrendered for exchange or on the Series B Preferred Stock delivered upon
exchange.
(h) No Exchange Charge or Tax. The issuance and delivery of certificates
for shares of Series B Preferred Stock upon the exchange of Exchange Shares
shall be made without charge to the Initial Holder for any issue or transfer
tax, or other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
4.12 Redemption of Capital Stock; FCC Approval.
(a) Redemption. Notwithstanding any other provision of this Amended and
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
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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 4.12 shall be equal to the lesser of (x) the Market Price or (y) if such
stock was purchased by such Disqualified Holder within one year of the Section
4.12 Redemption Date, such Disqualified Holder's purchase price for such shares;
(ii) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(iii) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as shall be
determined by the Board of Directors, which may include selection first of the
most recently purchased shares thereof, selection by lot or selection in any
other manner determined by the Board of Directors;
(iv) at least 30 days' written notice of the Section 4.12 Redemption Date
shall be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder); provided, however, that only 10
days' written notice of the Redemption Date shall be given to record holders if
the cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject to
immediate withdrawal by them upon surrender of the stock certificates for their
shares to be redeemed; provided, further, that the record holders of the shares
selected to be redeemed may transfer such shares prior to the Section 4.12
Redemption Date to any holder that is not a Disqualified Holder and, thereafter,
for so long as such shares are not held by a Disqualified Holder, such shares
shall not be subject to redemption by the Corporation;
(v) from and after the Section 4.12 Redemption Date, any and all rights of
whatever nature (including without limitation any rights to vote or participate
in dividends declared on stock of the same class or series as such shares) with
respect to the shares selected from redemption held by Disqualified Holders on
the Section 4.12 Redemption Date shall cease and terminate and such Disqualified
Holders thenceforth shall be entitled only to receive the cash or Redemption
Securities payable upon redemption; and
(vi) such other terms and conditions as the Board of Directors shall
determine.
(b) FCC Approval. Notwithstanding anything herein to the contrary, if
Federal Communications Commission or other regulatory approval is required to be
obtained prior to the conversion of shares of any series or class of Preferred
Stock or Common Stock, the holder thereof may nevertheless elect to convert any
or all of its shares by written notice given to the Corporation in accordance
with the applicable provision hereof, provided, that such conversion shall not
become effective until the close of
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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).
4.13 Definitions. For the purposes of this Amended and Restated Certificate
of Incorporation, the following terms shall have the meanings indicated:
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with that Person. For purposes of this
definition, "control" (including the terms "controlling" and "controlled") means
the power to direct or cause the direction of the management and policies of a
Person, directly or indirectly, whether through the ownership of securities or
partnership or other ownership interests, by contract or otherwise.
"Appraisal Procedure" means the following procedure for determining the
Market Price, for the purpose of calculating the Series A Conversion Rate, in
the event that the shares of Class A Common Stock are not listed or admitted for
trading on any national securities exchange and are not quoted on NASDAQ or any
similar service:
(i) Two independent accounting or investment banking firms of nationally
recognized standing (each, an "Appraiser"), one chosen by the Corporation and
one by the holders of a majority of the outstanding shares of Series A Preferred
Stock, shall each determine and attempt to mutually agree upon, the Market
Price. Each party shall deliver a notice to the other appointing its Appraiser
within 15 days after the applicable notice and surrender pursuant to Section
4.3(iv). If either the Corporation or such holders fail to appoint an appraiser
within such 15-day period, the Market Price shall be determined by the Appraiser
that has been so appointed.
(ii) If within 30 days after appointment of the two Appraisers they are
unable to agree upon the Market Price, an independent accounting or investment
banking firm of nationally recognized standing shall within ten days thereafter
be chosen to serve as a third Appraiser by the mutual consent of such first two
Appraisers. The determination of the Market Price by the third Appraiser so
appointed and chosen shall be made within 30 days after the selection of such
third Appraiser.
(iii) If three Appraisers shall be appointed and the determination of one
Appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the
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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.
"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
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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, LLC, a Delaware limited liability
company, TWR Cellular, Inc., a Delaware corporation, and/or any of their
respective Affiliates that is a Subsidiary of AT&T Corp.
"Invested Amount" means, as of any date with respect to each share of
Series C Preferred Stock held by any stockholder, an amount equal to the
quotient of (i) the aggregate paid-in capital actually paid with respect to all
shares of Series C Preferred Stock held by such stockholder as of such date
divided by (ii) the total number of shares of Series C Preferred Stock held by
such stockholder.
"Junior Stock" shall mean, with respect to shares of Series A Preferred
Stock or Series B Preferred Stock, any capital stock of the Corporation,
including without limitation the Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and the Common Stock, ranking junior to the Series A Preferred Stock or
Series B Preferred Stock, as the case may be, with respect to dividends,
distribution in liquidation or any other preference, right or power.
"Liquidation Preference" shall mean, as of any date, and subject to
adjustment for subdivisions or combinations affecting the number of shares of
the applicable series of Preferred Stock:
(i) with respect to each share of Series A Preferred Stock and Series B
Preferred Stock, $1,000 plus accrued and unpaid dividends thereon;
(ii) with respect to each share of Series C Preferred Stock, the Invested
Amount plus accrued and unpaid dividends on such share (if any), plus an amount
equal to interest on the Invested Amount at the rate of six percent (6%) per
annum, compounded quarterly, less the amount of dividends (if any) theretofore
declared and paid in respect of such share;
(iii) with respect to each share of Series D Preferred Stock, $1,000 plus
accrued and unpaid dividends thereon (if any), plus an amount equal to interest
on $1,000
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at the rate of six percent (6%) per annum, compounded quarterly, from the date
of issuance of such share to and including the date of the calculation, less the
amount of dividends (if any) theretofore declared and paid in respect of such
share;
(iv) with respect to each share of Series E Preferred Stock, accrued and
unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at
the rate of six percent (6%) per annum, compounded quarterly, from the date of
issuance of such share to and including the date of the calculation, less the
amount of dividends (if any) theretofore declared and paid in respect of such
share; and
(v) with respect to each share of Series F Preferred Stock, $.000032 plus
accrued and unpaid dividends thereon.
"Market Price" shall mean, with respect to each share of any class or
series of capital stock for any day, (i) the average of the daily Closing Prices
for the ten consecutive trading days commencing 15 days before the day in
question or (ii) if on such date the shares of such class or series of capital
stock are not listed or admitted for trading on any national securities exchange
and are not quoted on NASDAQ or any similar service, the cash amount that a
willing buyer would pay a willing seller (neither acting under compulsion) in an
arm's-length transaction without time constraints per share of such class or
series of capital stock as of such date, viewing the Corporation on a going
concern basis, as determined (A) in the case of a determination of "Market
Price" for the purpose of calculating the Series A Conversion Rate, pursuant to
the Appraisal Procedure and (B) in the case of a determination of Market Price
for any other purpose, in good faith by the Board of Directors, whose
determination shall be conclusive; provided that, in determining such cash
amount, the following shall be ignored: (i) any contract or legal limitation in
respect of shares of Common Stock or Preferred Stock, including transfer, voting
and other rights, (ii) the "minority interest" or "control" status of shares of
Common Stock into which shares of Series A Preferred Stock would be converted,
and (iii) any illiquidity arising by contract in respect of the shares of Common
Stock and any voting rights or control rights amongst the stockholders.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Non-Tracked Common Stock" has the meaning specified in Section 4.9(a).
"Non-Tracked Business Available Dividend Amount" has the meaning specified
in Section 4.9(b)(i).
"Optional Conversion Date" has the meaning specified in 4.8(e)(ii).
"Parity Stock" shall mean, with respect to shares of Series A Preferred
Stock or Series B Preferred Stock, any capital stock of the Corporation ranking
on a parity with the Series A Preferred Stock or Series B Preferred Stock, as
the case may be, with respect to dividends, distribution in liquidation or any
other preference, right or power.
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"Participating Stock" shall mean, collectively, the Series F Preferred
Stock and the Non-Tracked Common Stock.
"Person" shall mean any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
governmental agency or political subdivision thereof or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning specified in Section 4.1.
"Qualified Transfer" shall mean a sale, transfer or other disposition of
shares of Series A Preferred Stock to any prospective transferee specified in a
Qualified Transfer Notice, other than a prospective transferee as to which the
Corporation disapproves in accordance with the terms of the second sentence of
Section 4.3(j), provided such sale, transfer or other disposition is made
pursuant to a binding agreement entered into no later than 180 days after the
applicable Qualified Transfer Notice is given.
"Qualified Transferee" shall mean, with respect to any shares of Series A
Preferred Stock, (i) any Cash Equity Investor that acquired such shares pursuant
to Section 4.2 of the Stockholders Agreement or (ii) any other holder that
acquired such shares in a Qualified Transfer from an Initial Holders or
Qualified Transferee.
"Qualified Transfer Notice" has the meaning specified in Section 4.3(i)(x).
"Redemption Securities" shall mean any debt or equity securities of the
Corporation, any of its subsidiaries or affiliates or any other corporation, or
any combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as part
of the redemption price payable pursuant to Section 4.12, in the opinion of any
nationally recognized investment banking firm selected by the Board of Directors
(which may be a firm which provides investment banking, brokerage or other
services to the Corporation), has a value, at the time notice of redemption is
given pursuant to Section 4.12(d) at least equal to the price required to be
paid pursuant to Section 4.12(a) (assuming, in the case of Redemption Securities
to be publicly traded, that such Redemption Securities were fully distributed
and subject only to normal trading activity).
"Section 4.11 Transferee" shall mean any transferee of shares of Series A
Preferred Stock, Series D Preferred Stock and Series F Preferred Stock issued to
the Initial Holder on July 17, 1998 (or any shares of Common Stock into which
any such shares are converted) that are acquired in a private transaction.
"Section 4.12 Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation pursuant
to Section 4.12.
"Senior Stock" shall mean, with respect to shares of Series A Preferred
Stock or Series B Preferred Stock, as the case may be, any capital stock of the
Corporation ranking senior
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to the Series A Preferred Stock or the Series B Preferred Stock, as the case may
be, with respect to dividends, distribution in liquidation or any other
preference, right or power.
"Series A Conversion Date" has the meaning specified in Section 4.3(i)(iv).
"Series A Conversion Rate" shall mean, as of any date of determination, a
fraction in which the numerator is the Liquidation Preference of one share of
Series A Preferred Stock as of such date, and the denominator is the Market
Price of Class A Common Stock as of such date.
"Series A Preferred Stock" has the meaning specified in Section 4.1.
"Series A Redemption Price" has the meaning specified in Section 4.3(e)(i).
"Series B Preferred Stock" has the meaning specified in Section 4.1.
"Series C Preferred Stock" has the meaning specified in Section 4.1.
"Series D Preferred Stock" has the meaning specified in Section 4.1.
"Series E Preferred Stock" has the meaning specified in Section 4.1.
"Series F Preferred Stock" has the meaning specified in Section 4.1.
"Statutory Liquidation" means the liquidation of the Corporation pursuant
to Section 275 of the GCL, as amended.
"Stockholders Agreement" means the July 1998 Stockholders Agreement by and
among the Corporation, the Initial Holders and the other stockholders of the
Corporation named therein, as the same may be amended, modified or supplemented
in accordance with the terms thereof, a copy of which is available for
inspection by any stockholder at the principal executive offices of the
Corporation.
"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.
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"Tracked Business Available Liquidation Amount" shall mean, on any date,
the fair market value of the total assets of Tracked Subsidiary (including,
without limitation, investments held by Tracked Subsidiary, less the total
amount of the liabilities of Tracked Subsidiary, in each case as of such date
determined in accordance with generally accepted accounting principles.
"Tracked Common Stock" has the meaning specified in Section 4.9(a).
"Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc.
ARTICLE V
Election of Directors need not be by written ballot.
ARTICLE VI
6.1 Amendment of Amended and Restated Certificate of Incorporation. Subject
to the separate class vote requirements relating to any class or series of
Preferred Stock, the holders of shares of capital stock representing at least
two-thirds (2/3) of the votes entitled to be cast for the election of directors
of the Corporation, voting together as a single class, in person or by proxy, at
a special or annual meeting of stockholders called for the purpose, or by
written consent, may amend, alter or repeal this Amended and Restated
Certificate of Incorporation.
6.2 Amendment of the Bylaws. Except as otherwise provided by law or by this
Certificate of Incorporation, the Bylaws of the Corporation, as from time to
time altered or amended, may be made, altered or amended by the holders of
shares of capital stock representing at least two-thirds (2/3) of the votes
entitled to be cast for the election of directors of the Corporation, voting
together as a single class, in person or by proxy at any annual or special
meeting of the stockholders called for such purpose, of which the notice shall
specify the subject matter of the proposed alteration or amendment or new bylaw
or the article or articles to be affected thereby, or by written consent of such
holders of such number of shares. The Bylaws may also be made, altered or
amended by a majority of the whole number of directors then in office.
Notwithstanding anything to the contrary contained in this Section 6.2, the
rights of any Stockholder (as such term is defined in the Stockholders
Agreement) or group of Stockholders under Section 2.11(b) of the Bylaws shall
not be amended, altered or repealed without the prior written approval of any
such Stockholder or group of Stockholders, as the case may be.
ARTICLE VII
7.1 Indemnification. Any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding (a "Proceeding"), whether civil, criminal, administrative, or
investigative (whether or not by or in the right of the Corporation), by reason
of the fact that such person, or a person of whom such person is the legal
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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 Amended and Restated Certificate
of Incorporation, the Bylaws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
7.4 Continuing Rights. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article VII
shall continue as to a person who has ceased to be a Director or officer (or
other person indemnified hereunder), shall inure to the benefit of the
executors, administrators, legatees and distributees of such person, and in
either case, shall inure whether or not the claim asserted is based on matters
which antedate the adoption of this Article VII.
7.5 Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer, employee or agent of an Other Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation
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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
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
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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 Amended and Restated
Certificate of Incorporation inconsistent with this Article VIII, shall apply to
or have any effect on the liability or alleged liability of any Director of the
Corporation for, arising out of, based upon, or in connection with any acts or
omissions of such Director occurring prior to such amendment, repeal, or
adoption of an inconsistent provision. The provisions of this Article VIII are
cumulative and shall be in addition to and independent of any and all other
limitations on or eliminations of the liabilities of Directors of the
Corporation, as such, whether such limitations or eliminations arise under or
are created by any law, rule, regulation, bylaw, agreement, vote of stockholders
or disinterested Directors, or otherwise.
ARTICLE IX
9.1 Number, Terms and Election of Directors.
(a) Subject to the rights, if any, of the holders of any class or series of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed and may be increased or
decreased from time to time by the Board of Directors, but in no case shall the
number be less than one nor more than fifteen.
(b) Upon the closing of an offer and sale of the Class A Common Stock of
the Corporation to the public (a "Public Offering") pursuant to an effective
Registration Statement under the Securities Act of 1933, as amended (the "1933
Act"), in which (i) the aggregate gross proceeds received by the Corporation in
connection with such Registration Statement(s) equals or exceeds $20 million,
and (ii) the Class A Common Stock shall have been listed for trading on the New
York Stock Exchange or the American Stock Exchange or authorized for trading on
NASDAQ, including without limitation its National Market System, the then
current directors and any new directors taking office upon such closing shall be
divided into three classes, as nearly equal in number as possible, by the
affirmative vote (which vote may be taken prior to such
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closing) of a majority of the directors then holding office. One class of
directors shall be appointed to the Board of Directors for a term expiring at
the first annual meeting of stockholders to be held after the closing date of
the Public Offering, another class of directors shall be appointed to the Board
of Directors for a term expiring at the second annual meeting of stockholders to
be held after the closing date of the Public Offering, and another class of
directors shall be appointed to the Board of Directors for a term expiring the
third annual meeting of stockholders to be held after the closing date of the
Public Offering, with members of each class to hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected by plurality vote of all votes
cast at such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following their year of election.
9.2 Newly Created Directorships and Vacancies. Subject to the rights, if
any, of the holders of any and all series of Preferred Stock to elect additional
directors pursuant to the terms and conditions of such Preferred Stock, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors, or by a sole remaining
director. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of an incumbent director.
9.3 Removal. Subject to the rights, if any, of the holders of any and all
series of Preferred Stock to elect additional directors pursuant to the terms
and conditions of such Preferred Stock, any director may be removed from office
by the stockholders only for cause and only in the following manner. At any
annual meeting or special meeting of the stockholders of the Corporation, the
notice of which shall state that the removal of a director or directors is among
the purposes of the meeting, the affirmative vote of the holders of at least a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of the directors, voting together as a single
class, may remove such director or directors for cause.
9.4 Additional Rights of Certain Stockholders Regarding Directors.
Notwithstanding anything to the contrary contained in this Article IX, so long
as a Stockholder (as such term is defined in the Stockholders' Agreement) or
group of Stockholders has the right to nominate one or more of the directors of
the Corporation pursuant to the terms of the Stockholders' Agreement or this
Amended and Restated Certificate of Incorporation (including, without
limitation, the right of the Initial Holders to nominate a director pursuant to
Section 4.3(d)(iii) hereof), then, with respect to any directors so nominated by
such Stockholder or group of Stockholders, such Stockholder or group of
Stockholders, as the case may be, shall have the right to cause the
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Corporation to remove any director so nominated by such Stockholder or group of
stockholders, as the case may be, with or without cause, and any vacancy caused
by the removal of such director or otherwise during the term of such director
(whether or not such director resigns, is removed from the Board of Directors
with or without cause or ceases to be a director by reason of death, disability
or for any other reason) shall be filled in accordance with the terms of the
Stockholders' Agreement or this Amended and Restated Certificate of
Incorporation, as the case may be.
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IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed
this Fifth Amended and Restated Certificate of Incorporation this 29th day of
November, 1999.
/s/ Thomas H. Sullivan
------------------------------------
Name: Thomas H. Sullivan
Title: Executive Vice President
<PAGE>
EXHIBIT 3.2
TELECORP PCS, INC.
SECOND AMENDED AND RESTATED
BYLAWS
ADOPTED AS OF NOVEMBER 29, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. STOCKHOLDERS.......................................................1
1.1 Annual Meeting...............................................1
1.2 Special Meetings.............................................2
1.3 Notice of Meetings; Waiver...................................2
1.4 Quorum; Voting...............................................3
1.5 Voting by Ballot.............................................3
1.6 Adjournment..................................................3
1.7 Proxies......................................................4
1.8 Organization; Procedure......................................4
1.9 Consent of Stockholders in Lieu of Meeting...................4
ARTICLE 2. BOARD OF DIRECTORS.................................................4
2.1 General Powers...............................................4
2.2 Number; Election; Term of Office; Removal....................4
2.3 Annual and Regular Meetings..................................5
2.4 Special Meetings; Notice.....................................5
2.5 Quorum; Voting...............................................5
2.6 Adjournment..................................................5
2.7 Action Without a Meeting.....................................5
2.8 Regulations; Manner of Acting................................6
2.9 Action by Telephonic Communications..........................6
2.10 Resignation..................................................6
2.12 Compensation.................................................7
2.13 Reliance on Accounts and Reports, etc........................7
ARTICLE 3. EXECUTIVE COMMITTEE AND OTHER COMMITTEES...........................7
3.1 How Constituted..............................................7
3.2 Powers.......................................................7
3.3 Quorum; Voting...............................................8
3.4 Action without a Meeting.....................................8
3.5 Regulations; Manner of Acting................................8
3.6 Action by Telephonic Communications..........................8
</TABLE>
-i-
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TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.7 Resignation..................................................8
3.8 Removal......................................................8
3.9 Vacancies....................................................8
ARTICLE 4. OFFICERS...........................................................8
4.1 Titles.......................................................8
4.2 Election.....................................................9
4.3 Salaries.....................................................9
4.4 Removal and Resignation; Vacancies...........................9
4.5 Authority and Duties.........................................9
4.6 The Chairman of the Board....................................9
4.7 The President................................................9
4.8 Vice President/Chief Operating Officer.......................9
4.9 Executive Vice President/General Counsel....................10
4.10 The Vice Presidents.........................................10
4.11 The Secretary...............................................10
4.12 The Treasurer...............................................10
4.13 Additional Officers.........................................10
4.14 Security....................................................10
ARTICLE 5. CAPITAL STOCK.....................................................10
5.1 Certificates of Stock, Uncertificated Shares................10
5.2 Signatures; Facsimile.......................................11
5.3 Lost, Stolen or Destroyed Certificates......................11
5.4 Transfer of Stock...........................................11
5.5 Record Date.................................................11
5.6 Registered Stockholders.....................................12
5.7 Transfer Agent and Registrar................................12
ARTICLE 6. INDEMNIFICATION...................................................12
6.1 Indemnification.............................................12
6.2 Definition..................................................12
ARTICLE 7. OFFICES...........................................................12
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
Page
<S> <C> <C>
7.1 Registered Office...........................................13
7.2 Other Offices...............................................13
ARTICLE 8. GENERAL PROVISIONS................................................13
8.1 Dividends...................................................13
8.2 Reserves....................................................13
8.3 Execution of Instruments....................................13
8.4 Corporate Indebtedness......................................13
8.5 Deposits....................................................14
8.6 Checks......................................................14
8.7 Sale, Transfer, etc. of Securities..........................14
8.8 Voting as Stockholder.......................................14
8.9 Fiscal Year.................................................14
8.10 Seal........................................................14
8.11 Books and Records...........................................14
ARTICLE 9. AMENDMENT OF BYLAWS...............................................15
9.1 Amendment...................................................15
ARTICLE 10. CONSTRUCTION.....................................................15
10.1 Construction................................................15
</TABLE>
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SECOND AMENDED AND RESTATED BYLAWS
TeleCorp PCS, Inc.
ARTICLE 1.
STOCKHOLDERS
1.1 Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before such meeting shall be held at such place,
either within or without the State of Delaware, at 9:00 A.M. on the second
Wednesday of each April of each year (or, if such day is a legal holiday, then
on the next succeeding business day), or at such other date and hour, as may be
fixed from time to time by resolution of the Board of Directors and set forth in
the notice or waiver of notice of the meeting.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before an annual meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (iii) otherwise properly
brought before the meeting by a stockholder of the Corporation who was
stockholder of record at the time of giving of notice provided for in this
Section, who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation at the principal
executive office of the corporation. To be timely, a stockholder's notice shall
be delivered not less than 90 days prior to the first anniversary of the
preceding year's meeting; provided, however, that in the event that the date of
the annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, notice by the stockholder, to be timely, must
be so delivered not later than the 10th day following the day on which Public
Announcement (as defined below) of the date of such meeting is first made.
Such stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (ii) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (A) the name and address of such
stockholder, as they appear on the Corporation's books, and the name and address
of such beneficial owner and (B) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner; and (iii) in the event that such business includes a
proposal to amend
<PAGE>
either the Certificate of Incorporation or the Bylaws of the Corporation, the
language of the proposed amendment. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the preceding paragraph, and the Chairman of the Board or other
person presiding at an annual meeting of stockholders, may refuse to permit any
business to be brought before an annual meeting without compliance with the
foregoing procedures. "Public Announcement" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition to the provisions of this paragraph, a stockholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this Section
1.1. Nothing in these Bylaws shall be deemed to affect any rights of the
Stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
1.2 Special Meetings. Special meetings of the stockholders may be called at
any time by the Chairman of the Board (or, in the event of his absence or
disability, by the President). A special meeting shall be called by the Chairman
of the Board (or, in the event of his absence or disability, by the President),
or by the Secretary, immediately upon receipt of a written request therefor by
stockholders holding in the aggregate not less than 35% of the outstanding
shares of the Corporation at the time entitled to vote at any meeting of the
stockholders or by a request of a majority of the Board of Directors. If the
Chairman of the Board, the President or the Secretary shall fail to so call such
meeting within 20 days after receipt of such request, any stockholder or member
of the Board of Directors executing such request may call such meeting.
Any such special meeting of the stockholders shall be held at such place,
within or without the State of Delaware, as shall be specified in the notice or
waiver of notice thereof.
1.3 Notice of Meetings; Waiver. The Secretary or any Assistant Secretary
shall cause written notice of the place, date and hour of each meeting of the
stockholders, and, in the case of a special meeting, the purpose or purposes for
which such meeting is called, to be given personally or by mail, not less than
ten nor more than 60 days before the date of the meeting, to each stockholder of
record entitled to vote at such meeting. If such notice is mailed, it shall be
deemed to have been given to a stockholder when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the record of stockholders of the Corporation, or, if he shall have filed
with the Secretary a written request that notices to him be mailed to some other
address, then directed to him at such other address. Such further notice shall
be given as may be required by law.
Whenever notice is required to be given to stockholders hereunder, a
written waiver, signed by a stockholder, whether before or after the time stated
therein, shall be deemed equivalent to notice. Neither the business to be
transacted at, nor the purpose of,
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any regular or special meeting of the stockholders need be specified in a
written waiver of notice. The attendance of any stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
1.4 Quorum; Voting. Except as otherwise required by law or by the
Corporation's Certificate of Incorporation, as then amended and in effect (the
"Certificate of Incorporation"), at any meeting of the stockholders, a majority
of all shares issued and outstanding and entitled to vote upon a question to be
considered at the meeting shall constitute a quorum when represented at such
meeting by the holders thereof in person or by their duly constituted and
authorized attorney or attorneys, but holders of a lesser interest may adjourn
any meeting from time to time, and the meeting may be held as adjourned without
further notice. When a quorum is present at any meeting, a majority of the stock
so represented thereat and voting on any question brought before such meeting
shall be determinative, except where a larger vote is required by law, by the
Certificate of Incorporation or by these by-laws, and except that the vote
required for the election of directors shall be as set forth in the Certificate
of Incorporation.
Except as set forth in the Certificate of Incorporation, if, pursuant to
Section 5.5 of these Bylaws, a record date has been fixed, every holder of
record of shares entitled to vote at a meeting of stockholders shall be entitled
to one vote for each share outstanding in his name on the books of the
Corporation at the close of business on such record date. If no record date has
been fixed, then every holder of record of shares entitled to vote at a meeting
of stockholders shall be entitled to one vote for each share of stock standing
in his name on the books of the Corporation at the close of business on the day
next preceding the day on which notice of the meeting is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
1.5 Voting by Ballot. No vote of the stockholders need be taken by written
ballot or conducted by inspectors of election, unless otherwise required by law.
Any vote which need not be taken by ballot may be conducted in any manner
approved by the meeting.
1.6 Adjournment. If a quorum is not present at any meeting of the
stockholders, the stockholders present in person or by proxy shall have the
power to adjourn any such meeting from time to time until a quorum is present.
Notice of any adjourned meeting of the stockholders of the Corporation need not
be given if the place, date and hour thereof are announced at the meeting at
which the adjournment is taken, provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date for the
adjourned meeting is fixed pursuant to Section 5.5 of these Bylaws, a notice of
the adjourned meeting, conforming to the requirements of Section 1.3 hereof,
shall be given to each stockholder of record entitled to vote at such meeting.
At any adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted on the original date of the meeting.
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1.7 Proxies. Any stockholder entitled to vote at any meeting of the
stockholders or to express consent to or dissent from corporate action without a
meeting may, by a written instrument signed by such stockholder or his
attorney-in-fact, authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. No such proxy
shall be voted or acted upon after the expiration of three years from the date
of such proxy, unless such proxy provides for a longer period. Every proxy shall
be revocable at the pleasure of the stockholder executing it, except in those
cases where applicable law provides that a proxy shall be irrevocable. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
Secretary.
1.8 Organization; Procedure. At every meeting of stockholders the presiding
officer shall be the Chairman of the Board or, in the event of his absence or
disability, the President or, in the event of his absence or disability, a
presiding officer chosen by a majority of the stockholders present in person or
by proxy. The Secretary, or in the event of his absence or disability, the
Assistant Secretary, if any, or if there be no Assistant Secretary, in the
absence of the Secretary, an appointee of the presiding officer, shall act as
Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
1.9 Consent of Stockholders in Lieu of Meeting. To the fullest extent
permitted by law, whenever the vote of the stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, such action may be taken without a meeting, without prior notice and
without a vote of stockholders, if the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted shall consent in writing to such corporate action being taken.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
so consented in writing.
ARTICLE 2.
BOARD OF DIRECTORS
2.1 General Powers. Except as may otherwise be provided by law, by the
Certificate of Incorporation or by these Bylaws, the property, affairs and
business of the Corporation shall be managed by or under the direction of the
Board of Directors and the Board of Directors may exercise all the powers of the
Corporation.
2.2 Number; Election; Term of Office; Removal. The classification of the
board of directors, the term of each class of directors, the manner of election
and removal of directors and the filling of newly created directorships and
vacancies on the Board shall be as set forth in the Certificate of
Incorporation. Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal.
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2.3 Annual and Regular Meetings. The annual meeting of the Board of
Directors for the purpose of electing officers and for the transaction of such
other business as may come before the meeting shall be held as soon as possible
following adjournment of the annual meeting of the stockholders at the place of
such annual meeting of the stockholders. Notice of such annual meeting of the
Board of Directors need not be given. The Board of Directors from time to time
may by resolution provide for the holding of regular meetings and fix the place
(which may be within or without the State of Delaware) and the date and hour of
such meetings. Notice of regular meetings need not be given, provided, however,
that if the Board of Directors shall fix or change the time or place of any
regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, facsimile or cable, to each Director who shall not have been present
at the meeting at which such action was taken, addressed to him at his usual
place of business, or shall be delivered to him personally. Notice of such
action need not be given to any Director who attends the first regular meeting
after such action is taken without protesting the lack of notice to him, prior
to or at the commencement of such meeting, or to any Director who submits a
signed waiver of notice, whether before or after such meeting.
2.4 Special Meetings; Notice. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board or, in the event of
his absence or disability, by the President, at such place (within or without
the State of Delaware), date and hour as may be specified in the respective
notices or waivers of notice of such meetings. Special meetings of the Board of
Directors may be called on 24 hours' notice, if notice is given to each Director
personally or by telephone or facsimile, or on five days' notice, if notice is
mailed to each Director, addressed to him at his usual place of business. Notice
of any special meeting need not be given to any Director who attends such
meeting without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be transacted
thereat.
2.5 Quorum; Voting. At all meetings of the Board of Directors, the presence
of a majority of the total authorized number of Directors shall constitute a
quorum for the transaction of business. Except as otherwise required by law or
the Certificate of Incorporation, the vote of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors.
2.6 Adjournment. A majority of the Directors present, whether or not a
quorum is present, may adjourn any meeting of the Board of Directors to another
time or place. No notice need be given of any adjourned meeting unless the time
and place of the adjourned meeting are not announced at the time of adjournment,
in which case notice conforming to the requirements of Section 2.5 shall be
given to each Director.
2.7 Action Without a Meeting. Any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent thereto in writing, and such writing
or writings are filed with the minutes of proceedings of the Board of Directors.
5
<PAGE>
2.8 Regulations; Manner of Acting. To the extent consistent with applicable
law, the Certificate of Incorporation and these Bylaws, the Board of Directors
may adopt such rules and regulations for the conduct of meetings of the Board of
Directors and for the management of the property, affairs and business of the
Corporation as the Board of Directors may deem appropriate. The Directors shall
act only as a Board, and the individual Directors shall have no power as such.
2.9 Action by Telephonic Communications. Members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this provision shall constitute presence in person at such meeting.
2.10 Resignation. Any Director may resign at any time by delivering a
written notice of resignation, signed by such Director, to the Chairman of the
Board, the President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery. No director need be a stockholder.
2.11 Nominations. (a) Except as otherwise provided by law or by the
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by the board of directors. Subject to the rights of holders of the
Corporation's preferred stock or the Stockholders (as defined in the
Stockholders' Agreement defined below) as set forth in the the Stockholders'
Agreement, nominations for the election of directors may be made by the board of
directors or a committee appointed by the board of directors or by any
stockholder entitled to vote in the election of directors generally. However,
any stockholder entitled to vote in the election of directors may nominate one
or more persons for election as directors at a meeting only if written notice of
such stockholder's intent to make such nomination or nominations has been given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation not later than 90 days prior to the date of any
annual or special meeting. In the event that the date of such annual or special
meeting was not made by a Public Announcement (as defined in Section 1.1) more
than 90 days prior to the meeting, notice by the stockholder to be timely must
be delivered to the Secretary of the Corporation not later than the close of
business on the tenth day following the day on which such announcement of the
date of the meeting was communicated to the stockholders. "Stockholders
Agreement" shall have the meaning ascribed to such term as is set forth in the
Corporation's Certificate of Incorporation. Each such notice shall set forth:
(i) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (ii) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (iv) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, by
6
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the board of directors; and (v) the consent of each nominee to serve as a
director of the Corporation if so elected.
(b) Notwithstanding anything to the contrary contained in this Section
2.11, so long as one or more Stockholders (as such term is defined in the
Stockholders' Agreement) has the right to nominate one or more directors of the
Corporation pursuant to the Certificate of Incorporation or Stockholders'
Agreement, as the case may be, then, with respect to such Stockholder or group
of Stockholders, as the case may be, such Stockholder or group of Stockholders,
as the case may be, shall have the right to nominate such director by written
notice to the Company which notice shall set forth the name of the person being
nominated. The Company shall deliver written notice to the Stockholders or group
of Stockholders, as the case may be, so entitled to nominate such director of
the date the Company proposes to distribute any proxy solicitation materials for
its annual meeting at least thirty days prior to such earliest proposed
distribution date so as to enable such Stockholder or group of Stockholders, as
the case may be, to give notice to the Corporation of the persons to be
nominated thereby in accordance with the Certificate of Incorporation or
Stockholders Agreement, as applicable. The Company shall include in any proxy
solicitation materials related to the election of members of the Board of
Directors information and recommendations of the Board to effect the nomination
of any director so designated by such Stockholders or group of Stockholders, as
the case may be.
2.12 Compensation. The amount, if any, which each Director shall be
entitled to receive as compensation for his services as such shall be fixed from
time to time by resolution of the Board of Directors.
2.13 Reliance on Accounts and Reports, etc. A member of the Board of
Directors, or a member of any Committee designated by the Board of Directors,
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or Committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, including without limitation
independent certified public accountants and appraisers.
ARTICLE 3.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
3.1 How Constituted. The Board of Directors may designate one or more
Committees, including an Executive Committee, each such Committee to consist of
such number of Directors as from time to time may be fixed by the Board of
Directors. The Board of Directors may designate one or more directors as
alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. In addition,
unless the Board of Directors has so designated
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an alternate member of such Committee, in the absence or disqualification of a
member of such Committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Thereafter,
members (and alternate members, if any) of each such Committee may be designated
at the annual meeting of the Board of Directors. Any such Committee may be
abolished or redesignated from time to time by the Board of Directors. Each
member (and each alternate member) of any such Committee (whether designated at
an annual meeting of the Board of Directors or to fill a vacancy or otherwise)
shall hold office until his successor shall have been designated or until he
shall cease to be a Director, or until his earlier death, resignation or
removal.
3.2 Powers. Each Committee shall have and may exercise such powers of the
Board of Directors as may be provided by resolution of the Board, provided, that
neither the Executive Committee nor any such other Committee shall have the
power or authority to (i) approve or adopt, or recommend to the stockholders,
any action or matter expressly required by the General Corporation Law to be
submitted to stockholders for approval or (ii) adopt, amend or repeal any of
these Bylaws. Each Committee may be granted by the Board of Directors power to
authorize the seal of the Corporation to be affixed to any or all papers which
may require it.
3.3 Quorum; Voting. Except as may be otherwise provided in the resolution
creating such Committee, at all meetings of any Committee the presence of
members (or alternate members) constituting a majority of the total authorized
membership of such Committee shall constitute a quorum for the transaction of
business. The act of a majority of the members present at any meeting at which a
quorum is present shall be the act of such Committee.
3.4 Action without a Meeting. Any action required or permitted to be taken
at any meeting of any such Committee may be taken without a meeting, if all
members of such Committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings of the
Committee.
3.5 Regulations; Manner of Acting. Each such Committee may fix its own
rules of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such proceedings to the Board of Directors at the meeting of the
Board of Directors next following any such proceeding. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.
3.6 Action by Telephonic Communications. Members of any Committee
designated by the Board of Directors may participate in a meeting of such
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.
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3.7 Resignation. Any member (and any alternate member) of any Committee may
resign at any time by delivering a written notice of resignation, signed by such
member, to the Chairman of the Board or the President. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
3.8 Removal. Any member (any alternate member) of any Committee may be
removed at any time, with or without cause, by resolution adopted by a majority
of the whole Board of Directors.
3.9 Vacancies. If any vacancy shall occur in any Committee, by reason of
death, resignation, removal or otherwise, the remaining members (and any
alternate members) shall continue to act, and any such vacancy may be filled by
the Board of Directors or the remaining members of the Committee as provided in
Section 3.1 hereof.
ARTICLE 4.
OFFICERS
4.1 Titles. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, the President, an Vice
President/Chief Operating Officer, an Executive Vice President/General Counsel,
one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors
also may elect one or more Assistant Secretaries and Assistant Treasurers in
such numbers as the Board of Directors may determine, and shall also elect a
Chairman of the Board. Any number of offices may be held by the same person. No
officer need be a Director of the Corporation.
4.2 Election. Unless otherwise determined by the Board of Directors, the
officers of the Corporation shall be elected by the Board of Directors at the
annual meeting of the Board of Directors, and shall be elected to hold office
until the next succeeding annual meeting of the Board of Directors. In the event
of the failure to elect officers at such annual meeting, officers may be elected
at any regular or special meeting of the Board of Directors. Each officer shall
hold office until his successor has been elected and qualified, or until his
earlier death, resignation or removal.
4.3 Salaries. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors.
4.4 Removal and Resignation; Vacancies. Any officer may be removed with or
without cause at any time by the Board of Directors. Any officer may resign at
any time by delivering a written notice of resignation, signed by such officer,
to the Board of Directors or the Chairman of the Board. Unless otherwise
specified therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise, shall be filled by the Board of Directors.
4.5 Authority and Duties. The officers of the Corporation shall have such
authority and shall exercise such powers and perform such duties as may be
specified in
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these Bylaws, except that in any event each officer shall exercise such powers
and perform such duties as may be required by law.
4.6 The Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the stockholders and directors. He shall also perform all duties
and exercise all powers usually pertaining to the office of a Chairman of the
Board of a corporation. He shall see that all orders and resolutions of the
Board of Directors are carried into effect. The Chairman of the Board shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
4.7 The President. The President shall be the chief executive officer of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and directors.
He shall manage and administer the Corporation's business and affairs and shall
also perform all duties and exercise all powers usually pertaining to the office
of a chief executive officer of a corporation.
4.8 Vice President/Chief Operating Officer. The Vice President/Chief
Operating Officer shall, subject to the direction of the Board of Directors and
the President, perform all duties and exercise all powers usually pertaining to
the office of a chief operating officer of a corporation.
4.9 Executive Vice President/General Counsel. The Executive Vice
President/General Counsel shall, subject to the directions of the Board of
Directors, have general control and supervision of legal and regulatory policies
and operations of the Corporation. He shall also be the chief business
development officer of the Corporation and in connection therewith shall perform
all duties and exercise all powers usually pertaining to the office of a chief
business development officer.
4.10 The Vice Presidents. Each Vice President shall perform such duties and
exercise such powers as may be assigned to him from time to time by the
President. In the absence of the President, the duties of the President shall be
performed and his powers may be exercised by such Vice President as shall be
designated by the President, or failing such designation, such duties shall be
performed and such powers may be exercised by each Vice President in the order
of their election to that office; subject in any case to review and superseding
action by the President.
4.11 The Secretary. The Secretary shall perform, in general, all duties
incident to the office of secretary and such other duties as may be specified in
these Bylaws or as may be assigned to him from time to time by the Board of
Directors or the President.
4.12 The Treasurer. The Treasurer shall be the chief financial officer of
the corporation and shall perform, in general, all duties incident to the office
of treasurer and such other duties as may be specified in these Bylaws or as may
be assigned to him from time to time by the Board of Directors, or the
President.
4.13 Additional Officers. The Board of Directors may appoint such other
officers and agents as it my deem appropriate, and such other officers and
agents shall
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hold their offices for such terms and shall exercise such powers and perform
such duties as may be determined from time to time by the Board of Directors.
The Board of Directors from time to time may delegate to any officer or agent
the power to appoint subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any such officer or
agent may remove any such subordinate officer or agent appointed by him, with or
without cause.
4.14 Security. The Board of Directors may direct that the Corporation
secure the fidelity of any or all of its officers or agents by bond or
otherwise.
ARTICLE 5.
CAPITAL STOCK
5.1 Certificates of Stock, Uncertificated Shares. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors may provide by resolution that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the Chairman of the Board, President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, representing the number of shares registered in
certificate form. Such certificate shall be in such form as the Board of
Directors may determine, to the extent consistent with applicable law, the
Certificate of Incorporation and these Bylaws.
5.2 Signatures; Facsimile. All of such signatures on the certificate may be
a facsimile, engraved or printed, to the extent permitted by law. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
5.3 Lost, Stolen or Destroyed Certificates. The Secretary of the
Corporation may cause a new certificate of stock or uncertificated shares in
place of any certificate therefor issued by the Corporation, alleged to have
been lost, stolen or destroyed, upon delivery to the Secretary of an affidavit
of the owner or owners of such certificate, or his or their legal representative
setting forth such allegation. The Secretary may require the owner or owners of
such lost, stolen or destroyed certificate, or his or their legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any such new
certificate or uncertificated shares.
5.4 Transfer of Stock. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by
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appropriate evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. Within a
reasonable time after the transfer of uncertificated stock, the Corporation
shall send to the registered owner thereof a written notice containing the
information required to be set forth or stated on certificates pursuant to
Section 151, 156, 202(a) or 218(a) of the General Corporation Law. Subject to
the provisions of the Certificate of Incorporation and these Bylaws, the Board
of Directors may prescribe such additional rules and regulations as it may deem
appropriate relating to the issue, transfer and registration of shares of the
Corporation.
5.5 Record Date. In order to determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than 60 nor less than ten days before the date of such meeting, nor more
than 60 days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting, provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
5.6 Registered Stockholders. Prior to due surrender of a certificate for
registration of transfer, the Corporation may treat the registered owner as the
person exclusively entitled to receive dividends and other distributions, to
vote, to receive notice and otherwise to exercise all the rights and powers of
the owner of the shares represented by such certificate, and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
such shares on the part of any other person, whether or not the Corporation
shall have notice of such claim or interest. Whenever any transfer of shares
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer if, when the certificates are presented
to the Corporation for transfer or uncertificated shares are requested to be
transferred, both the transferor and transferee request the Corporation to do
so.
5.7 Transfer Agent and Registrar. The Board of Directors may appoint one or
more transfer agents and registrars, and may require all certificates
representing shares to bear the signature of any such transfer agents or
registrars.
ARTICLE 6.
INDEMNIFICATION
6.1 Indemnification. The Corporation shall, to the fullest extent permitted
by applicable law from time to time in effect, indemnify any and all persons who
may serve or who have served at any time as Directors or officers of the
Corporation, or who at the request of the Corporation may serve or at any time
have served as Directors or officers of another corporation (including
subsidiaries of the Corporation) or of any partnership,
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joint venture, trust or other enterprise, from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said law.
Such indemnification shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. The Corporation may also indemnify any and all
other persons whom it shall have power to indemnify under any applicable law
from time to time in effect to the extent authorized by the Board of Directors
and permitted by such law. The indemnification provided by this Article shall
not be deemed exclusive of any other rights to which any person may be entitled
under any provision of the Certificate of Incorporation, other Bylaw, agreement,
vote of stockholders or disinterested Directors, or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office.
6.2 Definition. For purposes of this Article, the term "Corporation" shall
include constituent corporations referred to in Subsection (h) of Section 145 of
the General Corporation Law (or any similar provision of applicable law at the
time in effect).
ARTICLE 7.
OFFICES
7.1 Registered Office. The registered office of the Corporation in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801, and the Corporation's
registered agent shall be The Corporation Trust Company.
7.2 Other Offices. The Corporation may maintain offices or places of
business at such other locations within or without the State of Delaware as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE 8.
GENERAL PROVISIONS
8.1 Dividends. Subject to any applicable provisions of law and the
Certificate of Incorporation, dividends upon the shares of the Corporation may
be declared by the Board of Directors at any regular or special meeting of the
Board of Directors and any such dividend may be paid in cash, property, or
shares of the Corporation.
8.2 Reserves. There may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may similarly modify or abolish any such reserve.
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8.3 Execution of Instruments. The President, any Executive Vice President,
any Vice President, the Secretary or the Treasurer may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. The Board of Directors or the President may authorize any other
officer or agent to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Corporation. Any such authorization
may be general or limited to specific contracts or instruments.
8.4 Corporate Indebtedness. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued in its name, unless
authorized by the Board of Directors. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors shall
authorize. When so authorized by the Board of Directors, any part of or all the
properties, including contract rights, assets, business or good will of the
Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of any interest thereon, by instruments
executed and delivered in the name of the Corporation.
8.5 Deposits. Any funds of the Corporation may be deposited from time to
time in such banks, trust companies or other depositaries as may be determined
by the Board of Directors or the President, or by such officers or agents as may
be authorized by the Board of Directors or the President to make such
determination. 16
8.6 Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such agent or agents of the
Corporation, and in such manner, as the Board of Directors, the Chairman of the
Board, or the President from time to time may determine.
8.7 Sale, Transfer, etc. of Securities. To the extent authorized by the
Board of Directors or by the President, any Vice President, the Secretary or the
Treasurer, or any other officers designated by the Board of Directors, the
Chairman of the Board, or the President may sell, transfer, endorse, and assign
any shares of stock, bonds or other securities owned by or held in the name of
the Corporation, and may make, execute and deliver in the name of the
Corporation, under its corporate seal, any instruments that may be appropriate
to effect any such sale, transfer, endorsement or assignment.
8.8 Voting as Stockholder. Unless otherwise determined by resolution of the
Board of Directors, the President or any Vice President shall have full power
and authority on behalf of the Corporation to attend any meeting of stockholders
of any corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall
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have full power and authority to execute any instrument expressing consent to or
dissent from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.
8.9 Fiscal Year. The fiscal year of the Corporation shall commence on the
first day of January of each year (except for the Corporation's first fiscal
year which shall commence on the date of incorporation) and shall end in each
case on December 31.
8.10 Seal. The seal of the Corporation shall be circular in form and shall
contain the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Delaware". The form of such seal shall be subject to
alteration by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or may be used in any
other lawful manner.
8.11 Books and Records. Except to the extent otherwise required bylaw, the
books and records of the Corporation shall be kept at such place or places
within or without the State of Delaware as may be determined from time to time
by the Board of Directors.
ARTICLE 9.
AMENDMENT OF BYLAWS
9.1 Amendment. Except as otherwise provided by law or by the Certificate of
Incorporation, these Bylaws, as from time to time altered or amended, may be
made, altered or amended by the holders of shares of capital stock representing
at least two-thirds (2/3) of the votes entitled to be cast for the election of
directors of the Corporation, voting together as a single class, in person or by
proxy at any annual or special meeting of the stockholders called for such
purpose, of which the notice shall specify the subject matter of the proposed
alteration or amendment or new bylaw or the article or articles to be affected
thereby, or by written consent of such holders of such number of shares. If the
Certificate of Incorporation so provides, these Bylaws may also be made, altered
or amended by a majority of the whole number of directors then in office.
Notwithstanding anything to the contrary contained in this Section 9.1, the
rights of any Stockholder or group of Stockholders under Section 2.11(b) of
these Bylaws shall not be amended, altered or repealed without the prior written
approval of any such Stockholder or group of Stockholders, as the case may be.
ARTICLE 10.
CONSTRUCTION
10.1 Construction. In the event of any conflict between the provisions of
these Bylaws as in effect from time to time and the provisions of the
Certificate of
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Incorporation as in effect from time to time, the provisions of the Certificate
of Incorporation shall be controlling.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-91807) of TeleCorp PCS, Inc. of our report dated
March 10, 2000 relating to the financial statements which appear in this
Form 10-K.
McLean, Virginia
March 30, 2000
