<PAGE>
As filed with the Securities and Exchange Commission on August 11, 2000
Registration No.
Registration No.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TeleCorp PCS, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4812 54-1872248
(State or other
jurisdiction of
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
---------------
TeleCorp Communications, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4812 52-2105807
(State or other
jurisdiction of
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
---------------
1010 N. Glebe Road
Suite 800
Arlington, VA 22201
(703) 236-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Thomas H. Sullivan
Executive Vice President and Chief Financial Officer
TeleCorp PCS, Inc.
1010 N. Glebe Road,
Suite 800
Arlington, VA 22201
(703) 236-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Brian Hoffmann, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
(212) 504-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class Proposed Maximum Aggregate Amount of
of Securities Amount to be Offering Price Offering Price(1) (2) Registration
to be Registered Registered per Exchange Notes (3) Fee (1) (2)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 5/8% Senior Subordinated
Notes due 2010......... $450,000,000 100% $450,000,000 $118,800
---------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) The registration fee has been calculated pursuant to Rule 457(f)(2) and
Rule 457(n) under the Securities Act of 1933. The Proposed Maximum
Aggregate Offering Price is estimated solely for the purpose of calculating
the registration fee.
(2) The Proposed Maximum Aggregate Offering Price is based on the book value of
the notes, as of August 10, 2000, in the absence of a market for them as
required by Rule 457(f)(2) under the Securities Act of 1933.
(3) Exclusive of accrued interest, if any.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains a prospectus relating to the offer for
all outstanding unregistered 10 5/8% Senior Subordinated Notes due 2010 of
TeleCorp PCS, Inc. in exchange for registered 10 5/8% Senior Subordinated Notes
due 2010. In addition, this registration statement contains a prospectus
relating to certain market-making activities with respect to the exchange notes
which may, from time to time, be carried out by Chase Securities Inc. The two
prospectuses will be identical in all material respects. However, the front
cover page, the Plan of Distribution section and the back cover page will be
different. In addition, the market-making prospectus will not contain the
information in the Prospectus Summary relating to the Exchange Offer, the
information under the caption "The Exchange Offer" and "Certain U.S. Federal
Tax Considerations--Exchange Offer" will be deleted and certain conforming
changes will be made to delete references to the exchange offer. The prospectus
for the exchange offer follows immediately after this explanatory note.
Following the prospectus are the form of alternative cover page, Plan of
Distribution section and back cover page for the market-making prospectus and
alternative pages, sections and provisions covering conforming changes.
<PAGE>
----------------
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this prospectus, including without limitation, statements under the
captions "Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results Of Operations," "Business," and "The Pending
Merger and Related Transactions" and located elsewhere in this prospectus
regarding the prospects of our industry and our prospects, plans, financial
position and business strategy and statements concerning TeleCorp-Tritel
Holding Company in the event the pending merger is consummated, may constitute
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "believe" or "continue"
or the negatives thereof or variations thereon or similar terminology. Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from our expectations are disclosed in this prospectus, including,
without limitation, in conjunction with the forward-looking statements included
in this prospectus and under "Risk Factors." All subsequent written and oral
forward-looking statements attributable to us or person's acting on our behalf
are expressly qualified in their entirety by the cautionary statements included
in this document. These forward-looking statements speak only as of the date of
this prospectus. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this document might not occur.
The information contained in this prospectus is current only as of the date on
the cover page of this prospectus and may change after that date. The delivery
of this prospectus does not, under any circumstances, mean that there has not
been a change in our affairs since the date hereof. It also does not mean that
the information in this prospectus is correct after this date.
----------------
<PAGE>
SUBJECT TO COMPLETION AUGUST 11, 2000
PROSPECTUS
TeleCorp PCS, Inc.
OFFER TO EXCHANGE ALL
OF OUR OUTSTANDING AND UNREGISTERED
10 5/8% SENIOR SUBORDINATED NOTES DUE 2010
FOR OUR REGISTERED
10 5/8% SENIOR SUBORDINATED NOTES DUE 2010
We are offering to exchange all of our outstanding 10 5/8% senior
subordinated notes, which we refer to as the unregistered notes, for our
registered 10 5/8% senior subordinated notes, which we refer to as the exchange
notes. We refer to the unregistered notes and the exchange notes collectively
as the notes. The terms of the exchange notes are identical to the terms of the
unregistered notes, except that the exchange notes are registered under the
Securities Act of 1933 and, therefore, are freely transferable.
PLEASE CONSIDER THE FOLLOWING:
--Our offer to exchange unregistered notes for exchange notes will be open
until 5:00 p.m., New York City time, on [ ], 2000, unless we extend
the offer.
--You should carefully review the procedures for tendering the unregistered
notes beginning on page 29 of this prospectus.
--If you fail to tender your unregistered notes, you will continue to hold
unregistered securities. Your ability to transfer them will be limited.
--No public market currently exists for the notes. We do not intend to list
the exchange notes on any securities exchange or any quotation system and,
therefore, no active public market is anticipated.
INFORMATION ABOUT THE NOTES:
--The notes will mature on July 15, 2010.
--We will pay interest on the notes semi-annually on January 15 and July 15
of each year beginning January 15, 2001 at the rate of 10 5/8% per annum.
--We may redeem some or all of the notes at any time on or after July 15,
2005 at the rates set forth on page 134 of this prospectus.
--We also have the option until July 15, 2003, to redeem up to 35% of the
original aggregate principal amount of the notes with the net proceeds of
certain types of qualified equity offerings.
--If we experience a change of control at any time on or prior to July 15,
2005, we have the option to redeem the notes at par plus a premium and if
we do not do so or if we experience a change of control after July 15,
2005, we must offer to purchase the notes.
--The notes are unsecured obligations and are structurally subordinated to
our existing and future senior indebtedness, rank equally with all of our
other senior subordinated debt and rank senior to all of our existing and
future subordinated debt.
--If we undergo a change of control or sell some of our assets, we may be
required to offer to purchase notes from you.
--If we fail to make payments on the notes, our guarantor subsidiary must
make them instead.
--The unregistered notes have been designated for trading in the PORTAL
market.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act of 1933. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for unregistered notes
where such unregistered notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. TeleCorp has agreed
that, for a period of 180 days after the expiration of the exchange offer, it
will make this prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".
The date of this prospectus is August 11, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 12
Exchange Offer........................................................... 26
Use of Proceeds.......................................................... 36
Capitalization........................................................... 37
Selected Historical Financial Data....................................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 40
The Wireless Communications Industry..................................... 55
Business................................................................. 57
Management............................................................... 77
Securities Ownership of Certain Beneficial Owners and Management......... 84
Certain Relationships and Related Transactions........................... 92
Description of Other Indebtedness........................................ 126
Description of the Notes................................................. 134
Certain U.S. Federal Tax Considerations.................................. 177
Book-entry; Delivery and Form............................................ 181
Plan of Distribution..................................................... 184
Legal Matters............................................................ 184
Experts.................................................................. 185
Available Information.................................................... 185
Glossary of Selected Terms............................................... 186
Financial Statements Index............................................... F-1
</TABLE>
<PAGE>
ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about TeleCorp from other documents that are not included in or delivered with
the prospectus. This information is available to you without charge upon your
written or oral request. You can obtain the documents incorporated by reference
in this prospectus without charge by requesting them in writing or by telephone
from our principal executive offices at the following address or telephone
number:
TeleCorp PCS, Inc.
Investor Relations
1010 North Glebe Road
Suite 800
Arlington, Virginia 22201
(703) 236-1100
email: [email protected]
To timely deliver this information to you, we must receive your request no
later than five business days before you must decide whether to exchange your
notes, which is [ ], 2000 unless we extend the exchange offer.
See "Available Information," that begins on page 185.
<PAGE>
SUMMARY
This summary contains basic information about us and our 10 5/8% senior
subordinated notes due 2010. It may not contain all the information that is
important to you. We encourage you to read this entire document for an
understanding of the offering. In this prospectus, the words "the company,"
"TeleCorp," "we," "our" and "us" refer to TeleCorp PCS, Inc. and its
consolidated subsidiaries, prior to the pending merger discussed below. After
the merger, TeleCorp and Tritel, Inc. will become wholly-owned subsidiaries of
a new holding company which is currently named TeleCorp-Tritel Holding Company.
In this prospectus, "Tritel" refers to Tritel, Inc. and its subsidiaries prior
to the pending merger and "holding company" refers to TeleCorp-Tritel Holding
Company and its subsidiaries after the merger, including TeleCorp and Tritel.
We refer to AT&T Wireless PCS, LLC as "AT&T Wireless," AT&T Wireless Services,
Inc. as "AT&T Wireless Services" and AT&T Corp. as "AT&T." We define certain
terms used in this prospectus in the Glossary of Selected Terms.
TeleCorp
We are the largest AT&T Wireless affiliate in the United States in terms of
licensed population, with licenses to serve approximately 16.7 million people
in 50 markets based upon an independent valuation report. As of June 30, 2000,
we have launched service in 32 of these markets covering approximately 13.3
million people, or approximately 79% of the population where we hold licenses
in the United States and Puerto Rico. We provide digital wireless personal
communications services, or PCS, in our covered markets and, as of June 30,
2000, we had more than 319,000 customers. We have joined with Tritel and Triton
PCS, two other AT&T Wireless affiliates, to operate under a common regional
brand name, SunCom. In February 2000, we entered into agreements with AT&T
Wireless and AT&T Wireless Services as a result of which we expect to increase
our PCS licenses to a total of approximately 21.5 million people in 63 markets.
These markets will encompass a contiguous territory including nine of the 100
largest metropolitan areas in the United States and popular vacation
destinations such as: New Orleans and Baton Rouge, Louisiana; Memphis,
Tennessee; Little Rock, Arkansas; Milwaukee and Madison, Wisconsin; Des Moines,
Iowa; and San Juan, Puerto Rico and the U.S. Virgin Islands.
Strategic Alliance With AT&T Wireless
AT&T is one of our largest investors and, upon consummation of the
agreements entered into in February 2000, will have increased its ownership
interest in us to approximately 23% from approximately 17%. As an AT&T Wireless
affiliate, we benefit from many business, operational and marketing advantages,
including:
. Exclusivity. We are AT&T's exclusive provider of wireless mobility
services using equal emphasis co-branding with AT&T in our covered
markets, subject to AT&T's right to resell services on our network.
. Brand. We have the right to use the AT&T brand name and logo together
with the SunCom brand name and logo in our covered markets, giving equal
emphasis to each. We also benefit from AT&T's nationwide advertising and
marketing campaigns.
. Roaming. We are AT&T's preferred roaming partner for digital customers
in our markets. Our roaming revenues increased from approximately $7.6
million in the second quarter of 1999 to approximately $14.7 million in
the second quarter of 2000. We believe our AT&T Wireless affiliation
will continue to provide us with a valuable base of recurring roaming
revenue.
. Coast-to-Coast Coverage. Outside our markets, our customers can place
and receive calls in AT&T Wireless's markets and the markets of AT&T
Wireless's other roaming partners.
1
<PAGE>
. Products and Services. We receive preferred terms on selected products
and services, including handsets, infrastructure equipment and back
office support from companies who provide these products and services to
AT&T.
. Marketing. We benefit from AT&T's nationwide marketing and advertising
campaigns. In addition, we work with AT&T's national sales
representatives to jointly market our wireless services to AT&T
corporate customers located in our markets.
Pending Transactions
On February 28, 2000, we agreed to merge with Tritel through a merger of
each of us and Tritel with newly formed subsidiaries of a new holding company.
The new holding company, called TeleCorp-Tritel Holding Company, 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 Services agreed to contribute certain wireless rights and commitments
in the midwestern United States, including Milwaukee and Madison, Wisconsin,
cash of approximately $20 million and a two year extension of its brand license
in exchange for 9,272,740 common shares in the newly formed holding company.
Should these assets be contributed to the holding company rather than to us,
the holding company will contribute these assets to us, other than the two year
extension of its brand license that we will have the benefit of and the $20
million in cash. Additionally, in a separate transaction with AT&T Wireless, we
agreed to exchange our licenses in several New England markets for wireless
properties or rights to acquire additional wireless properties in markets in
Wisconsin and Iowa, including Des Moines, and a net cash payment to us of
approximately $68 million. We also obtained the right to extend the term and
geographic coverage of AT&T's license agreement and AT&T Wireless Services'
roaming agreement 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. We refer to
the transactions described above as the "pending transactions."
The pending merger has been unanimously approved by our and Tritel's board
of directors, with three of our directors abstaining. In addition, both our
shareholders and Tritel's shareholders approved the merger at separate special
stockholder meetings held on August 8, 2000. The merger is subject to
regulatory approval and other conditions and is expected to close in the last
quarter of 2000.
Competitive Strengths
Our goal is to provide our customers with simple-to-buy, easy-to-use
wireless services, including coverage across the nation, superior call quality,
competitive pricing and personalized customer care. In addition to our
strategic alliance with AT&T Wireless, we believe we have several key business,
operational and marketing advantages, including our:
. Attractive Markets. The combination of our existing markets and,
assuming the consummation of the pending transactions, our new markets
in Wisconsin and Iowa would provide us with a contiguous footprint from
the Great Lakes in the north to the Gulf Coast of the United States in
the south. We believe our existing and new markets are, and will
continue to be, strategically important to AT&T because they are located
near or adjacent to traffic corridors in and around large markets such
as Houston, St. Louis and Milwaukee. After consummation of the pending
transactions, our markets would have favorable demographic
characteristics for PCS, with an average population density of
approximately 30% above the national average and would include major
population and business
2
<PAGE>
centers and vacation destinations that attract millions of visitors per
year. As independent wholly-owned subsidiaries of a new holding company,
TeleCorp and Tritel would continue to operate in service areas in the
United States covering approximately 35 million people and 16 of the 100
largest metropolitan areas.
. Strong Capital Base. We expect to have sufficient capital resources
(directly and through the vendor facility of the new holding company
described above) to fund our current business plan through 2003,
including capital expenditures and operating losses for our existing and
new markets.
. Experienced and Incentivized Management. Our 21 member senior management
team has an average of 11 years of experience with leaders in the
wireless industry such as AT&T, Bell Atlantic, BellSouth, Nextel,
ALLTELL and Sprint Spectrum. Together, they beneficially own
approximately 12% of our class A voting common stock on a fully-diluted
basis.
. Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz
of airwaves in our major urban markets of San Juan and New Orleans and
30 MHz in Little Rock and Memphis. Upon consummation of the pending
transactions, we will have 30 and 40 MHz of capacity in the major
markets of Milwaukee and Madison, Wisconsin, respectively. Megahertz, or
MHz, represents a measure of airwave capacity. These amounts are equal
to or greater than those held by each of our principal competitors in
each of these markets. We believe these amounts of airwaves will enable
us to competitively deploy new and enhanced voice and data services.
This capacity will also permit us to provide service to the increasing
number of wireless users and to service increased use by subscribers.
. Substantial Progress to Date. Since we initiated service in our first
market in February 1999, we have achieved substantial progress in the
completion of our network and growth of our business. As of June 30,
2000, we had over 319,000 customers. As of June 30, 2000 we had 984
integrated cell sites and seven call connection sites in service and had
launched service in markets encompassing 79% of the total population
where we held our licenses. For the quarter ended June 30, 2000 we had
revenues of $72.0 million. Additionally, we had 70 SunCom company owned
stores, and over 2,000 additional outlets where retailers including
Circuit City, Cellular Warehouse, Metrocall, Office Depot, Staples, Best
Buy and Office Max offer our products and services.
. Advanced Digital Technology. We are continuing to build our network
using time division multiple access technology, which makes our network
compatible with AT&T's network and other time division multiple access
networks. This technology allows us to offer enhanced features and
services relative to standard analog cellular service, including
extended battery life, integrated voicemail, paging, fax and e-mail
delivery, enhanced voice privacy and short-messaging capability. Our
network will also serve as a platform for the development of mobile data
services such as two-way data messaging and two-way data and Internet
applications.
3
<PAGE>
Corporate Structure
The following chart illustrates our corporate structure assuming the
consummation of the pending transactions. All of the data regarding
indebtedness is as of June 30, 2000. The notes were issued by TeleCorp and are
not guaranteed by the holding company or Tritel.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
---------------
Holding Company
---------------
--------------------------------
Senior Credit Facilities
$290 million
--------------------------------
--------------------------------
. 10 5/8% Senior Subordinated
Notes $450.0 million -------------------- -------------
TeleCorp PCS, Inc. Tritel, Inc.
. 11 5/8% Senior Subordinated -------------------- -------------
Discount Notes
$374.9 million accreted value
--------------------------------
--------------------------------
Vendor Financing
$45.4 million
--------------------------------
----------------------------------- --------------------------------
TeleCorp Communications, Inc. TeleCorp Holding Corp., Inc. ----------------------
. PCS Operations and TeleCorp LLC Government License
. Guarantor of the Obligations
10 5/8% Senior Subordinated Notes . Holders of Licenses $19.3 million
and the 11 5/8% Senior Subordinated ----------------------
Discount Notes
----------------------------------- --------------------------------
</TABLE>
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer........ We are offering to exchange $1,000 principal amount
of exchange notes for each $1,000 principal amount
of unregistered notes. The terms of the exchange
notes are identical to the terms of the
unregistered notes, except that the exchange notes
are registered under the Securities Act of 1933
and, therefore, are freely transferable.
Expiration Date........... The exchange offer will expire at 5:00 p.m., New
York City time, [ ], 2000, or the later date
and time, if we extend it.
Interest on the Exchange Cash interest on the notes is payable on January
Notes and the 15 and July 15 of each year, beginning on July 15,
Unregistered Notes....... 2001. We will pay no interest on the unregistered
notes tendered and accepted for exchange.
Conditions to the The exchange offer is subject to customary
Exchange Offer........... conditions, some of which we may waive.
Resale Without Further We believe the exchange notes may be offered for
Registration............. resale and resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the Securities
Act so long as the following statements are true:
. you acquire the exchange notes issued in the
exchange offer in the ordinary course of your
business;
. you are not an affiliate, which is a person that
controls or is controlled by, or is under common
control with, TeleCorp; and
. you are not participating, and do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the exchange notes issued to
you in the exchange offer.
By tendering your unregistered notes as described
below, you will be making representations to this
effect.
Transfer Restrictions on You may incur liability under the Securities Act
the Exchange Notes....... if:
(1) any of the representations listed above are not
accurate; and
(2) you transfer any exchange notes issued to you
in the exchange offer without:
. delivering a prospectus meeting the
requirements of the Securities Act; or
. qualifying for an exemption from the
Securities Act's requirement to register
your exchange notes.
5
<PAGE>
We will not assume or indemnify you against such
liability. Each broker-dealer that is issued
exchange notes for its own account in exchange for
unregistered notes that were acquired as a result
of market-making or other trading activities must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act of
1933 in connection with the resale of the exchange
notes. A broker-dealer may use this prospectus for
an offer to resell, a resale or other retransfer of
the exchange notes issued to it in the exchange
offer.
Procedures for Tendering If you wish to exchange your unregistered notes
Unregistered Notes....... in the exchange offer, you must:
. complete, sign and date the accompanying letter
of transmittal, or a facsimile of the letter; or
. arrange for The Depository Trust Company to send
required information to the exchange agent in
connection with a book-entry transfer.
You must mail or otherwise deliver this
documentation on your unregistered notes to the
exchange agent, at the address described in "The
Exchange Offer--Exchange Agent."
The exchange notes issued in the exchange offer
will be delivered promptly following the expiration
of the exchange offer.
Withdrawal................ You may withdraw tendered unregistered notes at any
time prior to the expiration of the exchange offer.
We will return any unregistered notes that we do
not exchange for any reason without expense to you
promptly after the exchange offer expires or
terminates.
Special Procedures for Any beneficial owner whose unregistered notes are
Beneficial Owners........ registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender the unregistered notes in the
exchange offer should contact the registered holder
promptly and instruct the registered holder to
tender on its behalf. If the beneficial owner
wishes to tender on its own behalf, it must, prior
to completing and executing a letter of transmittal
and delivering its unregistered notes, either make
appropriate arrangements to register ownership of
the unregistered notes in its name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the expiration of the exchange
offer.
Guaranteed Delivery You may comply with the procedures described in
Procedures............... this prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures" if you wish
to tender your unregistered notes and:
. time will not permit your required documents to
reach the exchange agent by the expiration of
the exchange offer;
6
<PAGE>
. you cannot complete the procedure for book-entry
transfer on time; or
. your unregistered notes are not immediately
available.
Exchange Agent............ Bankers Trust Company is serving as exchange agent
in connection with the exchange offer.
U.S. Federal Tax The exchange of the unregistered notes for the
Considerations........... exchange notes in the exchange offer should not
constitute a sale or an exchange for U.S. federal
income tax purposes.
Effect of Not Tendering... If you do not tender your unregistered notes or you
tender your unregistered notes but they are not
accepted, following the completion of the exchange
offer, such notes will continue to be subject to
the existing restrictions upon transfer. Under some
circumstances, we may register the unregistered
notes under a shelf registration statement.
Use of Proceeds........... We will not receive any cash from the exchange of
the unregistered notes in the exchange offer.
7
<PAGE>
THE NOTES
Issuer.................... TeleCorp PCS, Inc.
Notes Offered............. $450,000,000 aggregate principal amount of 10 5/8%
Senior Subordinated Notes due 2010.
Maturity Date............. July 15, 2010.
Interest.................. Annual Rate: 10 5/8%.
Payment Frequency: every six months on January 15
and July 15.
First Payment: January 15, 2001.
Optional Redemption....... On or after July 15, 2005, we may redeem some or
all of the notes, together with accrued and unpaid
interest, if any, to the date of redemption at the
redemption prices listed in the Section entitled
"Description of Notes--Optional Redemption."
Before July 15, 2003, we may redeem up to 35% of
the original aggregate principal amount of the
notes with the net cash proceeds of certain equity
offerings at a redemption price equal to 110.625%
of the principal amount of the notes, so long as at
least 65% of the original aggregate principal
amount of the notes remains outstanding immediately
after the redemption.
Change of Control......... If we experience a change of control at any time on
or prior to July 15, 2005, we have the option to
redeem all of the notes at par plus a premium. If
we do not do so or if we experience a change of
control after July 15, 2005, unless we have
exercised our option to redeem all of the notes as
described above, you will have the right to require
us to repurchase all or a portion of your notes at
a purchase price in cash equal to 101% of their
principal amount, together with accrued and unpaid
interest, if any, to the date of repurchase.
Subsidiary Guarantees..... The notes will be fully and unconditionally
guaranteed on an unsecured, senior subordinated
basis by TeleCorp Communications, Inc. and by
certain of our future subsidiaries that incur debt.
If we fail to make payments on the notes, our
guarantor subsidiaries must make them instead. Each
of our guarantor subsidiaries also guarantees our
senior credit facilities and other senior
subordinated indebtedness and will be jointly and
severally liable on a senior or senior subordinated
basis with us for all obligations thereunder, as
applicable. Not all of our subsidiaries will be
guaranteeing payments on the notes. All obligations
under our senior credit facilities are secured by
pledges of all the capital stock of all our
subsidiaries and security interests in, or liens
on, substantially all of our other tangible and
intangible assets and the tangible and intangible
assets of our subsidiaries.
Repayment of the notes will not be guaranteed
either by Tritel or by the holding company.
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<PAGE>
Ranking................... The notes and the subsidiary guarantees will be
unsecured and:
. subordinate in right of payment to all of our
and our guarantor subsidiaries' existing and
future senior debt (including our and our
guarantor subsidiaries' obligations under our
senior credit facilities);
. equal in right of payment with any of our and
our guarantor subsidiaries' existing 11 5/8%
Senior Subordinated Discount Notes due 2009 and
related guarantees, as well as future senior
subordinated debt; and
. senior in right of payment to all of our and our
guarantor subsidiaries' subordinated debt.
As of June 30, 2000, (1) our outstanding senior
debt was approximately $309.3 million (excluding
unused commitments under our senior credit
facilities), (2) our outstanding senior
subordinated debt was approximately $374.9 million
and (3) our outstanding subordinated debt was
approximately $45.4 million. In addition, (1) the
outstanding senior debt guaranteed by the
subsidiary guarantor was approximately $290.0
million, (2) the outstanding senior subordinated
debt guaranteed by the subsidiary guarantor was
$374.9 million and (3) our subsidiary guarantor had
no subordinated debt. Our subsidiaries who do not
guarantee the notes had approximately $19.3 million
of senior debt, consisting entirely of debt owed to
the U.S. government related to our licenses and
guaranteed $290.0 million of our borrowings under
our senior credit facilities. These subsidiaries
had no senior subordinated debt or subordinated
debt.
Covenants................. We issued the notes under an indenture with Bankers
Trust Company, as trustee. The indenture governing
the notes, among other things, restricts our
ability and the ability of certain of our
subsidiaries to:
. incur debt;
. layer debt;
. pay dividends on or redeem capital stock;
. make certain investments or redeem certain
subordinated debt;
. make certain dispositions of assets;
. engage in transactions with affiliates;
. engage in certain business activities; and
. engage in mergers, consolidations and certain
sales of assets.
The indenture governing the notes also limits our
ability to permit restrictions on the ability of
certain of our subsidiaries to pay dividends or
make certain other distributions.
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Absence of Established
Market for the Notes...... The notes are a new issue of securities, and there
is no established trading market for the notes. We
do not intend to apply for the notes to be listed
on any securities exchange or to arrange for any
quotation system to quote them. The notes have been
designated for trading in the PORTAL market. The
initial purchasers of the notes have advised us
that they intend to make a market in the notes, but
they are not obligated to do so. The initial
purchasers may discontinue any market making in the
notes at any time in their sole discretion. We
cannot assure you that a liquid market will develop
for the notes.
Risk Factors
You should consider carefully all of the information set forth in this
prospectus and, in particular, you should evaluate the specific factors under
"Risk Factors" beginning on page 12 before exchanging the unregistered notes.
10
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth our summary historical consolidated financial
and other data for the years ended December 31, 1998 and 1999, for the six
months ended June 30, 1999 and 2000 and as of June 30, 2000. The statements of
operations data for the years ended December 31, 1998 and 1999, are derived
from our audited consolidated financial statements. The statements of
operations data for the six months ended June 30, 1999 and 2000 are derived
from our unaudited consolidated financial statements. The balance sheet data at
June 30, 2000 is derived from our unaudited consolidated financial statements.
All the data should be read in conjunction with "Capitalization," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our Consolidated Financial Statements
and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the year ended For the six months
December 31, ended June 30,
------------------- -------------------
1998 1999 1999 2000
-------- --------- -------- ---------
($'s in thousands)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenue:
Service............................ $ -- $ 41,319 $ 6,232 $ 88,056
Roaming............................ 29 29,010 9,487 26,151
Equipment.......................... -- 17,353 5,649 13,250
-------- --------- -------- ---------
Total revenue.................... 29 87,682 21,368 127,457
-------- --------- -------- ---------
Operating expenses:
Cost of revenue.................... -- 39,259 10,107 40,433
Operations and development......... 9,772 35,979 15,498 25,535
Selling and marketing.............. 6,325 71,180 20,925 74,766
General and administrative......... 26,239 92,585 22,441 74,347
Depreciation and amortization...... 1,584 55,110 16,491 50,383
-------- --------- -------- ---------
Total operating expenses......... 43,920 294,113 85,462 265,464
-------- --------- -------- ---------
Operating loss..................... (43,891) (206,431) (64,094) (138,007)
Other (income) expense:
Interest expense................... 11,934 51,313 17,107 34,263
Interest income and other.......... (4,670) (6,748) (2,918) (3,897)
-------- --------- -------- ---------
Net loss............................ (51,155) (250,996) (78,283) (168,373)
Accretion of mandatorily redeemable
preferred stock.................... (8,567) (24,124) (9,896) (15,889)
-------- --------- -------- ---------
Net loss attributable to common
equity............................. $(59,722) $(275,120) $(88,179) $(184,262)
======== ========= ======== =========
Other Data:
Subscribers (end of period)........ -- 142,231 30,970 319,882
Deficiency of earnings to fixed
charges........................... $(53,210) $(255,626) $(82,704) $(169,445)
</TABLE>
<TABLE>
<CAPTION>
At June 30,
2000
-----------
(unaudited)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents.......................................... $ 28,223
Working capital (deficit).......................................... (53,405)
Property and equipment, net........................................ 531,034
PCS licenses and microwave relocation costs, net................... 277,275
Intangible assets--AT&T agreements, net............................ 34,330
Total assets....................................................... 966,597
Total debt......................................................... 729,544
Mandatorily redeemable preferred stock, net........................ 279,128
Total stockholders' equity (deficit)............................... $(203,416)
</TABLE>
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<PAGE>
RISK FACTORS
An investment in the notes involves risk. In addition to the other
information in this prospectus, you should carefully consider the following
risks in deciding whether to exchange your unregistered notes.
Risks Relating to Our Business, Operations and Strategy
We continue to incur significant operating losses, and we may not be able to
generate positive cash flow from our operations in the future.
We have a limited operating history and a history of operating losses. We
incurred cumulative operating losses through June 30, 2000 of approximately
$391.8 million. We expect to continue to incur operating losses and to generate
negative cash flow from operating activities during the next several years
while we develop our business and expand our networks. Our business has
required and will continue to require substantial capital expenditures. In
addition, we have to dedicate a substantial portion of any cash flow from
operations to make interest and principal payments on our debt, as well as our
subsidiaries' debt, which will reduce funds available for capital expenditures
and other purposes. If we do not achieve and maintain positive cash flow from
operations on a timely basis, we may be unable to develop our network or to
conduct our business in an effective or competitive manner.
We may not be able to develop the markets we agreed to acquire in the pending
transactions with AT&T Wireless.
We agreed to acquire undeveloped and partially developed licenses from AT&T
Wireless in exchange for certain of our markets which already have established
operations. Our customer base and revenue will decrease after we exchange the
developed markets. In addition, we may not be able to obtain lease sites,
network equipment or government or other approvals necessary in order to
successfully develop the new markets. If we cannot successfully construct the
new network, we may not be able to compensate for the decrease in customer base
or revenue from the exchange of our developed market, which may slow our growth
and our ability to compete in the wireless communications industry.
We may not be able to obtain sufficient financing to complete our network,
particularly with regard to the licenses we agreed to acquire from AT&T
Wireless and to fund our operating losses.
We expect to make significant capital expenditures to complete the building,
testing and deployment of our network, particularly with regard to the licenses
in the midwestern United States that we have agreed to acquire from AT&T
Wireless. The actual expenditures necessary to achieve these goals may differ
significantly from our estimates. We cannot predict whether any additional
financing we may need will be available, what the terms of any such additional
financing would be or whether our existing debt agreements would allow
additional financing. We may incur variable rate debt, which would make us more
vulnerable to interest rate increases. If we cannot obtain additional financing
when needed, we will have to delay, modify or abandon some of our plans to
construct the remainder of our network. This could slow our growth and
negatively impact our ability to compete in the wireless communications
industry and to fund operations.
We would have to obtain additional financing, and the buildout of our
network could be delayed if, among other things:
. any of our sources of capital are unavailable or insufficient;
. we significantly depart from our business plan;
. we experience unexpected delays or cost overruns in the construction of
our network;
. we experience increases in operating costs;
. changes in technology or governmental regulations create unanticipated
costs;
12
<PAGE>
. we acquire additional licenses; or
. revenue from subscribers is lower than anticipated.
Some of our stockholders are obligated to make equity contributions to us in
the future and we cannot guarantee that they will make those contributions.
We received unconditional and irrevocable equity commitments from some of
our stockholders in connection with the completion of various business
ventures. In return for these commitments, these stockholders received shares
of our common and preferred stock, which they pledged to us and to our senior
bank lenders to collateralize their commitments. These stockholders funded
$37.7 million of these commitments in July of 2000 and are required to fund
$48.5 million of these commitments in 2001 and the remaining $11.0 million in
2002. In the event that any of these stockholders do not fund the remaining
portions of their commitments, we could foreclose on their pledged shares, but
we would likely have to obtain alternative financing to complete our network.
Such financing may not be available on terms satisfactory to us, if at all. If
we are unable to secure alternate financing, we may have to delay, modify or
abandon some of our plans to construct the remainder of our network.
We may not be able to acquire the sites necessary to complete our network.
We must lease or otherwise acquire rights to use sites for the location of
network equipment and obtain zoning variances and other governmental approvals
for construction of our network and to provide wireless communications services
to customers in our licensed areas. If we encounter significant difficulties in
leasing or otherwise acquiring rights to sites for the location of network
equipment, we may need to alter the design of our network. In many cases, we
will be required to obtain zoning variances and other governmental approvals or
permits. In addition, because of concern over radio frequency emissions and
tower appearance, some local governments have instituted moratoria on further
construction of antenna sites until the respective health, safety and historic
preservation aspects of this matter are studied further. Changes in our
development plan could slow the construction of our network, which would make
it harder to compete in the wireless communications industry or cause us not to
meet development requirements.
We may have difficulty in obtaining infrastructure equipment.
The demand for the equipment that we require to construct our network is
considerable and manufacturers of this equipment could have substantial
backlogs of orders. Accordingly, the lead time for the delivery of this
equipment may be long. Some of our competitors purchase large quantities of
communications equipment and may have established relationships with the
manufacturers of this equipment. Consequently, they may receive priority in the
delivery of this equipment. Our agreements with vendors contain penalties if
they do not deliver the equipment according to schedule. Nevertheless, the
vendors may fail to deliver the equipment to us in a timely manner. If we do
not receive the equipment in a timely manner, we may be unable to provide
wireless communications services comparable to those of our competitors. In
addition, we may be unable to satisfy the requirements regarding the
construction of our network contained in Federal Communications Commission
regulations and our agreements with AT&T. Our failure to construct our network
in a timely manner could limit our ability to compete effectively, cause us to
lose our licenses or cause us to breach our agreements with AT&T, which, in
turn, could materially adversely affect us.
Changes in technology and customer demands could adversely affect us.
If our technologies become obsolete, we may need to purchase and install
equipment necessary to allow us to convert to new technologies to compete in
the wireless communications marketplace. We use the TDMA, or time division
multiple access, technology standard in our network. Other digital
technologies, such as CDMA, or code division multiple access, and GSM, or
global system for mobile communications, may have significant advantages over
TDMA. It is anticipated that CDMA-based PCS providers will own licenses
covering virtually all of the United States population. Other PCS providers
have deployed GSM technology in many of our
13
<PAGE>
markets. GSM is the prevalent standard in Europe. In addition, it is possible
that a digital transmission technology other than TDMA may gain sufficient
acceptance in the United States to adversely affect the resources currently
devoted by vendors to improving TDMA digital cellular technology. If consumers
perceive that another technology has marketplace advantages over TDMA, we could
experience a competitive disadvantage or be forced to implement that technology
at substantially increased cost.
Although all three standards are digital transmission technologies and share
certain basic characteristics that differentiate them from analog transmission
technology, they are not compatible or interchangeable with each other. In
order to roam in other markets where no PCS licensee utilizes the TDMA
standard, our subscribers must utilize tri-mode handsets to use an analog or
digital cellular system in such markets. Generally, tri-mode handsets are more
expensive than single- or dual-mode handsets. The higher cost of these handsets
may impede our ability to attract subscribers or achieve positive cash flow as
planned.
Our agreements with AT&T include conditions requiring us to upgrade our
technology to match the technology of AT&T. We may not be able to successfully
purchase and install the equipment necessary to allow us to convert to a new or
different technology or to adopt a new or different technology at an acceptable
cost, if at all. In addition, the technologies that we choose to invest in may
not lead to successful implementation of our business plan.
We may not be able to manage the construction of our network or the growth of
our business successfully.
We expect to experience rapid growth and development in a relatively short
period of time. Our financial performance will depend on our ability to manage
such growth and the successful construction of our network. Our management may
not be able to direct our development effectively, including implementing
adequate systems and controls in a timely manner or retaining qualified
employees. This inability could slow our growth and our ability to compete in
the wireless communications service industry.
We may experience a high rate of customer turnover that could negatively impact
our business.
Many providers in the personal communications services industry have
experienced a high rate of customer turnover as compared to cellular industry
averages. Our strategy to address customer turnover may not be successful, or
the rate of customer turnover may be unacceptable. The rate of customer
turnover may be the result of several factors, including network coverage,
reliability issues such as blocked and dropped calls, handset problems, non-
usage of phones, change of employment, affordability and customer care
concerns. Price competition and other competitive factors could also increase
customer turnover.
Our use of the SunCom brand name for marketing may link our reputation with
another SunCom company which could result in a negative perception of our
brand.
We use the SunCom brand name to market our products and services in
conjunction with other affiliates of AT&T Wireless Services, Tritel and Triton,
in order to broaden our marketing exposure and share the costs of advertising.
If Tritel or Triton has problems in developing and operating its network, it
could harm consumer perception of the SunCom brand and, in turn, harm our
reputation and business.
Our use of the SunCom trademark may expose us to litigation.
The State of Florida has contacted AT&T Wireless Services concerning
Florida's alleged rights in the SunCom trademark. Florida uses the trademark
SunCom for a communications network used solely by state agencies in Florida
and certain not-for-profit entities that conduct a threshold level of business
with the state. If we are not successful in reaching an amicable resolution
with Florida regarding the SunCom trademark, we may need to litigate to
determine the scope of the rights of the state with respect to the SunCom
trademark. The outcome of any litigation is uncertain, and we may not have a
continuing right to use the SunCom brand name in the areas in which Florida has
done business under the SunCom trademark.
14
<PAGE>
We are dependent on the services of our senior management and on a management
agreement with TeleCorp Management Corp.
Our success depends upon the services of the members of our senior
management team, particularly Mr. Vento, Mr. Sullivan and Ms. Dobson, and their
ability to implement our business plan and manage our business. The loss of the
services of one or more of these individuals could materially adversely affect
us.
Under our management agreement with TeleCorp Management Corp., TeleCorp
Management Corp. provides management services to us regarding the design,
development and operation of our network. We depend upon TeleCorp Management
Corp. to perform its obligations under the management agreement. TeleCorp
Management Corp., which is wholly owned by Mr. Vento and Mr. Sullivan, had no
operating history before it began providing services to us. The management
agreement terminates:
. upon thirty days' notice from TeleCorp Management Corp.;
. upon our or our stockholders removing Mr. Vento or Mr. Sullivan as a
director of TeleCorp;
. if we do not pay TeleCorp Management Corp.;
. if we become bankrupt; or
. on July 17, 2003, unless renewed.
If the management agreement is terminated, our success and our ability to
comply with the rules regarding F-Block and C-Block licenses could be
materially adversely affected.
Some of our stockholders have affirmative or negative control of us and they
may have an interest different than yours.
Messrs. Vento and Sullivan control a majority of our voting power and, after
the merger, will control a majority of the holding company's voting power. AT&T
Wireless and certain other equity holders of ours and, after the merger, of the
holding company have veto power of certain actions. Messrs. Vento and Sullivan,
together with these equity holders, control the election of our board of
directors and, after the merger, of the holding company's board of directors.
Directors and officers of a company generally do not owe a fiduciary duty to
holders of debt securities, such as the notes, and they may not act in the best
interests of the holders of the notes. Additionally, these stockholders'
interests could conflict with our interests, and we may not be able to resolve
any such conflict in our favor.
Risks relating to our pending merger with Tritel and other pending agreements
We may be unable to consummate our pending merger with Tritel and other pending
agreements.
We have entered into agreements:
. to merge with Tritel, where we and Tritel will become subsidiaries of a
newly formed holding company;
. to acquire from AT&T Wireless Services wireless rights and commitments
in the midwestern United States, a two year extension of AT&T's brand
license and additional capital in exchange for common shares in the
newly formed holding company;
. 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; and
. to extend the term and geographic coverage of AT&T's license agreement
and AT&T Wireless Services' roaming agreement with us to include the new
markets and additional funding.
15
<PAGE>
Each of these transactions is subject to final Federal Communications
Commission approvals as well as other conditions. Additionally, the acquisition
from AT&T Wireless Services of such wireless rights and commitments is
conditional upon the merger and the exchange of licenses described above.
Accordingly, we cannot be certain if and when we will consummate these
transactions, nor can we be certain of the final terms of these transactions.
We may not be able to exercise the right to acquire licenses which AT&T
Wireless Services has the right to acquire.
As part of the contribution from AT&T Wireless Services, we will receive an
assignment of AT&T Wireless Services' rights under several agreements to
purchase licenses covering certain markets in Wisconsin and Iowa. Our ability
to exercise these rights is subject to numerous conditions and contingencies.
Certain of these licenses are subject to bankruptcy court litigation and, while
we have submitted a plan to the bankruptcy court, at least one other creditor
has submitted a competing plan. There can be no assurance that we will obtain
any or all of these licenses. If we cannot exercise our rights to acquire some
or all of these licenses, we will not acquire additional spectrum in Wisconsin
and Iowa, which may slow our growth and our ability to compete in the wireless
communications industry. See "The Pending Merger and Related Transactions--
Concurrent Transactions."
Risks Relating to our Relationship with AT&T
We depend on agreements with AT&T for our success, and would have difficulty
operating without them.
We have entered into a number of agreements with AT&T, including:
. a license agreement;
. a stockholders' agreement;
. an intercarrier roamer services agreement;
. a roaming administration service agreement; and
. a long distance agreement.
Our business strategy depends on our relationship with AT&T. We, along with
our operating subsidiaries, are dependent on co-branding, roaming and service
relationships with AT&T under our joint venture agreements. These relationships
are central to our business plan. If any of these relationships were
terminated, our business strategy could be significantly affected and, as a
result, our operations and future prospects could be adversely affected.
The AT&T agreements create an organizational and operational structure that
defines the relationships between AT&T and us. Because of our dependence on
these relationships, it is important for you to understand that there are
circumstances in which AT&T can terminate our right to use its brand name, as
well as other important rights under the joint venture agreements, if we
violate the terms of the joint venture agreements or if certain other events
occur.
We have agreements with AT&T Wireless for equipment discounts. Any
disruption in our relationship with AT&T Wireless could hinder our ability to
obtain the infrastructure equipment that we use in our network or harm our
relationship with our vendors.
If we fail to maintain certain quality standards, violate terms of our licenses
or AT&T Wireless engages in certain combination transactions, AT&T could
terminate its exclusive relationship with us and our rights to use the AT&T
brand.
If we fail to meet specified customer care, reception quality and network
reliability standards set forth under the stockholders' agreement, AT&T
Wireless may terminate AT&T Wireless's exclusivity obligations
16
<PAGE>
with us and AT&T may terminate our rights to use the AT&T brand. If AT&T
Wireless terminates its exclusivity obligations, other providers could then
enter into agreements with AT&T Wireless, exposing us to increased competition,
and we could lose access to customers. If we lose our rights to use the AT&T
brand, we would lose the advantages associated with AT&T's marketing efforts
and customers may not recognize our brand readily. We may have to spend
significantly more money on advertising to create brand recognition.
AT&T can terminate our license to use the AT&T brand name, our designation
as a member of the AT&T Wireless network, or our use of other AT&T service
marks if we violate the terms of the license or otherwise breach one of the
AT&T agreements. The exercise by AT&T of any of these rights, or other rights
described in the AT&T agreements, could significantly and materially adversely
affect our operations and revenues.
In addition, if AT&T or its affiliates combines with specified entities with
over $5 billion in annual revenues from telecommunications activities, that
derive less than one-third of their aggregate revenues from the provision of
wireless telecommunications and that have PCS or cellular licenses that cover
at least 25% of the people covered by our licenses, then AT&T Wireless may
terminate its exclusivity obligations with us in markets that overlap with
markets of those entities. Other providers could then enter into agreements
with AT&T Wireless in those markets, exposing us to increased competition, and
we could lose access to customers.
We rely on AT&T Wireless Services for a significant portion of our roaming
revenue and a decrease in this roaming revenue may have a negative impact on
our business.
Under the roaming agreement, the roaming rate that AT&T Wireless Services
pays to us when AT&T Wireless Services' customers roam onto our network will
decline over each of the next several years in certain of our markets. This may
affect our roaming revenue, most of which has historically been derived from
AT&T Wireless Services' customers traveling through our markets.
We rely on the use of the AT&T brand name and logo to market our services, and
a loss of use of this brand name and logo or a decrease in the market value of
this brand name and logo would hinder our ability to market our products and
may have an adverse effect on our business and results of operations.
The AT&T brand and logo is highly recognizable and AT&T supports its brand
and logo by its marketing. If we lose our rights to use the AT&T brand and logo
under the license agreements with our subsidiaries, we would lose the
advantages associated with AT&T's marketing efforts.
If we lose the rights to use this brand and logo, customers may not
recognize our brand readily and we may have to spend significantly more money
on advertising to create brand recognition.
In addition, our results of operations are highly dependent on our
relationship with AT&T and AT&T Wireless, their success as wireless
communications providers and the value of the AT&T brand and logo. If AT&T
Wireless encounters problems in developing and operating its wireless network
and its reputation as a wireless communications provider declines, it could
adversely affect the value to us of the AT&T brand, our agreements with various
AT&T entities and our results of operations. In that event, we may need to
invest heavily in obtaining other operating agreements and in marketing our
brand to develop our business, and we may not have funds to do so.
AT&T Wireless can at any time require us to enter into a resale agreement that
would allow AT&T Wireless to sell access to, and usage of, our services in its
licensed area on a nonexclusive basis using the AT&T brand.
Under the terms of a stockholders' agreement, we are required to enter into
a resale agreement at AT&T Wireless's request. The resale agreement will allow
AT&T Wireless to sell access to, and usage of, our services in its licensed
area on a nonexclusive basis and using the AT&T brand. AT&T Wireless may be
able to develop its own customer base in our licensed area during the term of
the resale agreement.
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<PAGE>
AT&T Wireless may terminate its rights under the stockholders' agreement, which
could result in increased competition with us for subscribers who otherwise
might use our services that are co-branded with AT&T.
If AT&T Wireless engages in specified business combinations, the exercise of
its termination rights under the stockholders' agreement could result in
increased competition detrimental to our business. We cannot assure you that
AT&T Wireless will not enter into such a business combination, and the
termination of the non-compete and exclusivity provisions of the stockholders'
agreement could have a material adverse effect on our operations.
We may not be able to engage in certain activities and make acquisitions
outside of our license footprint and this may limit our future growth.
Generally, under our agreements with AT&T, we cannot engage in any business
other than providing mobile wireless telecommunications services using TDMA
technology or ancillary businesses, or make acquisitions of licenses outside of
our license footprint without the approval of AT&T Wireless. This limitation on
our ability to engage in other businesses or acquire additional licenses
outside of our footprint may inhibit our future growth.
Risks Relating to the Notes
We have substantial debt which we may not be able to service.
We have a substantial amount of debt. As of June 30, 2000, after giving
effect to the offering of the notes, our outstanding debt consisted of (1)
approximately $309.3 million of senior debt, consisting of approximately $290.0
million of borrowings under our senior credit facilities and $19.3 million of
debt owed to the U.S. government related to our licenses, (2) approximately
$374.9 aggregate accreted value of the 11 5/8% senior subordinated discount
notes, referred to as the 11 5/8% notes, (3) $450.0 million of the unregistered
notes (to be exchanged for the exchange notes pusuant to this registration
statement) and (4) approximately $45.4 million of junior subordinated notes
issued to Lucent in connection with the vendor financing. In addition, Lucent
has committed to make available up to an additional $50.0 million of junior
subordinated notes in connection with our development of new markets. We may
incur additional debt in the future. The indentures governing the notes and the
11 5/8% notes permit us to incur additional debt, subject to certain
limitations. Our senior credit facilities provide for total borrowings in the
amount of up to $560.0 million, and, in certain circumstances, for additional
borrowings in the amount of up to $40.0 million. As of June 30, 2000, the
vendor financing provided by Lucent provided for us to issue up to an
additional $25.0 million aggregate principal amount of notes based upon our
current markets.
The substantial amount of our debt will have a number of important
consequences for our operations, including:
. we may not have sufficient funds to pay interest on, and principal of,
our debt (including the notes and the 11 5/8% notes);
. if payments on any debt owed to the U.S. government are not made when
due, the Federal Communications Commission may:
. impose substantial financial penalties;
. reclaim and reauction the related licenses, and impose a significant
financial penalty in respect of each license that is reclaimed and
reauctioned;
. deny renewal of any other licenses; and
. pursue other enforcement measures;
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. we will have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;
. we may not be able to obtain additional financing for capital
requirements, capital expenditures, working capital requirements and
other corporate purposes;
. some of our debt, including borrowings under our senior credit
facilities, will be at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates;
. pledges of the capital stock of our subsidiaries and liens on
substantially all of our other assets and the assets of such
subsidiaries secure the debt incurred under our senior credit facilities
and this debt matures prior to the maturity of the notes; and
. our ability to adjust to changing market conditions and to withstand
competitive pressures could be limited, and we may be vulnerable to
additional risk in the event of a downturn in general economic
conditions or our business.
Our ability to make payments on our debt, including the notes and the 11
5/8% notes, depends upon our future operating performance, which is subject to
general economic and competitive conditions and to financial, business and
other factors, many of which we cannot control. If our cash flow from our
operating activities is insufficient, we may take certain actions, including
delaying or reducing capital expenditures, attempting to restructure or
refinance our debt, selling assets or operations or seeking additional equity
capital. We may be unable to take any of these actions on satisfactory terms or
in a timely manner. Further, any of these actions may not be sufficient to
allow us to service our debt obligations. Our existing debt agreements limit
our ability to take certain of these actions. The indentures governing the
notes and the 11 5/8% notes contain similar restrictions. Our failure to earn
enough to pay our debts or to successfully undertake any of these actions
could, among other things, materially adversely affect the market value of the
notes.
Our debt instruments contain restrictive covenants that may limit our operating
flexibility.
The documents governing our indebtedness, including the credit facilities
and senior subordinated note indentures, contain significant covenants that
limit our ability to engage in various transactions and, in the case of the
credit facilities, require satisfaction of specified financial performance
criteria. In addition, under each of these documents, the occurrence of
specific events, in some cases after notice and grace periods, would constitute
an event of default permitting acceleration of the respective indebtedness. The
limitations imposed by the documents governing the outstanding indebtedness are
substantial, and if we fail to comply with them our debts could become
immediately payable at a time when we are unable to pay them.
We may have to make concessions to obtain bank consents necessary to consummate
the merger.
We must obtain various consents from certain banks in order to complete the
merger. We have not yet received any bank consents. We may have to make
concessions in order to obtain these bank consents. There is no assurance that
these concessions will not have a material adverse effect on us.
The notes are subordinate to other debt that encumbers our assets.
The right to payment on the notes is subordinate to all of our existing and
future senior debt. Similarly, each subsidiary guarantee of the notes is
subordinate to all existing and future senior debt of the applicable guarantor.
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding with respect to us or any guarantor, our or such guarantor's
assets will be available to pay obligations on the notes or the applicable
guarantee only after all outstanding senior debt of that party has been paid in
full. There may not be sufficient assets remaining to make payments on amounts
due on any or all of the notes then outstanding
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or any subsidiary guarantee. In addition, under certain circumstances, an event
of a default in the payment of certain senior debt will prohibit us and the
guarantors of the notes from paying the notes or the guarantees of the notes.
As of June 30, 2000:
. our outstanding senior debt was approximately $309.3 million (excluding
unused commitments of $270.0 million under our senior credit
facilities); and
. the outstanding senior debt of our subsidiary guarantor was
approximately $290.0 million (consisting entirely of guarantees of
borrowings under our senior credit facilities).
In addition, certain of our subsidiaries do not guarantee the notes. In the
event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to any of these subsidiaries, the assets of these
subsidiaries will be available to pay obligations on the notes only after all
outstanding liabilities of the subsidiaries have been paid in full. As of June
30, 2000, the total liabilities of these subsidiaries was approximately $94.9
million, consisting of debt owed to the U.S. government related to our licenses
in the approximate amount of $19.3 million, trade payables and other current
liabilities in the approximate amount of $57.9 million and other accrued
expenses in the approximate amount of $17.7 million.
Repayment of the notes is not guaranteed by Tritel or the new holding
company.
Although the indenture governing the notes limits the amount of debt we and
certain of our subsidiaries may incur, the amount of such debt could be
substantial and could be senior debt.
The notes and the guarantees of the notes are unsecured. Thus, the notes and
the guarantees of the notes rank junior in right of payment to any of our
secured debt or the secured debt of the guarantors of the notes to the extent
of the value of the assets securing that debt. The secured debt includes debt
incurred under our senior credit facilities, which is secured by liens on
substantially all of our assets and those of our subsidiaries. If an event of
default were to occur under our senior credit facilities, the lenders could
foreclose on that collateral regardless of any default with respect to the
notes. These assets would first be used to repay in full all amounts
outstanding under our senior credit facilities.
Because a significant portion of our assets are intangible, they may have
little value upon a liquidation.
Our assets consist primarily of intangible assets, principally Federal
Communications Commission licenses, the value of which will depend
significantly upon the success of our PCS network business and the growth of
the PCS and wireless communications industries in general. If we default on our
indebtedness, or if we are liquidated, the value of these assets may not be
sufficient to satisfy our obligations to our creditors and debtholders,
including the holders of the notes.
We are dependent on our subsidiaries for funds necessary to make payments on
the notes.
Almost all of our operations are conducted through our subsidiaries. As a
result, we are dependent upon dividends from our subsidiaries for the funds
necessary to make payments on the notes. The indentures governing the notes and
the 11 5/8% notes limit restrictions on the ability of certain of our
subsidiaries to pay dividends or make certain other distributions. Our senior
credit facilities also restrict the ability of these subsidiaries to pay
dividends or make other distributions. In addition, there can be no assurance
that any such dividends or distributions will be adequate to allow us to make
payments on the notes.
We may not be able to satisfy our obligations owed to the holders of the notes
upon a change of control.
Upon the occurrence of a "change of control" as defined in the indenture
governing the notes and the indenture governing the 11 5/8% notes, each holder
of the notes will have the right to require us to repurchase that holder's
notes at a price equal to 101% of either the accreted value or the principal
amount at maturity of
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the notes, as applicable, together with accrued and unpaid interest to the date
of repurchase. Certain events which would constitute a change of control under
the indentures governing the notes and the 11 5/8% notes would also constitute
a default under our senior credit facilities. In addition, our senior credit
facilities effectively prevent the repurchase of the notes by us in the event
of a change of control of us unless all amounts outstanding under our senior
credit facilities are repaid in full. Our failure to repurchase the notes would
be a default under the indenture governing the notes, which would be a default
under our senior credit facilities. The inability to repay all indebtedness
outstanding under our senior credit facilities upon acceleration thereof would
also be a default under the indenture governing the notes. Any default under
our senior credit facilities or the indenture governing the notes would
materially adversely affect our business, operations and financial results as
well as the market price of the notes. In the event of a change of control, we
may not have sufficient assets to satisfy all obligations under our senior
credit facilities and the indentures governing the notes and the 11 5/8% notes.
Any debt we incur in the future may also prohibit certain events or
transactions that would constitute a change of control under the indenture
governing the notes.
We may enter into transactions, including acquisitions, refinancings or
recapitalizations, or highly leveraged transactions, that do not constitute a
change of control under the indenture governing the notes. Any of these
transactions may result in an increase in our debt or otherwise affect our
capital structure, harm our credit ratings or have a material adverse affect on
holders of the notes.
There is no public market for the notes.
The unregistered and exchange notes are each a new issue of securities and
there is no established market for the notes. The notes (or exchange notes) are
not listed on any securities exchange and no quotation system quotes the notes.
The initial purchasers of the unregistered notes have told us that they intend
to make a market in the unregistered notes (and the exchange notes), but they
are not obliged to do so. The initial purchasers may discontinue any market-
making in the unregistered notes (or any exchange notes) at any time in their
sole discretion. Accordingly, we cannot ensure a liquid market for the notes,
that you will be able to sell your notes at a particular time or that the
prices that you receive when you sell will be favorable. Future trading prices
of the notes will depend on many factors, including our operating performance
and financial condition, our ability to complete the offer to exchange the
unregistered notes for exchange notes, prevailing interest rates and the market
for similar securities.
We relied upon an exemption from registration under the Securities Act and
applicable state securities laws in offering the unregistered notes. The
unregistered notes may be transferred or resold only in a transaction
registered under, or exempt from, the Securities Act and applicable state
securities laws. We, along with our subsidiaries that guarantee the
unregistered notes, are filing this registration statement with the SEC and
intend to use our commercially reasonable efforts to cause this registration
statement to become effective with respect to the exchange notes. The SEC,
however, has broad discretion to declare any registration statement effective
and may delay or deny the effectiveness of any registration statement for a
variety of reasons. If issued under an effective registration statement, the
exchange notes generally may be resold or otherwise transferred (subject to
restrictions) by each holder of the exchange notes with no need for further
registration. The exchange notes issued in exchange for the unregistered notes,
however, will constitute a new issue of securities with no established trading
market. The offer to exchange the unregistered notes will not depend upon the
amount of the unregistered notes being tendered for exchange.
The unregistered notes which you do not tender or we do not accept will,
following the exchange offer, continue to be restricted securities. Therefore,
you may only transfer or resell them in a transaction registered under or
excepted from the Securities Act of 1933 and applicable state securities laws.
Following the exchange offer, if you did not tender your unregistered notes, or
we did not accept your tender, you generally will not have any further
registration rights unless you qualify for the shelf registration rights. We do
not currently anticipate that we will register the remaining unregistered notes
under the Securities Act of 1933. We cannot
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ensure that there will be a liquid trading market for the exchange notes or,
in the case of non-exchanging holders of the unregistered notes, the trading
market for the unregistered notes following the offer to exchange the
unregistered notes.
General declines in the market for securities like the notes may materially
adversely affect the trading market for the notes, and their liquidity,
regardless of our financial performance or prospects.
If holders fail to exchange the unregistered notes for the exchange notes,
it may weaken the market for the exchange notes, and there may be no market
for remaining unregistered notes.
The existence of a market for registered notes could adversely affect the
market for unregistered notes due to the limited amount of the unregistered
notes that remain outstanding. Generally, a lower outstanding or trading
amount of a security could result in less demand to purchase the security and
could result in lower prices for the security. For the same reasons, the
existence of a market for unregistered notes could adversely affect the
trading market for the registered notes.
Risks Related to Our Industry
We face intense competition from other PCS and cellular providers and from
other technologies.
The viability of our PCS business will depend upon, among other things, our
ability to compete, especially on price, reliability, quality of service,
availability of voice and data features and customer care. In addition, our
ability to maintain the pricing of our services may be limited by competition,
including the entry of new service providers into our markets.
We compete directly in each of our markets with at least two wireless
communications service providers such as:
. Verizon Wireless;
. BellSouth;
. Powertel;
. Nextel;
. Voicestream Wireless Corporation;
. Puerto Rico Telephone Company;
. Centennial Cellular;
. SBC Communications;
. US Cellular;
. Sprint PCS; and
. ALLTEL.
Some of these providers have significant infrastructure in place, often at
low historical cost, and have been operational for many years, with
substantial existing subscriber bases, and may have greater capital resources
than we do. We also face competition from paging, dispatch and conventional
mobile radio operations, specialized mobile radio, called SMR, and enhanced
specialized mobile radio, called ESMR, including those ESMR networks operated
by Nextel Communications and its affiliates in our markets, and domestic and
global mobile satellite service. We will also compete with resellers of
wireless communications services in each of our markets. We have not obtained
a significant share of the market in any of our areas of operation. We expect
competition in the wireless telecommunications industry to be dynamic and
intense as a result of the entrance of new competition, the development and
deployment of new technologies, products and services, changes in consumer
preferences and demographic trends.
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In the future, cellular and PCS providers will also compete more directly
with traditional landline telephone service operators, and may compete with
services offered by energy companies, utility companies and cable and wireless
cable operators seeking to offer communications services by leveraging their
existing infrastructure. They may attract customers away from us or prevent us
from attracting customers. Additionally, continuing technological advances in
telecommunications, the availability of more spectrum and Federal
Communications Commission policies that encourage the development of new
spectrum-based technologies make it impossible to accurately predict the extent
of future competition.
Concerns that the use of wireless handsets may pose health and safety risks may
discourage the use of our PCS handsets.
Media reports have suggested that, and studies are currently being
undertaken to determine whether, radio frequency emissions from cellular and
PCS wireless handsets may be linked with health risks, including cancer, and
interference with various electronic medical devices, including hearing aids
and pacemakers.
Concerns over radio frequency emissions may discourage the use of wireless
communications devices, such as PCS handsets, which could adversely affect our
business. In addition, the Federal Communications Commission requires that
certain transmitters, facilities, operations, and mobile and portable
transmitting devices used in PCS handsets meet specific radio frequency
emission standards. Compliance with any new restrictions could materially
increase our costs. Concerns about radio frequency emissions may affect our
ability to obtain licenses from government entities necessary to construct
microwave sites in certain locations.
Separately, governmental authorities may create new regulations concerning
hand-held phones, and our handsets may not comply with rules adopted in the
future. Noncompliance would decrease demand for our services. In addition, some
state and local legislatures have passed or are considering restrictions on
wireless phone use for drivers. The passage or proliferation of this or future
legislation could decrease demand for our services.
We cannot predict the effect of any governmental action concerning the usage
of mobile phones. In addition, measures aimed at wireless services companies,
as opposed to users, may be proposed or passed on the state or federal level in
the future. Governmental actions could materially adversely affect us by
requiring us to modify our operations or business plans in response to such
restrictions.
Third-party fraud causes us to incur increased operating costs.
As do most companies in the wireless industry, we incur costs associated
with the unauthorized use of our network, including administrative and capital
costs associated with detecting, monitoring and reducing the incidence of
fraud. Fraud impacts interconnection costs, capacity costs, administrative
costs, fraud prevention costs and payments to other carriers for unbillable
fraudulent roaming.
Risks Relating to Regulatory Matters
The Federal Communications Commission has the ability to cancel or revoke our
licenses which would adversely affect our business and our ability to generate
income.
Our principal assets are PCS licenses issued by the Federal Communications
Commission. The Federal Communications Commission has imposed certain
requirements on its licensees, including PCS operators. For example, PCS
licenses may be revoked by the Federal Communications Commission at any time
for cause. The licenses may also be cancelled for a violation of Federal
Communications Commission regulations, failure to continue to qualify for the
licenses, malfeasance, other misconduct or failure to comply with the terms of
the licenses. The loss of any license, or an action that threatens the loss of
any license, would have a material adverse effect on our business and operating
results.
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Because we face broad and evolving government regulation, we may have to modify
our business plans or operations in the future and may incur increased costs to
comply with new regulations.
The licensing, construction, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the Federal Communications Commission, Congress and state and local
regulatory agencies. This regulation is continually evolving. There are a
number of issues as to which regulation has been or in the future may be
introduced, including those regarding interference between different types of
wireless telecommunications systems and the effect of wireless
telecommunications equipment on medical equipment and devices. As new
regulations are promulgated on these or other subjects, we may be required to
modify our business plans or operations to comply with them. It is possible
that the Federal Communications Commission, Congress or any state or local
regulatory agency having jurisdiction over our business will adopt or change
regulations or take other actions that could adversely affect our business and
operating results.
The Telecommunications Act of 1996 mandated significant changes in existing
regulation of the telecommunications industry to promote competitive
development of new service offerings, to expand public availability of
telecommunications services and to streamline regulation of the industry.
Nevertheless, the implementation of these mandates by the Federal
Communications Commission and state authorities will involve numerous changes
in established rules and policies that could adversely affect our business.
All of our PCS licenses are subject to the Federal Communications
Commission's buildout requirements. We have developed a buildout plan that we
believe meets all Federal Communications Commission requirements. In addition,
the acquisition of new licenses in connection with the merger and separate
exchange transaction will require new buildout plans. However, we may be unable
to meet our buildout schedules. If there are delays in implementing our and our
subsidiaries' network buildout, the Federal Communications Commission could
reassess our authorized service area or, in extreme cases, it may revoke our
licenses or impose fines.
Recently, we filed the required notifications of the satisfaction of the
Federal Communications Commission's five-year build-out requirements for some
of our licenses. We have requested a waiver of the five-year build out
requirement to the extent deemed necessary by the Federal Communications
Commission because we relied on certain construction undertaken by other
partitionees for our partitioned licenses in the Louisville MTA and the St.
Louis MTA. This request has been placed on public notice for comment by other
parties. While we believe that we should be deemed to meet the five-year
construction requirements and, in the event that the Federal Communications
Commission deems a waiver technically necessary, that a waiver of those
requirements is justified, the determination by the Federal Communications
Commission that we have not met the construction requirements could result in a
loss of those licenses.
The current restrictions on foreign ownership could adversely affect our
ability to attract additional equity financing from entities that are, or are
owned by, foreign interests. If our foreign ownership were to exceed the then-
applicable limits in the future, the Federal Communications Commission could
revoke or cancel our PCS licenses or order an ownership restructuring that
could cause us to incur significant costs.
We could lose our F-Block and C-Block licenses if we fail to meet financial and
other tests.
To retain the C- and F-Block licenses and the favorable government financing
granted to us, we must maintain our designated entity status as an entrepreneur
and small business or very small business. To maintain all of the benefits of
our designated entity status, our control group, including our qualifying
investors, must retain certain minimum stock ownership and control of our
voting stock, as well as legal and actual control of us for five years from the
date of grant of our C- and F-Block PCS licenses, subject to possible unjust
enrichment obligations for ten years. The Federal Communications Commission has
indicated that it will not rely solely on legal control in determining whether
the control group and its qualifying investors are truly in control of an
entity. Even if the control group and the qualifying investors hold the
requisite percentages of equity control, the Federal Communications Commission
may still inquire to determine whether actual and voting control exists.
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Government regulation, changes in our licenses or other governmental action
could affect how we do business and hinder our ability to service our debt.
Congress, the Federal Communications Commission, the Federal Aviation
Administration, state and local regulatory authorities or the courts may adopt
new regulations, amend existing regulations, alter the administration of
existing regulations or take other actions that might cause us to incur
significant costs in making changes to our network, and such costs might affect
our cash flows. Additionally, the potential allocation by the Federal
Communications Commission of additional PCS licenses or other wireless licenses
in our markets may increase competition in those markets which might adversely
affect our operating results.
As the Federal Communications Commission continues to implement changes to
promote competition under the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, it may change how it regulates the way our
network connects with other carriers' networks. The Federal Communications
Commission may require us to provide lower cost services to other carriers,
which may lessen our revenues.
Our licenses to provide wireless communications services, which are our
principal assets, have terms of ten years. The Federal Communications
Commission may not renew our licenses upon the expiration of their terms.
Further, the Federal Communications Commission could modify our licenses in a
way that decreases their value or use to us or allocate unused airwaves for
similar services. The nonrenewal or modification of any of our licenses or the
allocation of additional spectrum would slow our growth and ability to compete
in the wireless communications industry.
We could lose our PCS licenses or incur financial penalties if the Federal
Communications Commission determines certain of us and our subsidiaries are not
small businesses, very small businesses or entrepreneurial enterprises or if we
do not meet the Federal Communications Commission's minimum construction
requirements.
The Federal Communications Commission could impose penalties on us related
to our subsidiaries' very small business, small business and entrepreneurial
status and its requirements regarding minimum construction of our network that
could slow our growth and our ability to compete in the wireless communications
industry.
Certain of our subsidiaries acquired PCS licenses as very small businesses,
small businesses and entrepreneurial companies. These subsidiaries must remain
very small businesses, small businesses or entrepreneurs, as the case may be,
for at least five years following the original date of determination to comply
with applicable rules of the Federal Communications Commission, including rules
governing our capital and ownership structure and corporate governance. If the
Federal Communications Commission determines that we or our subsidiaries
violated these rules or failed to meet its minimum construction requirements,
it could impose substantial penalties upon us. Among other things, the Federal
Communications Commission could:
. fine us;
. cancel our licenses;
. revoke our licenses;
. accelerate our installment payment obligations;
. require a restructuring of our equity; or
. cause us to lose bidding credits retroactively.
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THE EXCHANGE OFFER
Purpose and Effects
The unregistered notes were originally issued on July 14, 2000 in the
principal amount of $450.0 million in a transaction exempt from the
registration requirements of the Securities Act. The unregistered notes may not
be reoffered, resold or transferred except under a registration statement filed
with the SEC or unless an exemption from the registration requirements of the
Securities Act is available.
The exchange offer is designed to provide to holders of unregistered notes
an opportunity to acquire exchange notes which, unlike the unregistered notes,
generally will be freely transferable at all times, provided the holder is not
our affiliate and not a broker-dealer or participating in a distribution of the
exchange notes.
Based on no-action letters issued by the staff of the SEC to third parties
in other transactions, we believe that a holder of unregistered notes, other
than a holder who is our affiliate within the meaning of the Securities Act,
who exchanges unregistered notes for exchange notes in the exchange offer,
generally may offer the exchange notes for resale, sell the exchange notes and
otherwise transfer the exchange notes without further registration under the
Securities Act and without delivery of a prospectus that satisfies the
disclosure requirements of the Securities Act if the holder acquires the
exchange notes in the ordinary course of its business and is not participating,
does not intend to participate and has no arrangement or understanding with any
person to participate in a distribution of the exchange notes. Any holder who
is our affiliate within the meaning of that term under the Securities Act may
not rely on these no action letters.
Any holder of unregistered notes using the exchange offer to participate in
a distribution of exchange notes cannot rely on the no-action letters referred
to above. This includes a broker-dealer that acquired the unregistered notes
directly from us, but not as a result of market-making activities or other
trading activities. Consequently, each holder who may not rely on these letters
must comply with the registration and prospectus delivery requirements of the
Securities Act in the absence of an exemption from such requirements. See "Plan
of Distribution."
Each broker-dealer that receives exchange notes for its own account in
exchange for unregistered notes, where the unregistered notes were acquired by
the broker-dealer as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act of 1933 in
connection with the resale of the exchange notes received in exchange for the
unregistered notes. The letter of transmittal which accompanies this prospectus
states that by so acknowledging and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended and/or supplemented from time to time, in
connection with the resales of the exchange notes it receives in exchange for
the unregistered notes in the exchange offer. We will make this prospectus
available to any participating broker-dealer in connection with any resale of
this kind for a period of 180 days after the consummation of the exchange
offer. See "Plan of Distribution."
Each holder of unregistered notes who wishes to exchange unregistered notes
for exchange notes in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such unregistered
notes, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
. the exchange notes to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of business;
. neither the holder nor any beneficial owner is our or any of our
subsidiaries' affiliate;
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. any person participating in the exchange offer with the intention or
purpose of distributing exchange notes received in exchange for the
unregistered notes, including a broker-dealer that acquired the
unregistered notes directly from us, but not as a result of market-
making activities or other trading activities, cannot rely on the no-
action letters referenced above and must comply with the registration
and prospectus delivery requirements of the Securities Act, in
connection with a secondary resale of the exchange notes acquired by
such person;
. if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in
any distribution of the exchange notes received in exchange for
unregistered notes; and
. if the holder is a broker-dealer that will receive exchange notes for
the holder's own account in exchange for the unregistered notes, the
unregistered notes to be so exchanged were acquired by the holder as a
result of market-making or other trading activities and the holder will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange notes received in the
exchange offer. However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it
is an underwriter within the meaning of the Securities Act of 1933.
Terms of the Exchange Offer
We will offer exchange notes in exchange for the surrender of unregistered
notes. We will keep the exchange offer open for at least 30 days, or longer if
required by applicable law, after the date on which notice of the exchange
offer is mailed to the holders of the unregistered notes.
Upon the terms contained in this prospectus and in the letter of transmittal
which accompanies this prospectus, we will accept any and all unregistered
notes validly tendered and not withdrawn before 5:00 p.m., New York City time,
on the expiration date of the exchange offer. We will issue an equal principal
amount of exchange notes in exchange for the principal amount of the
unregistered notes accepted in the exchange offer. Holders may tender some or
all of their unregistered notes under the exchange offer. Unregistered notes
may be tendered only in principal amounts at maturity of $1,000 and integral
multiples of $1,000.
The form and terms of the exchange notes will be the same as the form and
terms of the unregistered notes except that:
. the exchange notes will have been registered under the Securities Act
and therefore will not bear legends restricting their transfer; and
. the exchange notes will not contain specific terms providing for
registration rights or liquidated damages under specific circumstances
which are described in the exchange and registration rights agreement.
The exchange notes will evidence the same debt as the unregistered notes and
will be entitled to the benefits of the same indenture. Interest on each
exchange note issued in the exchange offer will accrue from the last interest
payment date on which interest was paid on the unregistered notes for which the
exchange note were exchanged, or if no interest has been paid on the
unregistered notes, from the issue date of the unregistered notes.
In connection with the exchange offer, holders of the unregistered notes do
not have any appraisal or dissenters' rights under law or the indenture. We
intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the SEC related to these offers.
We will be deemed to have accepted validly tendered unregistered notes when,
as and if we have given oral or written notice of acceptance to Bankers Trust
Company, our exchange agent for the exchange offer. The exchange agent will act
as agent for the tendering holders for the purpose of receiving exchange notes
from us.
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If any tendered unregistered notes are not accepted for exchange because of
an invalid tender, the occurrence of other events specified in this prospectus
or if the unregistered notes are submitted for a greater principal amount than
the holder desires to exchange, the certificates for the unaccepted
unregistered notes will be returned without expense to the tendering holder. If
unregistered notes were tendered by book-entry transfer in the exchange agent
account at The Depository Trust Company in accordance with the book-entry
transfer procedures described below, these non-exchanged unregistered notes
will be credited to an account maintained with The Depository Trust Company as
promptly as practicable after the expiration date of the exchange offer.
Each of the following is a registration default:
(1) neither the registration statement of which this prospectus is a
part nor a shelf registration statement with respect to the unregistered
notes is filed on or prior to September 12, 2000;
(2) neither of the registration statements of which this prospectus is a
part nor a shelf registration statement with respect to the unregistered
notes is declared effective by the Securities & Exchange Commission on or
prior to January 10, 2001, the effectiveness target date, or, if later,
within 45 days after the publication of a change in applicable law or
interpretation of law by the Securities & Exchange Commission's staff that
would require us to file a shelf registration statement;
(3) we fail to complete the exchange offer on or prior to February 9,
2001; or
(4) a shelf registration statement that has been timely declared
effective but thereafter ceases to be effective or usable in connection
with resales of transfer restricted notes without being succeeded within 45
days by an additional registration statement filed and declared effective.
In the event of a registration default, we must pay liquidated damages to
each holder of transfer restricted notes during the period of one or more such
registration defaults, in an amount equal to $0.192 per week per $1,000 of
principal amount of the transfer restricted notes held by such holder until the
cure of all registration defaults. Such interest will be payable on the next
scheduled interest payment date.
We may file a shelf registration to cover resales of transfer restricted
notes if:
. a change in law or the Securities & Exchange Commission's
interpretations of the law precludes our exchange offer;
. we do not exchange validly tendered unregistered notes for exchange
notes by February 9, 2001;
. any initial purchaser requests in connection with unregistered notes
which were not eligible for exchange in the exchange offer and which
that initial purchaser still holds;
. any law or the Securities & Exchange Commission's interpretations
preclude a holder from participating in the exchange offer;
. a holder receives exchange notes which are not freely transferable; or
. we so elect.
For the purposes of the foregoing, "transfer restricted notes" mean each
unregistered note until (i) the date on which such unregistered note has been
exchanged for a freely transferable exchange note in the exchange offer, (ii)
the date on which such unregistered note has been effectively registered under
the Securities Act of 1933 and disposed of in accordance with the shelf
registration statement or (iii) until the date on which such unregistered note
is distributed to the public pursuant to Rule 144 under the Securities Act of
1933 or is saleable pursuant to Rule 144(k) under the Securities Act of 1933.
Tendering holders of the unregistered notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal and certain exceptions listed in the indenture, transfer taxes with
respect to the exchange of unregistered notes in the exchange offer. We will
pay all charges and expenses, other than transfer taxes which may be imposed,
in connection with the exchange offer. See "--Transfer Taxes" below.
28
<PAGE>
Expiration Date; Extensions; Amendment
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on , 2000, unless we, in our reasonable discretion, extend the exchange
offer, in which case the expiration date shall be the latest date and time to
which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
the extension before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
. to delay accepting any unregistered notes, to extend the exchange offer
or to terminate the exchange offer if, in our reasonable judgment, any
of the conditions described below under "--Conditions to the Exchange
Offer" shall not have been satisfied, by giving oral or written notice
of the delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner that we consider material, we
will:
. disclose the amendment by means of a prospectus supplement; and
. extend the exchange offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the exchange offer would
otherwise expire during the five to ten business day period.
We will give oral or written notice of any extension, amendment, non-
acceptance or termination to the holders of unregistered notes as promptly as
practicable. In the case of any extension, we will issue such notice as a press
release or other public announcement no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
Procedures for Tendering
To tender in the exchange offer, a holder must do the following:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
. have the signatures guaranteed if required by the instructions to the
letter of transmittal; and
. except as discussed in "--Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile, together with
the unregistered notes and any other required documents, to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
The exchange agent must receive the unregistered notes, a completed letter
of transmittal and all other required documents at the address listed below
under "--Exchange Agent" before 5:00 p.m., New York City time, on the
expiration date for the tender to be effective. You may deliver your
unregistered notes by using the book-entry transfer procedures described below,
as long as the exchange agent receives confirmation of the book-entry transfer
before the expiration date.
The Depository Trust Company has authorized its participants that hold
unregistered notes on behalf of beneficial owners of unregistered notes through
The Depository Trust Company to tender their unregistered notes as if they were
holders. To effect a tender of unregistered notes, The Depository Trust Company
participants should either:
. complete and sign the letter of transmittal, or a manually signed
facsimile of the letter, have the signature guaranteed if required by
the instructions to the letter of transmittal, and mail or deliver the
letter of transmittal to the exchange agent according to the procedure
described in "--Procedures for Tendering"; or
29
<PAGE>
. transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be
eligible and follow the procedure for book-entry transfer described in
"--Book-Entry Transfer."
By tendering, each holder will make the representations contained under the
heading "--Terms of the Exchange Offer." Each participating broker-dealer must
acknowledge that it will deliver a prospectus in connection with any resale of
exchange notes.
The tender of a holder and our acceptance of the tender will constitute a
binding agreement between the holder and us described in this prospectus and in
the letter of transmittal.
The method of delivery of unregistered notes, the letter of transmittal and
all other required documents to the exchange agent is at the election and sole
risk of the holder of the unregistered notes. If such delivery is by mail, it
is recommended that registered mail, properly insured, with return receipt
requested, be used. In all cases, sufficient time should be allowed to assure
delivery to the exchange agent prior to the expiration date. No letters of
transmittal or unregistered notes should be sent to us.
Any beneficial owner whose unregistered notes are registered in the name of
a broker-dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the beneficial owner's behalf. If the beneficial owner wishes to
tender on its own behalf, the owner must, prior to completing and executing the
letter of transmittal and delivering unregistered notes, either:
. make appropriate arrangements to register ownership of the unregistered
notes in the owner's name; or
. obtain a properly completed bond power from the registered holder.
If a letter of transmittal is signed by a person other than the registered
holder of any unregistered notes listed in the letter of transmittal, the
unregistered notes must be endorsed or accompanied by a properly completed bond
power and signed by the registered holder as the registered holder's name
appears on the unregistered notes. The transfer of a registered ownership may
take considerable time.
The tender by a holder of unregistered notes will constitute an agreement
between us and the holder in accordance with the terms and subject to the
conditions set forth in this prospectus and in the applicable letter of
transmittal. If a holder tenders less than all the unregistered notes held by
this holder, this tendering holder should fill in the applicable box of the
applicable letter of transmittal. The amount of unregistered notes delivered to
the exchange agent will be deemed to have been tendered unless otherwise
indicated.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution unless the unregistered notes
are tendered as follows:
. by a registered holder who has not completed the box entitled "--Special
Issuance Instructions" or "--Special Delivery Instructions" on the
letter of transmittal; or
. for the account of an eligible guarantor institution.
An eligible guarantor institution is a transfer agent, registered by the
Securities and Exchange Commission to issue guarantees. If signatures on a
letter of transmittal or a notice of withdrawal are required to be guaranteed,
the guarantee must be by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, a commercial
bank or trust company having an office or correspondent in the United States or
an eligible guarantor institution.
If a letter of transmittal or any unregistered notes or bond are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, these
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
30
<PAGE>
Promptly after the date of this prospectus, the exchange agent will
establish a new account or use an existing account with respect to the
unregistered notes at the book-entry facility, The Depository Trust Company, to
facilitate the exchange offer. Subject to establishing the accounts, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of unregistered notes by causing
the book-entry transfer facility to transfer the unregistered notes into the
exchange agent's account in accordance with that facility's procedures.
Although delivery of the unregistered notes may be effected through book-entry
transfer into the exchange agent's account at the book-entry transfer facility,
the exchange agent must receive:
. an appropriate letter of transmittal properly completed and duly
executed; or
. an agent's message with any required signature guarantee; and
. all other required documents
before the expiration date of the exchange offer or within the time period
provided under guaranteed delivery procedures. Delivery of documents to the
book-entry transfer facility does not constitute delivery to the exchange
agent.
The term agent's message means a message transmitted by The Depository Trust
Company to the exchange agent, which states that The Depository Trust Company
has received an express acknowledgment from the participant in The Depository
Trust Company tendering the unregistered notes stating:
. the aggregate principal amount of unregistered notes which have been
tendered by such participant;
. that the participant has received and agrees to be bound by the term of
the letter of transmittal; and
. that we may enforce such agreement against the participant.
We will determine in our reasonable discretion all questions as to the
validity, form, eligibility, time of receipt, acceptance of tendered
unregistered notes and withdrawal of tendered unregistered notes, which
determination will be final and binding. We reserve the absolute right to
reject any and all unregistered notes not properly tendered or any unregistered
notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular unregistered notes. Our interpretation of
the terms and conditions of the exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of
unregistered notes must be cured within a period of time that we shall
determine.
Neither us, the exchange agent nor any other person will incur any liability
for failure to give notice of any defect or irregularity with respect to any
tender of unregistered notes. Tenders of unregistered notes will not be deemed
to have been made until such defects or irregularities mentioned above have
been cured or waived. Any unregistered notes received by the exchange agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the exchange agent to the
tendering holders, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date of the exchange offer.
Acceptance of Unregistered Notes for Exchange; Delivery of Exchange Notes
We will deliver exchange notes in exchange for unregistered notes promptly
following acceptance of the unregistered notes.
For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered unregistered notes which have not been withdrawn when, as and
if we have given oral or written notice to the exchange agent. The exchange
agent will act as agent for the tendering holders of unregistered notes for the
purposes of receiving exchange notes. Under no circumstances will we or the
exchange agent pay interest because of any delay in making the payment or
delivery.
31
<PAGE>
If any tendered unregistered notes are not accepted for exchange because of
an invalid tender, the occurrence of other events or otherwise, we will return
any unaccepted unregistered notes, at our expense, to the tendering holders as
promptly as practicable after the expiration or termination of the exchange
offer.
Guaranteed Delivery Procedures
A holder who wishes to tender its unregistered notes and:
. whose unregistered notes are not immediately available;
. who cannot deliver unregistered notes, the letter of transmittal or any
other required documents to the exchange agent prior to the expiration
date; or
. who cannot complete the procedures for book-entry transfer, before the
expiration date;
may effect a tender if:
. the tender is made through an eligible guarantor institution;
. before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery by facsimile transmission, mail or hand
delivery including:
. the name and address of the holder,
. the certificate numbers of unregistered notes,
. the principal amount of unregistered notes tendered,
. a statement that the tender is being made, and
. a guarantee that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal together with
the certificate representing the unregistered notes, or a
confirmation of book-entry transfer of the unregistered notes into
the exchange agent's account at the book-entry transfer facility,
and any other documents required by the letter of transmittal will
be deposited by the eligible guarantor institution with the exchange
agent, and
. the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the certificate
representing all tendered unregistered notes in proper form for transfer
or a confirmation of book-entry transfer of such unregistered notes into
the exchange agent's account at the book-entry transfer facility, and
all other documents required by the letter of transmittal.
Withdrawal of Tenders
Tenders of unregistered notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date of the exchange offer.
To withdraw a tender of unregistered notes in the exchange offer, a letter
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address described below prior to 5:00 p.m., New York City time, on
the expiration date. Any notice of withdrawal must:
. specify the name of the person having deposited the unregistered notes
to be withdrawn;
. identify the unregistered notes to be withdrawn including the
certificate numbers and principal amount of those unregistered notes or,
in the case of unregistered notes transferred by book-entry transfer,
the name and number of the account at the book-entry transfer facility
to be credited and otherwise comply with the procedures of the transfer
agent;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the unregistered notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the indenture
governing the unregistered notes register the transfer of the
unregistered notes into the name of the person withdrawing the tender;
and
32
<PAGE>
. specify the name in which any such unregistered notes are to be
registered, if different from that of the person who deposited the
unregistered notes.
If unregistered notes have been tendered under the procedures of book-entry
transfer described above under "--Procedures for Tendering," any notice of
withdrawal must specify the name and number of the account at DTC's book-entry
transfer facility to be credited with the withdrawn unregistered notes and
otherwise comply with the procedures of the facility.
A holder may obtain a form of the notice of withdrawal from the exchange
agent at its offices listed under "--Exchange Agent."
If certificates for unregistered notes have been delivered or otherwise
identified to the exchange agent, then, before the release of these
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible guarantor institution unless the holder is
an eligible guarantor institution.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices, in our reasonable discretion, and
our determination shall be final and binding on all parties. Any unregistered
notes so withdrawn will be deemed not to have been validly tendered for
purposes of the exchange offer, and no exchange notes will be issued, unless
the withdrawn unregistered notes are validly retendered. Any unregistered notes
which have been tendered but which are not accepted for exchange will be
returned to the holder of the notes without cost to the holder as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of the unregistered notes tendered by book-entry
transfer into the exchange agent's account at DTC's book-entry transfer
facility pursuant to the book-entry transfer procedures described above under
"--Procedures for Tendering," the unregistered notes will be credited to an
account maintained with the book-entry transfer facility for the unregistered
notes as soon as practicable after withdrawal, rejection of tender or
termination. Properly withdrawn unregistered notes may be retendered by
following one of the procedures described above under "--Procedures for
Tendering" at any time before the expiration date.
Conditions to the Exchange Offer
Despite any other provision of the exchange offer, we will not be required
to accept for exchange, or to issue exchange notes in exchange for, any
unregistered notes, and may terminate or amend the exchange offer, if at any
time before the expiration date, any of the following events shall occur:
. the acceptance or issuance would violate applicable law or any
applicable interpretation of the staff of the SEC;
. any action or proceeding by or before any court or governmental agency
with respect to the exchange offer shall be instituted or pending which,
in our reasonable judgment, might impair our ability to proceed with the
exchange offer; or
. any law, statute, rule or regulation shall have been proposed, adopted
or enacted which, in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer.
The above conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any condition or we may waive
them in whole or in part at any time and from time to time in our reasonable
discretion. Our failure at any time to exercise any of our rights shall not be
deemed a waiver of any right and each right shall be deemed an ongoing right
which we may assert at any time and from time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
. refuse to accept any unregistered notes and return all tendered
unregistered notes to the tendering holders;
. extend the exchange offer and retain all unregistered notes tendered
before the expiration of the exchange offer, subject to the rights of
holders to withdraw these unregistered notes; or
33
<PAGE>
. waive unsatisfied conditions and accept all properly tendered
unregistered notes that the holders did not withdraw. If this waiver
constitutes a material change to the exchange offer, we will promptly
disclose the waiver by a prospectus supplement that we will distribute
to the registered holders. We will also extend the exchange offer for
five to ten business days, depending upon the significance of the
waiver, if the exchange offer would otherwise have expired.
In addition, we will not accept for exchange any unregistered notes
tendered, and no exchange notes will be issued in exchange for any unregistered
notes, if at the time any stop order shall be threatened or in effect with
respect to the registration statement of which this prospectus is a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
Exchange Agent
Bankers Trust Company has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at the addresses described below. Questions and
requests for assistance, requests for additional copies of the prospectus or
the letter of transmittal and requests
for notices of guaranteed delivery should be directed to the exchange agent,
addressed as follows:
BANKERS TRUST COMPANY
By Facsimile:
(615) 835-3701
Attention: Reorganization Unit
Confirm by Telephone to: (615) 835-3572
By Hand:
Bankers Trust Company
Corporate Trust & Agency Services
Attn: Reorganization Department
Receipt & Deliver Window
123 Washington Street, 1st Floor
New York, NY 10006
Information:
(800) 735-7777
By Mail:
BT Services Tennessee, Inc.
Reorganization Unit
P.O. Box 292737
Nashville, TN 37229-2737
By Overnight Mail or Courier:
BT Services Tennessee, Inc.
Corporate Trust & Agency Services
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
Delivery of this instrument to an address other than as described above or
transmission of instructions via fax transmission other than as described above
does not constitute a valid delivery.
34
<PAGE>
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer.
We will bear the expenses of soliciting tenders under the exchange offer.
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay other expenses to be incurred
in connection with the exchange offer, including the fees and expenses of the
exchange agent, accounting and the reasonable legal fees of the holders of
unregistered notes as defined in the registration rights agreement. Holders
who tender unregistered notes in connection with the exchange offer will not
be required to pay brokerage commissions or fees.
Transfer Taxes
Holders who tender their unregistered notes for exchange will not be
obligated to pay any transfer taxes. A tendering holder, however, will be
required to pay any transfer taxes incurred, whether imposed on the registered
holder or any person, if:
. exchange notes are to be delivered to, or issued in the name of, any
person other than the registered holder of the unregistered notes; or
. tendered unregistered notes are registered in the name of any person
other than the person signing the applicable letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
unregistered notes in connection with the exchange offer.
If satisfactory evidence of payment of these taxes or exemption from them
is not submitted with the applicable letter of transmittal, the amount of
these transfer taxes will be billed directly to the tendering holder.
Consequences of Failure to Exchange
The unregistered notes of holders who do not exchange their unregistered
notes for exchange notes in the exchange offer will continue to have
restrictions on transfer because we issued the unregistered notes under
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act of 1933 and applicable state securities
laws. In general, unregistered notes may not be offered or sold, unless
registered under the Securities Act of 1933, except under an exemption from,
or in a transaction not subject to, the Securities Act and applicable state
securities laws.
We do not currently anticipate that we will register the unregistered notes
under the Securities Act of 1933. To the extent that unregistered notes are
tendered in connection with the exchange offer, any trading market for the
unregistered notes not tendered in connection with the exchange offer could be
adversely affected. The tender of unregistered notes in the exchange offer may
have an adverse effect upon, and increase the volatility of, the market prices
of the unregistered notes due to a reduction in liquidity.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
unregistered notes, as reflected in our accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the exchange offer will be expensed over the term
of the exchange notes.
35
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of our exchange
notes or the exchange of the unregistered notes in the exchange offer.
The net proceeds from the offering of the unregistered notes (after
deducting the initial purchasers' discounts and estimated fees and expenses
payable by us) were approximately $437.0 million. We intend to use the net
proceeds from the offering of the unregistered notes to fund:
. capital expenditures, including the construction of our network and the
network buildout of markets covered by the PCS licenses to be acquired
by TeleCorp in the pending transactions, if consummated;
. acquisitions of PCS licenses;
. operating losses and other working capital;
. debt service;
. fees and expenses; and
. general corporate purposes.
See "Business--Network Development" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." Pending these uses, we expect to invest the net proceeds of
the offering of the unregistered notes in investment grade, interest bearing
securities.
36
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 2000, our capitalization. This
table should be read in conjunction with "Summary Historical Consolidated
Financial and other Data," "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements and the related notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
As of
June 30, 2000
------------------
(unaudited)
($'s in thousands)
<S> <C>
Cash and cash equivalents.................................... $ 28,223
=========
Long term debt:
Government license obligations............................. $ 19,314
Senior credit facilities(a)................................ 290,000
10 5/8% Senior Subordinated Notes(b)....................... --
11 5/8% Senior Subordinated Discount Notes................. 374,877
Vendor financing(c)........................................ 45,353
---------
Total debt............................................... 729,544
---------
Mandatorily redeemable preferred stock(d).................... 376,129
Preferred stock subscriptions receivable..................... (97,001)
---------
Mandatorily redeemable preferred stock, net................ 279,128
---------
Stockholders' equity (deficit)............................... (203,416)
---------
Total capitalization......................................... $ 805,256
=========
</TABLE>
--------
(a) Our senior credit facilities provide up to $560.0 million of term loan and
revolving credit financing. As of June 30, 2000, we had drawn $290.0
million under our senior credit facilities. See "Description of Other
Indebtedness--Senior Credit Facilities."
(b) The unregistered 10 5/8% senior subordinated notes due 2010 being exchanged
are not included in this capitalization table.
(c) We obtained a total of $40.0 million in vendor financing in the form of
Series A junior subordinated notes purchased by Lucent. As of June 30,
2000, the outstanding balance of Series A notes, including accrued interest
was $45.4 million. See "Description of Other Indebtedness--Existing Vendor
Financing."
(d) Represents mandatorily redeemable preferred stock issued to AT&T, Chase
Capital Partners, Desai Capital Management Incorporated, Hoak Capital
Corporation, J.H. Whitney III, L.P., M/C Partners, Entergy Corporation,
Northwood Ventures, LLC, One Liberty Ventures, LLC, Toronto Dominion
Capital, Wireless 2000, Digital PCS and stockholders of TeleCorp Holding
(our predecessor company).
37
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical balance sheet data presented below as of December
31, 1998 and 1999 and the selected statements of operations data for each of
the three years in the period ended December 31, 1999, have been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The selected historical balance sheet data presented below as of
December 31, 1996 and 1997 and the selected statement of operations data for
the period from inception on July 29, 1996 to December 31, 1996 have been
derived from audited consolidated financial statements not included in this
prospectus. The selected historical balance sheet data presented below as of
June 30, 2000 and the selected statements of operations data for the six months
ended June 30, 1999 and 2000 have been derived from unaudited consolidated
financial statements included elsewhere in this prospectus. "Other Operating
Data" is not directly derived from the historical consolidated financial
statements, and has been presented to provide additional information. You
should read this information together with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
July 29, 1996 For the six months ended
(inception) to For the year ended December 31, June 30,
December 31, ----------------------------------- -------------------------
1996 1997 1998 1999 1999 2000
-------------- ---------- ----------- ----------- ----------- ------------
(Unaudited) (Unaudited)
($'s in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenue:
Service................ $ -- $ -- $ -- $ 41,319 $ 6,232 $ 88,056
Roaming................ -- -- 29 29,010 9,487 26,151
Equipment.............. -- -- -- 17,353 5,649 13,250
------- --------- ----------- ----------- ---------- ------------
Total revenue........ -- -- 29 87,682 21,368 127,457
------- --------- ----------- ----------- ---------- ------------
Operating expenses:
Cost of revenue........ -- -- -- 39,259 10,107 40,433
Operations and
development........... -- -- 9,772 35,979 15,498 25,535
Selling and
marketing............. 10 304 6,325 71,180 20,925 74,766
General and
administrative........ 515 2,637 26,239 92,585 22,441 74,347
Depreciation and
amortization.......... -- 11 1,584 55,110 16,491 50,383
------- --------- ----------- ----------- ---------- ------------
Total operating
expenses............ 525 2,952 43,920 294,113 85,462 265,464
------- --------- ----------- ----------- ---------- ------------
Operating loss......... (525) (2,952) (43,891) (206,431) (64,094) (138,007)
Other (income) expense:
Interest expense....... -- 396 11,934 51,313 17,107 34,263
Interest income and
other................. -- (13) (4,670) (6,748) (2,918) (3,897)
------- --------- ----------- ----------- ---------- ------------
Net loss............... (525) (3,335) (51,155) (250,996) (78,283) (168,373)
Accretion of
mandatorily
redeemable preferred
stock................. (289) (726) (8,567) (24,124) (9,896) (15,889)
------- --------- ----------- ----------- ---------- ------------
Net loss attributable
to common equity...... $ (814) $ (4,061) $ (59,722) $ (275,120) $ (88,179) $ (184,262)
======= ========= =========== =========== ========== ============
Net loss attributable to
common equity per
share--basic and
diluted................ $(44.45) $ (111.74) $ (2.19) $ (3.58) $ (1.39) $ (1.84)
======= ========= =========== =========== ========== ============
Weighted average common
equity shares
outstanding--basic and
diluted................ 18,313 36,340 27,233,786 76,895,391 63,293,065 100,414,647
======= ========= =========== =========== ========== ============
Other Operating Data:
Subscribers (end of
period)............... -- -- -- 142,231 30,970 319,882
Deficiency of earnings
to fixed
charges (a)........... $ (525) $ (3,467) $ (53,210) $ (255,626) $ (82,704) $ (169,445)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------- June 30,
1996 1997 1998 1999 2000
------ ------- -------- -------- -----------
(unaudited)
($'s in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.... $ 52 $ 2,567 $111,733 $182,330 $ 28,223
Working capital (deficit).... (524) (6,656) (4,676) 94,082 (53,405)
Property and equipment, net.. 1 3,609 197,469 400,450 531,034
PCS licenses and microwave
relocation costs, net....... -- 10,018 118,107 267,682 277,275
Intangible assets--AT&T
agreements, net............. -- -- 26,285 37,908 34,330
Total assets................. 7,574 16,295 466,644 952,202 966,597
Total debt................... 499 7,727 243,385 640,571 729,544
Mandatorily redeemable
preferred stock, net........ 7,789 4,144 164,491 263,181 279,128
Total stockholders' equity
(deficit)................... $ (812) $(4,875) $(64,500) $(90,554) $(203,416)
</TABLE>
--------
(a) The ratio of earnings to fixed charges is computed by dividing fixed
charges into income before taxes plus fixed charges plus amortization of
capitalized interest less interest capitalized. Fixed charges include
interest expense, interest capitalized and one-third of rental expense
attributable to the interest factor. On this basis, earnings before fixed
charges for the periods shown were not adequate to cover fixed charges
therefore the amount of the deficiency is shown. These deficiencies should
not be considered indicative of future results.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
You should read the following discussion in conjunction with (1) our
accompanying unaudited consolidated financial statements and notes thereto and
(2) our audited consolidated financial statements, notes thereto and
management's discussion and analysis of financial condition and results of
operations as of and for the year ended December 31, 1999 included in our
annual report on Form 10-K for such period. Management's Discussion and
Analysis of Financial Condition and Results of Operations contains forward-
looking statements that are based on current expectations, estimates, and
projections. Such forward-looking statements reflect management's good-faith
evaluation of information currently available. However, because such statements
are based upon, and therefore can be influenced by, a number of external
variables over which management has no, or incomplete, control, they are not,
and should not be read as being guarantees of future performance or of actual
future results; nor will they necessarily prove to be accurate indications of
the times at or by which any such performance or result will be achieved.
Accordingly, actual outcomes and results may differ materially from those
expressed in such forward-looking statements.
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 successfully launched our services in 32 markets by June 30, 2000. As
of June 30, 2000, we had more than 319,000 customers and our networks covered
approximately 79% of the population where we held licenses. Under the terms of
the strategic alliance we have with AT&T, we are AT&T's exclusive provider of
wireless mobility services in our licensed markets, using equal emphasis co-
branding with AT&T subject to AT&T's right to resale services on our network.
Revenue
We derive our revenue from the following sources:
Service. 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 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.
Roaming. We charge monthly, non-recurring, per minute fees to other
wireless companies whose customers use our network facilities to place and
receive wireless calls.
Equipment. We sell wireless PCS 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 six
months ended June 30, 2000 at 69%. Roaming revenue and equipment revenue
represented 21% and 10% of total revenue, 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 decline.
Roaming minutes on our network are expected to increase as AT&T and other
carriers increase the number of customers on their networks. Under
40
<PAGE>
our reciprocal roaming agreement with AT&T Wireless, our largest roaming
partner, the amount we will receive and pay per roaming minute will decline for
each of the next several years.
The wireless industry is experiencing a general trend towards offering rate
plans containing larger buckets of minutes. This trend 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.
Operating expenses
Our operating expenses consist of the following:
Cost of revenue
. Equipment. We purchase PCS handset 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 selling and marketing expense. We do
not manufacture any of this equipment.
. Roaming. 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 this minimum
requirement.
. Clearinghouse. We pay fees to an independent clearinghouse for
processing we call data records and performing monthly inter-carrier
financial settlements for all charges that we pay to other wireless
companies when our customers use other companies' networks, and that
other wireless companies pay to us when their customers use our network.
We do not have any significant minimum purchase requirements. These fees
are based on the number of call data records processed in a month.
. Variable interconnect. We pay monthly charges associated with the
connection of our network with other carriers' networks. These fees are
based on minutes of use by our customers. These fees are known as
interconnection. We do not have any significant minimum purchase
requirements.
. Variable long distance. We pay monthly usage charges to other
communications companies for long distance service provided to our
customers. These variable charges are based on our 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.
Operations and development. Our operations and development expense include
engineering operations and support, field technicians, network implementation
support, product development, engineering management and noncash 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 and operations of the network facilities and
equipment. Operations and development expense is expected to increase as we
expand our coverage and operations and adds customers. In future periods, we
expect that this expense will decrease as a percentage of gross revenue.
41
<PAGE>
Selling and marketing. Our selling and marketing expense includes brand
management, external communications, sales training, and all costs associated
with retail distribution, direct, indirect, third party and telemarketing
sales (primarily salaries, commissions and retail store rent) and noncash
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
revenue.
General and administrative. Our general and administrative expenses include
customer support, billing, information technology, finance, accounting and
legal services and noncash 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 fifteen 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, which range from three
to fifteen 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 initial AT&T transaction.
Noncash Stock Compensation. 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 exercise price and the fair value of the stock award.
Deferred compensation is amortized to compensation expense over the related
vesting period. During the three and six months ended June 30, 2000, we
recorded $21.8 million and $26.9 million, respectively, of noncash stock
compensation related to these awards and grants that has been included in
operating expenses.
Other income (expense)
Interest expense. Interest expense 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, net of amounts
capitalized.
Interest income and other. Interest income consists of interest earned on
our cash and cash equivalents.
Tritel Merger and AT&T Wireless Contribution and Exchange
On February 28, 2000, we agreed to merge with Tritel in a transaction in
which each company would become a wholly-owned subsidiary of a new holding
company to be called TeleCorp-Tritel Holding Company. In connection with the
merger, AT&T Wireless Services agreed to contribute certain wireless rights
and commitments in the midwestern United States, cash and a two year extension
of its brand licenses in exchange for 9,272,740 common shares in the new
TeleCorp-Tritel Holding Company. We also agreed with AT&T
42
<PAGE>
Wireless in a separate transaction to exchange our licenses and assets in
several New England markets for certain wireless properties or rights to
acquire wireless properties in certain midwestern markets and a cash payment.
See "The Pending Merger and Related Transactions."
The contribution and exchange transactions will be accounted for by us as an
asset purchase and a disposition. The merger with Tritel will be accounted for
as a business combination. In order to provide noteholders with consolidated
financial information regarding TeleCorp and its subsidiaries without the
impact of the financial information of Tritel, the indenture for the notes will
require us to provide supplemental consolidated financial statements that
exclude the operations of Tritel and all adjustments related to the merger and
related transactions, other than the AT&T Wireless Services contribution and
the AT&T Wireless exchange (each to the extent allocable to us).
We expect the total goodwill associated with the pending merger to total
approximately $2.3 billion based on total consideration of approximately $6.6
billion. In addition, upon consummation of the AT&T Wireless Services
contribution and the AT&T Wireless exchange, we expect to realize a gain of
approximately $353 million, all of which will be allocated to TeleCorp.
Results of Operations
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Subscribers. Net additions were 177,651 and 30,970 for the six months ended
June 30, 2000 and 1999, respectively. Total PCS subscribers were 319,882 and
30,970 as of June 30, 2000 and 1999, respectively. The increase in net
additions and total PCS subscribers over the same period in 1999 was primarily
due to launching 17 additional markets from the period July 1, 1999 to June 30,
2000.
Revenue. Revenue for the six months ended June 30, 2000 and 1999 was $127.5
million and $21.4 million, respectively. Service revenue was $88.0 million and
$6.2 million for the six months ended June 30, 2000 and 1999, respectively. The
increase in service revenue of $81.8 million was due primarily to the addition
of approximately 289,000 subscribers from July 1, 1999 to June 30, 2000 and the
launch of 17 additional markets. Roaming revenue was $26.2 million and $9.5
million for the six months ended June 30, 2000 and 1999, respectively. The
increase in roaming revenue of $16.7 million was due primarily to the
construction of 490 cell sites in conjunction with the launching of 17
additional markets between July 1, 1999 and June 30, 2000. Equipment revenue
was $13.3 million and $5.6 million for the six months ended June 30, 2000 and
1999, respectively. The equipment revenue increase of $7.7 million over the
same period in 1999 was due primarily to the sales of handsets and related
accessories in connection with significantly increased gross additions in the
first six months of 2000.
Cost of Revenue. Cost of revenue was $40.4 million and $10.1 million for the
six months ended June 30, 2000 and 1999, respectively. The increase in cost of
revenue of $30.3 million over the same period in 1999 was due primarily to
additional roaming expenses in connection with our increased subscriber base
and increases in equipment costs due to significantly increased gross additions
in the first six months of 2000.
Operations and Development. Operations and development costs were $25.5
million and $15.5 million for the six months ended June 30, 2000 and 1999,
respectively. The increase of $10.0 million over the same period in 1999 was
primarily due to the development and growth of infrastructure and staffing
related to the support of our network and our network operation center.
Selling and Marketing. Selling and marketing costs were $74.8 million and
$20.9 million for the six months ended June 30, 2000 and 1999, respectively.
The increase of $53.9 million over the same period in 1999 was primarily due to
the excess cost of handsets over our retail price on the significantly
increased gross additions in the first six months of 2000 and advertising and
promotion costs associated with the increased market base in 2000.
43
<PAGE>
General and Administrative. General and administrative expenses were $74.3
million and $22.4 million for the six months ended June 30, 2000 and 1999,
respectively. The increase of $51.9 million over the same period in 1999 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 managing the corresponding growth in our
subscriber base and launching the additional markets.
Depreciation and Amortization. Depreciation and amortization expenses were
$50.4 million and $16.5 million for the six months ended June 30, 2000 and
1999, respectively. The increase of $33.9 million over the same period in 1999
relates primarily to depreciation of our fixed assets as well as the
amortization on our PCS licenses and the AT&T operating agreements related to
our markets launched between July 1, 1999 and June 30, 2000.
Interest Expense. Interest expense was $34.3 million, net of capitalized
interest of $1.8 million, for the six months ended June 30, 2000. Interest
expense was $17.1 million, net of capitalized interest of $4.2 million, for the
six months ended June 30, 1999. The increase of $17.2 million over the same
period in 1999 relates primarily to a full six months of interest expense on
our 11 5/8% senior subordinated discount notes which were issued in April of
1999 and additional Lucent and FCC debt issued throughout the first six months
of 1999.
Interest Income. Interest income was $3.9 million and $2.9 million for the
six months ended June 30, 2000 and 1999, respectively. The increase of $1.0
million over the same period in 1999 was due primarily to more interest on
increased cash balances.
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 roaming customers
of other carriers, primarily AT&T Wireless, 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. 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 the 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
44
<PAGE>
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 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 TeleCorp's fixed assets, as well
as the amortization on personal communications services licenses and AT&T
agreements.
Interest Expense. Interest expense was $51.3 million, net of capitalized
interest of $5.4 million, for the year ended December 31, 1999, as compared to
$11.9 million, net of capitalized interest of $2.0 million, for the year ended
December 31, 1998. The increase in interest expense was primarily due to the
increase in debt of approximately $397 million including the issuance of $327.6
million in senior subordinated discount notes. The increase in capitalized
interest of $3.4 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 roaming customers of other
carriers, primarily AT&T Wireless, 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.
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 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 the AT&T Wireless agreements.
Interest Expense. Interest expense, net of capitalized interest, for the
year ended December 31, 1998, was approximately $11.9 million, as compared to
approximately $0.4 million of interest expense for the year ended December 31,
1997. This interest expense was related to notes payable to stockholders 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 $10.0 million aggregate principal amount of notes under the vendor financing
provided by Lucent.
45
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ---------
($'s in thousands)
<S> <C> <C>
Cash and cash equivalents........................... $182,330 $ 28,223
Working capital (deficit)........................... $ 94,082 $ (53,405)
Current assets to current liabilities............... 1.72 0.63
Debt to total capitalization........................ 0.79 0.91
</TABLE>
Cash and cash equivalents totaled approximately $28.2 million at June 30,
2000, as compared to approximately $182.3 million at December 31, 1999. This
decrease was the result of $123.5 million of cash used in operating activities
and $136.7 million of cash used in investing activities, offset by cash
provided by financing activities of $106.1 million during the six months ended
June 30, 2000. Cash used in operating activities resulted from a net loss of
$168.4 million that was partially offset by non-cash charges of $106.3 million.
Cash used in investing activities resulted primarily from cash outlays for
capital expenditures, required for the development and construction of our
network, of $109.1 million, deposits on PCS licenses of $12.4 million, and
capitalized Tritel acquisition costs of $8.4 million. Cash provided by
financing activities consisted primarily of proceeds from long term debt of
$65.0 million and proceeds from the sale of common stock to AT&T of $41.9
million.
During the same period ended June 30, 1999, the Company had a net increase
in cash of $39.7 million as a result of $50.6 million of cash used in operating
activities and $318.4 million of cash used in investing activities, offset by
cash provided by financing activities of $408.7 million. Cash used in operating
activities resulted from a net loss of $78.3 million that was partially offset
by non-cash charges of $26.1 million. Cash used in investing activities
resulted primarily from cash outlays for capital expenditures required for the
development and construction of our network of $203.2 million, purchases of PCS
licenses of $72.2 million, deposits on PCS licenses of $28.9 million and the
purchase of AT&T agreements of $16.1 million. Cash provided by financing
activities was the result of proceeds from long term debt and mandatorily
redeemable preferred stock of $397.6 million and $60.4 million, respectively,
offset partially by payments on long term debt and deferred financing costs of
$40.0 million and $10.6 million, respectively.
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. 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 to purchase additional AT&T
agreements. Cash used in operating activities of $126.9 million 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. 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 of $2.8 million. Additionally, we received $1.5 million of preferred stock
proceeds. Cash outlays for capital expenditures
46
<PAGE>
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 at the holder's option into shares of our
common stock at various times and following various events as follows:
. Our series A preferred stock is convertible into shares of our class A
voting common stock after July 17, 2006 at a conversion rate equal to
the liquidation preference, which was approximately $115.2 million as of
June 30, 2000, divided by the market price of the class A voting common
stock at the time of conversion; and
. Our series F preferred stock is convertible at any time into shares of
our class A voting, class B non-voting, and, if certain Federal
Communications Commission restrictions have not lifted, class D common
stock on a share for share basis.
We may redeem:
. shares of our series A preferred stock after the tenth anniversary of
its issuance; and
. shares of our series B, series C and series D preferred stock at any
time at the liquidation preference for the shares being redeemed.
The holders of our series A, series B, series C, series D and series E
preferred stock have the right to require us to redeem their shares after the
twentieth anniversary of their issuance time at the liquidation preference for
the shares being redeemed.
Holders of our series A preferred stock are entitled to a quarterly dividend
equal to 10% per annum of that stock's accumulated liquidation preference. The
accumulated liquidation preference of our series A preferred stock was
approximately $115.2 million in the aggregate as of June 30, 2000. 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 of directors. Those series
of stock, however, are entitled to an accumulated liquidation preference, which
was approximately $289.6 million in the aggregate as of June 30, 2000. The
liquidation preference accretes at a rate of 6% per annum, compounded
quarterly.
Equity Commitments.
In connection with completion of the venture with AT&T Wireless, we received
unconditional and irrevocable equity commitments from some of our stockholders
in the aggregate amount of $128.0 million in return for the issuance of
preferred and common stock. As of June 30, 2000, approximately $55.6 million of
the equity commitments had been funded. Of the remaining equity commitments,
$36.3 million was funded in July 2000 and $36.1 million is scheduled to be
funded in July 2001.
TeleCorp received additional irrevocable equity commitments from some of 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 $1.4 million in July 2000 and is scheduled to fund $1.4 million in
July 2001.
TeleCorp received additional irrevocable equity commitments from some of 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.
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<PAGE>
TeleCorp also received irrevocable equity commitments from some of our
stockholders in the amount of approximately $32.3 million in connection with
Viper Wireless's participation in the Federal Communications Commission'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 $205.0 million of equity commitments, of
which $108.0 million had been funded as of June 30, 2000 (and an additional
$37.7 has been funded in July of 2000).
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 preferred or common stock are
subject to rights of first offer and tag 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
voting common stock party to the stockholders' agreement, including AT&T
Wireless, 66 2/3% of the class A voting common stock beneficially owned by our
initial investors other than AT&T Wireless, and 66 2/3% of the class A voting
common stock beneficially owned by Mr. Vento and Mr. Sullivan. Shares of our
preferred stock may be transferred subject to the pledge described above and
the continuing obligations of the investors to fund our commitments.
10 5/8% Senior Subordinated Notes.
On July 14, 2000, we sold $450.0 million aggregate principal amount of the
unregistered notes. Cash interest on these notes will accrue at a rate of 10
5/8% per annum on the principal amount of these notes and will be payable semi-
annually on January 15 and July 15 of each year. In connection with the sale of
these notes, we received net proceeds of approximately $437.0 million after
deducting initial purchasers' discount and issuance expenses of approximately
$13.0 million.
The indenture under which these notes were issued restricts, among other
things, our ability to:
. incur debt;
. create levels of debt that are senior to the notes but junior to our
senior debt;
. pay dividends on or redeem capital stock;
. make some investments or redeem other subordinated debt;
. make particular dispositions of assets;
. engage in transactions with affiliates;
. engage in particular business activities; and
. engage in mergers, consolidations and particular sales of assets.
11 5/8% Senior Subordinated Discount Notes.
On April 20, 1999, we sold $575.0 million aggregate principal amount at
maturity of the 11 5/8% notes. Cash interest on the 11 5/8% notes will not
accrue or be payable prior to April 15, 2004. From April 15, 2004,
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<PAGE>
cash interest will accrue at a rate of 11 5/8% per annum on the principal
amount at maturity of the 11 5/8% 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 the 11 5/8% notes, we received net proceeds of
approximately $317.0 million after deducting initial purchasers' discount and
issuance expenses of approximately $11.0 million.
The indenture under which the 11 5/8% notes were issued restricts, among
other things, our ability to:
. incur debt;
. create levels of debt that are senior to the notes but junior to our
senior debt;
. pay dividends on or redeem capital stock;
. make some investments or redeem other subordinated debt;
. make particular dispositions of assets;
. engage in transactions with affiliates;
. engage in particular business activities; and
. 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. Currently, we have entered
into amendments to the senior credit facilities under which the amount of
credit available to us was increased to $560.0 million. Our senior credit
facilities currently provide for:
. a $150.0 million senior secured term loan that matures in January 2007;
. a $225.0 million senior secured term loan that matures in January 2008;
. a $150.0 million senior secured revolving credit facility that matures
in January 2007; and
. a $35.0 million senior secured term loan that matures in May 2009.
. the Senior Credit Facility also provides for an uncommitted $40.0
million senior term loan (the Expansion Facility).
We must repay the term loans in quarterly installments, beginning in
September 2002, and the commitments to make loans under the revolving credit
facility automatically and permanently reduce beginning in April 2005. As of
June 30, 2000, $290.0 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 credit
agreements.
Existing Vendor Financing.
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 the proceeds of our sale of the 11 5/8%
notes. This amount cannot be reborrowed. As of June 30, 2000, we had
outstanding approximately $45.4 million of our Lucent series A notes, including
$5.4 million of accrued interest and accruing interest at a rate per annum of
8.5%. 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 over $198.0 million in net proceeds we receive from any future
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
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<PAGE>
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 $20.0 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 TeleCorp 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.
New Vendor Financing.
On July 14, 2000, the holding company entered into a commitment letter with
Lucent. Under the terms of the commitment letter, Lucent agreed that following
the merger of the Company and Tritel into subsidiaries of the holding company,
Lucent will purchase from the holding company, should the holding company
issue, senior subordinated discount notes, referred to as Lucent notes, with
gross proceeds up to $350.0 million. The Lucent notes mature 10 years from the
date of issuance, unless previously redeemed by the holding company. As
interest accrues, it will be added to the principal as an increase to interest
expense and to the carrying value of the notes for five years from the date of
issuance. After five years, interest on the Lucent Notes will become payable
semi-annually. The Lucent notes are not collaterized. The Lucent notes would be
senior subordinated unsecured obligations of the holding company, ranking
equivalent in right of payment to all of the holding company's future senior
subordinated debt. The Lucent notes would be subordinate in right of payment to
any future senior debt incurred by the holding company or its guarantor
subsidiaries but senior in right of payment to any future subordinated debt
incurred by holding company or any of its guarantor subsidiaries.
Federal Communications Commission Debt.
In completing acquisitions of PCS licenses during the year ended December
31, 1999, we assumed U.S. government financing with the Federal Communications
Commission. At June 30, 2000, our Federal Communications Commission debt was
$22.0 million, less a discount of $2.7 million. The terms of the notes include
interest rates ranging from 6.125% to 7.00% and have quarterly and principal
interest payments over the remaining nine years of the debt.
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<PAGE>
Commitments.
We have operating leases primarily related to retail store locations,
distribution outlets, office space and rent for our network development. The
terms of some of the leases include a reduction of rental payments and
scheduled rent increases at specified intervals during the term of the leases.
We recognize rent expense on a straight-line basis over the life of the lease,
which establishes deferred rent on the balance sheet. As of June 30, 2000, the
aggregate minimum rental commitments under non-cancelable operating leases are
as follows ($ in thousands, unaudited):
<TABLE>
<S> <C>
For the period July 1--December 31, 2000....................... $ 11,921
For the year ended December 31:
2001......................................................... 23,758
2002......................................................... 23,398
2003......................................................... 20,833
2004......................................................... 15,490
2005......................................................... 8,964
Thereafter................................................... 26,869
---------
Total...................................................... $131,233
=========
</TABLE>
Rental expense, which is recorded ratably over the lease terms, was
approximately $0.2 million, $3.2 million, $13.8 million and $11.8 million for
the years ended December 31, 1997, 1998, and 1999, and the six months ended
June 30, 2000, respectively.
We have communications towers situated on leased sites in all of our markets
and are considering entering into sale/leaseback transactions and may do so if
we can obtain terms acceptable to us.
We have entered into letter 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 $2.2 million at June 30, 2000.
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.
New accounting pronouncements
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 the process of determining the effect of adopting this standard.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial
Statements." This bulletin will become effective for us no later than the
quarter ending December 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. We are currently evaluating the full impact of
this bulletin to determine the impact on our financial position and results of
operations.
In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of
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<PAGE>
APB Opinion No. 25 and, among other issues, clarifies the following: the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. We do not expect the
application of FIN 44 to have a material impact on our financial position or
results of operations.
Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk from changes in interest rates which could
impact results of operations. We manage interest rate risk through a
combination of fixed and variable rate debt.
At June 30, 2000 we had the following debt instruments outstanding:
. $65.0 million of tranche A and $225.0 million of tranche B notes under
our senior credit facility, which carried a rate of 8.62 % and 9.12%,
respectively;
. $374.9 million carrying value ($575.0 million at maturity) of the
11.625% senior subordinated discount notes, due 2009;
. $22.0 million debt to the Federal Communications Commission, due in
quarterly installments from 2000 to 2007 bearing a rate of between
6.125%-7.0%, discounted to yield between 10.25%-11.8% ($19.3 million
discounted); and
. $45.4 million of vendor financing debt which carried a rate of 8.5%.
Our senior subordinated discount notes, Federal Communications Commission
debt and vendor financing debt are fixed interest rate debt securities and as a
result are less sensitive to market rate fluctuations. However, our tranche A
and tranche B term loans outstanding under the senior credit facility and other
amounts available to us under our senior credit facility agreement are variable
interest rate debt securities.
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 did
not enter into these transactions for trading purposes. The resulting gains or
losses, measured by quoted market prices, are accounted for as part of the
transactions being hedged, except that losses not expected to be recovered upon
the completion of hedged transactions are expensed. Gains or losses associated
with interest rate swaps are computed as the difference between the interest
expense per the amount hedged using the fixed rate compared to a floating rate
over the term of the swap agreement. As of June 30, 2000, we had entered into
six interest rate swap agreements totaling $225.0 million to convert our
variable rate debt to fixed rate debt. The interest rate swaps had no material
impact on our consolidated financial statements as of and for the year ended
December 31, 1999 or as of and for the six months ended June 30, 2000.
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<PAGE>
The following table provides information about our market risk exposure
associated with our variable rate debt at maturity value of the debt and the
market risk exposure associated the interest rate swaps at June 30, 2000:
($ in millions)
<TABLE>
<CAPTION>
Expected Maturity
----------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ----- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Long-Term Debt:
Face value of long-term
fixed rate debt (a)... $0.7 $1.4 $1.6 $3.9 $ 4.1 $658.0(b) $669.7 $442.7(c)
Average interest rate
(d)................... 6.2% 6.2% 6.2% 6.6% 6.6% 11.0%
Face value of tranche A
variable rate debt.... $0.0 $0.0 $3.2 $6.5 $16.3 $ 39.0 $ 65.0 $ 65.0(f)
Average interest rate
(e)................... 0.0% 0.0% 8.6% 8.6% 8.6% 8.6%
Face value of tranche B
variable rate debt.... $0.0 $0.0 $1.2 $2.2 $ 2.2 $219.4 $225.0 $225.0(f)
Average interest rate
(e)................... 0.0% 0.0% 9.1% 9.1% 9.1% 9.1%
Interest Rate Derivatives:
Interest rate swaps:
Variable to fixed (g).. $225 $225 $225 $225
Average pay rate (h).. 5.24% 5.24% 5.24% 5.24% -- --
Average receive rate
(h).................. 6.77% 6.77% 6.77% 6.77% -- --
</TABLE>
--------
(a) Fixed rate debt consists of the FCC government debt, 11 5/8% senior
subordinated discount debt, and vendor financing agreement.
(b) The vendor financing debt may be redeemed in full by January 2001. However,
if the vendor financing is not redeemed, the interest rate will increase by
1.5% per annum on January 1, 2001 and shall not exceed 12.125%. For the
purposes of this table, we assume the debt will not be redeemed and
therefore the future principal amount in 2009 includes all unpaid interest
through May 2004 and totals $72.7 million. After May 2004, interest is
payable semi-annually on the vendor financing debt until maturity.
This total balance for all payments subsequent to 2004 also includes the
future principal payment of $575.0 million of 11 5/8% senior subordinated
discount notes in 2009 and $10.3 million of FCC debt due in quarterly
installments through 2007.
(c) The fair value is based on (1) the carrying value of the FCC debt of $19.3
million, (2) the carrying value of the vendor financing of $45.4 million
and (3) the $378.0 million market value of the 11 5/8% senior subordinated
discount notes as of June 30, 2000 priced at 11.5%.
(d) Average interest rate is calculated as the weighted average rate related to
the repayments of debt instruments in the year indicated of maturity.
(e) The interest rate of the variable debt securities may and is expected to
vary before maturity. The amount indicated is the current rate as of June
30, 2000.
(f) The fair value of variable rate debt instruments is expected to approximate
fair value.
(g) Represents the total notional amount of the six swap agreements related to
the tranche B senior credit facility.
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<PAGE>
(h) The average pay rate and average receive rate are based on the June 30,
2000 rate of variable rate tranche B debt less the fixed yield of 8.24%.
These amounts may change due to fluctuations in the variable rate debt. The
current swaps expire in 2003.
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 current interest rates would not be material to our investment income.
We are not exposed to fluctuations in currency exchange rates since our
operations are entirely within the United States and its territories and all of
our services are invoiced in U.S. dollars.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly operating
information for each of the eight quarters ended June 30, 2000. 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)
<TABLE>
<CAPTION>
For the Quarter Ended
-----------------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30,
-------- ------------------ ------------------- ------------------ -------------------
1998 1998 1999 1998 1999 1999 2000 1999 2000
-------- -------- -------- -------- --------- -------- -------- -------- ---------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............... $ -- $ -- $ 26,833 $ 29 $ 39,481 $ 4,240 $ 55,446 $ 17,128 $ 72,011
Operating loss........ (6,624) (12,239) (50,179) (21,373) (92,158) (26,944) (59,915) (37,150) (78,092)
Net loss.............. (6,843) (15,823) (65,792) (25,744) (106,921) (32,293) (74,499) (45,990) (93,874)
Accretion of mrps(a).. (190) (3,819) (7,064) (4,541) (7,164) (4,267) (7,733) (5,629) (8,156)
Net loss attributable
to common equity..... $ (7,033) $(19,642) $(72,856) $(30,285) $(114,085) $(36,560) $(82,232) $(51,619) $(102,030)
Net loss per share--
basic and
diluted(b)........... $(363.75) $ (1.23) $ (0.89) $ (0.51) $ (1.29) $ (0.62) $ (0.83) $ (0.64) $ (1.01)
</TABLE>
--------
(a) mrps--mandatorily redeemable preferred stock.
(b) Net loss attributable to common equity per share--basic and diluted for the
second quarter of 1998 was computed based on the common equity structure of
the predecessor company.
54
<PAGE>
THE WIRELESS COMMUNICATIONS INDUSTRY
Wireless communications systems use a variety of radio airwaves to transmit
voice and data. The wireless communications industry includes one-way radio
applications, such as paging or beeper services, and two-way radio
applications, such as personal communications services, or PCS, cellular
telephone and other technologies. Each application is licensed and operates in
a distinct radio airwave block.
Since the introduction of commercial cellular service in 1983, the wireless
communications industry has experienced dramatic growth. The number of wireless
subscribers in the United States has increased from an estimated 340,000 at the
end of 1985 to over 86.9 million as of December 31, 1999, according to the
Cellular Telecommunications Industry Association, an international association
for the wireless industry. Paul Kagan Associates Inc., an independent media and
telecommunications association, estimates that the number of wireless users in
the United States will increase from approximately 107.4 million by the end of
2000 to approximately 201.9 million by the end of 2005. In addition, Paul Kagan
Associates estimates that the percentage of total users in the United States
that are PCS users will increase from 24.6% at the end of 2000 to 42.5% by
2005. The following chart illustrates the estimated annual growth in U.S.
wireless communications customers, who use cellular, PCS or other two-way
wireless services through December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Wireless Industry Statistics(a)
Total service revenues (in billions).. $ 19.1 $ 23.6 $ 27.5 $ 33.1 $ 40.1
Wireless subscribers at end of period
(in millions)........................ 33.8 44.0 55.3 69.2 86.0
Subscriber growth..................... 40.0% 30.4% 25.6% 25.1% 24.3%
Average local monthly wireless bill... $51.00 $47.70 $42.78 $39.43 $41.24
</TABLE>
--------
Source:Cellular Telecommunications Industry Association.
(a) Reflects domestic commercially operational cellular, enhanced special
mobile radio and PCS and enhanced specialized mobile radio technology
providers.
In the wireless communications industry, there are two principal services
licensed by the FCC for transmitting voice and data signals: PCS and cellular.
Personal communications services, or PCS, is a term commonly used in the United
States to refer to service carried over the 1850 MHz to 1990 MHz portion of the
radio airwaves. Megahertz, or MHz, is a method of measuring radio airwaves.
Cellular is a term commonly used in the United States to refer to service
carried over the 824 MHz to 893 MHz portion of the radio airwaves. Cellular
service is the predominant form of wireless voice communications service
available. Cellular systems were originally analog-based systems, although
digital technology has been introduced in some markets. PCS systems use digital
technology. Analog technology currently has several limitations, including lack
of privacy and limited capacity. Digital systems convert voice or data signals
into a stream of digits that is compressed before transmission, enabling a
single radio channel to carry multiple simultaneous signal transmissions. This
enhanced capacity, along with improvements in digital signaling, allows
digital-based wireless technologies to offer new and enhanced services, such as
greater call privacy and robust data transmission features, including mobile
office applications like facsimile, e-mail and wireless connections to
computer/data networks, including the Internet. See "Business--Government
Regulation" for a discussion of the FCC auction process and allocation of
wireless licenses.
Operation of Wireless Communications Systems
Wireless communications system service areas, whether PCS, cellular or other
technologies, are divided into multiple units. Each unit contains a
transmitter, a receiver and signaling equipment to transmit wireless signals to
individual phones. This equipment is connected by telephone lines or microwave
signals to call connection equipment that uses computers to control the
operation of the communications system for the entire service area. The call
connection equipment controls the connection of calls and the connection of the
wireless network to local telephone systems and long distance carriers. The
system controls the transfer of calls from
55
<PAGE>
equipment site to equipment site as a subscriber's handset travels, coordinates
calls to and from handsets, allocates calls among the network equipment sites
within the system and connects calls to the local telephone system or to a long
distance telephone carrier. Wireless communications providers must establish
agreements with local and long distance carriers that allow them to pass calls,
or interconnect, thereby integrating their system with the existing
communications system.
Because the signal strength of a transmission between a handset and a
network equipment site declines as the handset moves away from the network
equipment site, the wireless network monitors the signal strength of calls in
progress. When the signal strength of a call declines to a predetermined level,
the call connection equipment may transfer the call to another network
equipment site where the signal is stronger. If a handset leaves the services
area of a PCS or cellular system, the call is disconnected unless there is a
technical connection with the adjacent system. If there is a technical
connection with the adjacent system, the customer may roam onto the adjacent
system.
Analog handsets that use the cellular portion of the airwaves are
functionally compatible with cellular systems in all markets in the United
States. As a result, these handsets may be used wherever a subscriber is
located, as long as a cellular system is operational in the area and either the
service provider's system covers such area or a roaming arrangement exists with
a provider covering the area.
Although PCS and cellular systems use similar technologies and hardware,
they operate on different portions of the airwaves and use different technical
and network standards. Use of advanced handsets makes it possible for users of
one type of system to roam on a different type of system outside of their
service area, and to transfer calls from one type of system to another if the
appropriate agreements are in place and the networks are properly configured to
transfer calls from one system to the next.
Currently, PCS systems operate under one of three principal digital signal
transmission technological standards that various operators and vendors have
proposed for use in PCS systems: TDMA, CDMA or GSM. TDMA and GSM are both time
division-based standards but are incompatible with each other and with CDMA.
Accordingly, a subscriber of a system that uses TDMA technology is unable to
use a TDMA handset when travelling in an area not served by TDMA-based PCS
operators, unless the subscriber carries a special handset that permits the
subscriber to use the analog or digital system on the cellular portion of the
airwaves in that area and the appropriate agreements are in place.
With an advanced handset, a user can place or receive calls using:
. a PCS system using the technological standard with which the handset is
compatible;
. a digital system on the cellular portion of the airwaves using the
corresponding technological standard; or
. an analog system on the cellular portion of the airwaves.
If a PCS system operated by the service provider or covered by a roaming
agreement is operating in the area, the call will be placed via this system. If
there is no PCS system providing coverage, the call will be placed through a
digital system on the cellular portion of the airwaves operating in the area
and providing coverage to the user, and if no digital system on the cellular
portion of the airwaves is providing coverage, the call will be connected over
an analog system that uses the cellular portion of the airwaves providing
coverage. These handsets allow for a call in progress to be handed off to an
adjacent system, whether the same mode or band or otherwise, without
interruption if the appropriate agreements are in place. Prior generations of
handsets would cut off the call when the handset left the coverage of one
system and would require the customer to place the call again using the
adjacent system.
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<PAGE>
BUSINESS
TeleCorp
We are the largest AT&T Wireless affiliate in the United States in terms of
licensed population, with licenses to serve approximately 16.7 million people
in 50 markets. As of June 30, 2000, we have launched service in 32 of these
markets covering approximately 13.3 million people or approximately 79% of the
population where we hold licenses in the United States and Puerto Rico. We
provide digital wireless personal communications services, or PCS, in our
covered markets and, as of June 30, 2000, we had more than 319,000 customers.
We have joined with Tritel and Triton PCS, two other AT&T Wireless affiliates,
to operate under a common regional brand name, SunCom. In February 2000, we
entered into agreements with AT&T Wireless and AT&T Wireless Services as a
result of which we expect to provide PCS services to a total of approximately
21.5 million people in 63 markets. These markets will encompass a contiguous
territory including nine of the 100 largest metropolitan areas in the United
States and popular vacation destinations such as: New Orleans and Baton Rouge,
Louisiana; Memphis, Tennessee; Little Rock, Arkansas; Milwaukee and Madison,
Wisconsin; Des Moines, Iowa; and San Juan, Puerto Rico and the U.S. Virgin
Islands.
Strategic Alliance With AT&T Wireless
AT&T is one of our largest investors and, upon consummation of the
agreements entered into in February 2000, will have increased its ownership
interest in us to approximately 23% from approximately 17%. As an AT&T Wireless
affiliate, we benefit from many business, operational and marketing advantages,
including:
. Exclusivity. We are AT&T's exclusive provider of wireless mobility
services using equal emphasis co-branding with AT&T in our covered
markets, subject to AT&T's right to resell services on our network.
. Brand. We have the right to use the AT&T brand name and logo together
with the SunCom brand name and logo in our covered markets, giving equal
emphasis to each. We also benefit from AT&T's nationwide advertising and
marketing campaigns.
. Roaming. We are AT&T's preferred roaming partner for digital customers
in our markets. Our roaming revenues increased from approximately $7.6
million in the second quarter of 1999 to approximately $14.7 million in
the second quarter of 2000. We believe our AT&T Wireless affiliation
will continue to provide us with a valuable base of recurring roaming
revenue.
. Coast-to-Coast Coverage. Outside our markets, our customers can place
and receive calls in AT&T Wireless's markets and the markets of AT&T
Wireless's other roaming partners.
. Products and Services. We receive preferred terms on selected products
and services, including handsets, infrastructure equipment and back
office support from companies who provide these products and services to
AT&T.
. Marketing. We benefit from AT&T's nationwide marketing and advertising
campaigns. In addition, we work with AT&T's national sales
representatives to jointly market our wireless services to AT&T
corporate customers located in our markets.
Pending Transactions
On February 28, 2000, we agreed to merge with Tritel through a merger of
each of us and Tritel with newly formed subsidiaries of a new holding company.
The new holding company, called TeleCorp-Tritel Holding Company, 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 Services agreed to contribute certain wireless rights and commitments
in the midwestern United States, including Milwaukee and
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Madison, Wisconsin, cash of approximately $20 million and a two year extension
of its brand license in exchange for 9,272,740 common shares in the newly
formed holding company. Should these assets be contributed to the holding
company rather than to us, holding company will contribute these assets to us,
other than the $20 million in cash and the two-year extension of its brand
license that we will have the benefit of. Additionally, in a separate
transaction with AT&T Wireless, we agreed to exchange our licenses in several
New England markets for wireless properties or rights to acquire additional
wireless properties in markets in Wisconsin and Iowa, including Des Moines and
a net cash payment to us of approximately $68 million. We also obtained the
right to extend the term and geographic coverage of AT&T's license agreement
and AT&T Wireless Services' roaming agreement with us to include the new
markets, either through amending our existing agreement 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 pending merger has been unanimously approved by our and Tritel's board
of directors, with three of our directors abstaining. In addition, both our
stockholders and Tritel's stockholders approved the merger at separate special
stockholder meetings held on August 8, 2000. The merger is subject to
regulatory approval and other conditions and is expected to close in the last
quarter of 2000. For a more detailed description of the above transactions, see
"The Pending Merger and Related Transactions." For a presentation of the pro
forma financial aspects of each of these transactions, both individually and
combined, see "Financial Statements Index--Unaudited Pro Forma Condensed
Combined Financial Statements."
Competitive Strengths
In addition to our strategic alliance with AT&T, we believe we have several
key business, operational and marketing advantages, including our:
. Attractive Markets. The combination of our existing markets and,
assuming the consummation of the pending transactions, our new markets
in Wisconsin and Iowa would provide us with a contiguous footprint from
the Great Lakes in the north to the Gulf Coast of the United States in
the south. We believe our existing and new markets are, and will
continue to be, strategically important to AT&T because they are located
near or adjacent to traffic corridors in and around large markets such
as Houston, St. Louis and Milwaukee. After consummation of the pending
transactions, our markets would have favorable demographic
characteristics for PCS, with an average population density of
approximately 30% above the national average and would include major
population and business centers and vacation destinations that attract
millions of visitors per year. As independent wholly-owned subsidiaries
of a new holding company, TeleCorp and Tritel would continue to operate
in two contiguous service areas in the United States covering
approximately 35 million people and 16 of the 100 largest metropolitan
areas.
. Strong Capital Base. We expect to have sufficient capital resources
(directly and through a vendor facility of the new holding company) to
fund our current business plan through 2003. These funding requirements
include capital expenditures and operating losses for our existing
markets as well as the development of the markets we expect to obtain
from AT&T Wireless Services assuming the consummation of the agreements
entered into in February 2000.
. Experienced and Incentivized Management. Our 21 member senior management
team has an average of 11 years of experience with leaders in the
wireless industry such as AT&T, Bell Atlantic, Bell South, Nextel,
ALLTELL and Sprint Spectrum. Together, they beneficially own
approximately 12% of our class A voting common stock on a fully-diluted
basis.
. Substantial Airwave Capacity. We have licenses with a minimum of 35 MHz
of airwaves in our major urban markets of San Juan and New Orleans and
30 MHz in Little Rock and Memphis. Upon consummation of the pending
transactions, we will have 30 and 40 MHz of capacity in the major
markets of Milwaukee, and Madison, Wisconsin, respectively. These
amounts are equal to or greater
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than those held by each of our principal competitors in each of these
markets. We believe these amounts of airwaves will enable us to
competitively deploy new and enhanced voice and data services. This
capacity will also permit us to provide service to the increasing number
of wireless users and to service increased use by subscribers.
. Substantial Progress to Date. Since we initiated service in our first
market in February 1999, we have achieved substantial progress in the
completion of our network and growth of our business. As of June 30,
2000, we had over 319,000 customers. As of June 30, 2000, we had 984
integrated cell sites and seven call connection sites in service, and
had launched service in markets encompassing 79% of the total population
where we held our licenses. For the quarter ended June 30, 2000 we had
revenues of $72.0 million. Additionally, we had 70 SunCom company owned
stores, and over 2,000 additional outlets where retailers including
Circuit City, Cellular Warehouse, Metrocall, Office Depot, Staples, Best
Buy and Office Max offer our products and services.
. Advanced Digital Technology. We are continuing to build our network
using time division multiple access technology, which makes our network
compatible with AT&T's network and other time division multiple access
networks. This technology allows us to offer enhanced features and
services relative to standard analog cellular service, including
extended battery life, integrated voicemail, paging, fax and e-mail
delivery, enhanced voice privacy and short-messaging capability. Our
network will also serve as a platform for the development of mobile data
services such as two-way data messaging and two-way data and Internet
applications.
Business Strategy
Our goal is to become the leading provider of wireless personal
communications services in each of our markets, by providing our customers with
simple-to-buy and easy-to-use wireless services, including coverage across the
nation, superior call quality, competitive pricing and personalized customer
care. The elements of our strategy to achieve these objectives are:
. Leverage AT&T Relationship. We receive numerous benefits from AT&T,
including market exclusivity, co-branding, roaming and coast-to-coast
coverage, and preferred terms on selected products and services. Also,
we benefit from AT&T's nationwide marketing and advertising campaigns.
In addition, we are working with AT&T's national sales representatives
to jointly market our wireless services to AT&T corporate customers
located in our markets.
. Provide Coast-to-Coast Coverage. Our market research indicates that
scope and quality of coverage are extremely important to customers in
their choice of a wireless service provider. We have designed extensive
local calling areas, and we offer coast-to-coast coverage through our
arrangements with AT&T Wireless and its roaming partners. Our network
covers those areas where people are most likely to take advantage of
wireless coverage, such as suburbs, metropolitan areas and vacation
locations: the places where they live, work and play.
. Offer Superior Call Quality. We are committed to making the capital
investment required to develop a quality network in our existing and new
markets. We intend to invest approximately $60 per covered person in our
licensed markets for the construction of our currently planned network,
which we believe will promote consistent quality performance and a high
level of customer satisfaction. Our capital investment is designed to
provide a highly reliable network as measured by performance factors
such as percentage of call completion and number of dropped calls. We
maintain a state-of-the-art network operations center and, to ensure
continuous monitoring and maintenance of our network, we have a disaster
recovery plan.
. Provide Enhanced Value at Low Cost. We offer our customers advanced
services and features at competitive prices. Our pricing plans are
designed to promote the use of wireless services by enhancing the value
of our services to our customers. We include usage enhancing features
such as
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call waiting, three-way conference calling, and short message service in
our basic packages. We market our service with a simple, all-in-one
focus: digital phone, pager and voice mail. We offer our customers
affordable, simple calling plans, and we take advantage of the coast-to-
coast reach of AT&T and its roaming partners. Our national SunRate plans
are similar to AT&T Digital One Rate SM plans in which minutes can
generally be used throughout the United States without paying additional
roaming fees or long distance charges. We believe we can offer
competitive services because of the cost advantages provided by our
agreements with AT&T and the other SunCom companies, the cost-effective
characteristics of TDMA and our centralized administrative functions and
efficient distribution.
. Deliver Quality Customer Care. We serve our customers from our state-of-
the-art facility in Memphis, Tennessee, which houses our customer
service, collections and anti-fraud personnel. Convergys, a leading
provider of outsourced call center services, provides backup call center
support and, for our Spanish speaking customers, bilingual customer
service from two facilities in Florida. We have implemented a "one call
resolution" approach to customer care through the use of customer
support tools such as an advanced diagnostic mechanism and access to
online reference information. In addition, we emphasize proactive and
timely customer service, including welcome packages. Finally, we support
our customer care initiatives through employee compensation plans based
on subscriber satisfaction and retention.
Service and Features
Wireless Calling
Our primary service is digital wireless calling, which features advanced
handsets, enhanced voice clarity, improved protection from eavesdropping and a
broad feature set. Our basic wireless service offering includes caller
identification, three-way conference calling, call waiting, voicemail, paging
and short-messaging.
Feature-Rich Handsets
As part of our basic service offering, we provide easy-to-use, interactive
menu-driven handsets that can be activated over the air. These handsets
primarily feature word prompts and easy-to-use menus rather than numeric codes
to operate handset functions. These handsets allow mobile access to e-mail and
other Internet services.
Extended Battery Life
Our advanced handsets offer significantly extended battery life over earlier
technologies, providing up to 14 days of stand-by battery life. Handsets
operating on a digital system are capable of "sleep-mode" while turned on but
not in use, improving efficiency and extending battery life. We expect that
this feature will increase usage, especially for incoming calls, as users will
be able to leave the phone on for significantly longer periods. The use of
these handsets further extends battery life by using a digital system for
roaming when in areas covered by digital systems.
Improved Voice Quality
We believe the version of TDMA we are using offers significantly improved
voice quality, more powerful error correction, less susceptibility to call
fading and enhanced interference rejection, which results in fewer dropped
calls compared to earlier versions of TDMA.
Voice Privacy and Call Security
Digital technology is inherently more secure than analog technologies. This
security provides increased voice privacy and enhanced fraud protection for our
customers.
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Wireless Services Inside Buildings
As the use of wireless devices becomes more widespread, consumers
increasingly are demanding wireless services which extend into office
buildings, subways, airports, shopping centers and private homes. We use large
numbers of small network equipment sites to offer corporate users full coverage
inside buildings. We also provide intra-office wireless communications
capabilities letting the user dial office extensions without the need to dial
the complete telephone number. In addition, we are working with a number of
hardware and software suppliers to develop next generation wireless office
services including the use of small network equipment sites within a building
that circumvent the local carrier.
Data and Internet Services
Because of the quality of digital signal transmission, wireless
communications systems are suitable for the transmission of wireless data
services such as applications providing weather reports, sports summaries,
stock quotes, monitoring of alarm systems and internet access.
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Market Overview
The following lists our current basic trading area wireless licenses, listed
under Existing BTA's, as well as basic trading area wireless licenses which we
may acquire or exchange, listed under Acquisition BTA's and Disposition BTA's,
in connection with the closing of the pending transactions, if consummated.
<TABLE>
<CAPTION>
1998 Actual or Estimated Amount of
Existing BTA's Population (a) Launch Date Airwaves
-------------- -------------- ----------------------- ---------
(in thousands) (in MHz)
<S> <C> <C> <C>
San Juan, Puerto Rico
San Juan-Arecibo, Humacao..... 2,719 June 1999 35
Mayaguez Aguadilla-Ponce...... 1,089 September 1999 20
Virgin Islands................ 106 Fourth Quarter 2000 (b) 20
------
Total....................... 3,914
New Orleans, Louisiana
New Orleans................... 1,402 February 1999 35
Baton Rouge................... 676 February 1999 20
Lafayette-New Iberia.......... 531 June 1999 20
Lake Charles.................. 279 March 2000 30
Houma-Thibodaux............... 272 December 1999 25
Alexandria.................... 265 Third Quarter 2000 (b) 30
Hammond....................... 107 September 1999 10
------
Total....................... 3,532
Little Rock, Arkansas
Little Rock................... 926 March 1999 30
Fort Smith.................... 312 May 2000 20
Fayetteville.................. 291 April 1999 20
Jonesboro..................... 174 November 1999 20
Pine Bluff.................... 148 Third Quarter 2000 (b) 20
Hot Springs................... 133 March 1999 20
El Dorado..................... 103 Fourth Quarter 2002 (b) 20
Russellville.................. 95 February 2000 20
Harrison...................... 88 Fourth Quarter 2001 (b) 20
------
Total....................... 2,270
Memphis, Tennessee
Memphis-Oxford, Mississippi... 1,493 March 1999 30
Jackson....................... 276 September 1999 35
Dyersburg..................... 116 Third Quarter 2000 (b) 20
Blytheville, AR............... 70 Third Quarter 2000 (b) 20
------
Total....................... 1,955
St. Louis, Missouri
Springfield (c)............... 283 Fourth Quarter 2001 (b) 20
Carbondale, IL................ 216 Fourth Quarter 2000 (b) 20
Columbia...................... 209 June 2000 20
Cape Giradeau................. 189 Fourth Quarter 2000 (b) 20
Quincy........................ 181 Fourth Quarter 2001 (b) 20
Jefferson City................ 156 June 2000 20
Poplar Bluff.................. 155 Fourth Quarter 2002 (b) 20
Mt. Vernon, IL................ 121 Fourth Quarter 2000 (b) 20
Rolla......................... 98 Fourth Quarter 2002 (b) 20
West Plains................... 76 Fourth Quarter 2002 (b) 20
Kirksville.................... 56 Fourth Quarter 2002 (b) 20
------
Total....................... 1,740
Houston, Texas
Beaumont...................... 459 June 2000 40
------
Total....................... 459
Louisville, Kentucky
Evansville, Indiana........... 518 Fourth Quarter 2000 (b) 20
Paducah, Kentucky............. 231 Fourth Quarter 2000 (b) 20
------
Total....................... 749
------
Total Existing BTA's.......... 14,619(h)
======
</TABLE>
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<TABLE>
<CAPTION>
1998 Launch Amount of
Acquisition BTA's (d) Population (a) Date Airwaves
--------------------- -------------- ---------- ---------
(in thousands) (in MHz)
<S> <C> <C> <C>
Milwaukee, WI
Milwaukee, WI (a)......................... 1,850 TBD (e) 30
Madison, WI............................... 653 TBD 40
Appleton-Oshkosh, WI...................... 440 TBD 40
La Crosse, WI-Winona, MN.................. 311 TBD 30
Green Bay, WI............................. 266 TBD 40
Janesville-Beloit, WI..................... 236 TBD 40
Stevens Point-Marshfield, WI.............. 163 TBD 30
Sheboygan, WI............................. 112 TBD 40
Fond du Lac, WI........................... 97 TBD 40
Manitowoc, WI............................. 84 TBD 40
Escanaba, MI.............................. 48 TBD 10
Marquette, MI............................. 10 TBD 10
------
Total................................... 4,270
Des Moines, IA
Des Moines, IA............................ 775 TBD 30
Davenport, IA............................. 428 TBD 30
Cedar Rapids, IA.......................... 280 TBD 30
Waterloo-Cedar Falls, IA.................. 259 TBD 40
Dubuque, IA............................... 179 TBD 40
Clinton, IA-Sterling, IL.................. 146 TBD 30
Burlington, IA............................ 138 TBD 10
Fort Dodge, IA............................ 126 TBD 10
Iowa City, IA............................. 124 TBD 30
------
Total................................... 2,455
------
Total Acquisition BTA's................. 6,725
======
<CAPTION>
Disposition BTA's (f)
---------------------
<S> <C> <C> <C>
Boston, Massachusetts Worcester, MA........ 727 April 1999 20
Manchester, Concord, Nashua, Portsmouth,
NH....................................... 584 April 1999 20
Boston, MA (g)............................ 383 April 1999 20
Hyannis, Nantucket, Cape Cod, Martha's
Vineyard, MA............................. 231 April 1999 20
------
Total Disposition BTA's................. 1,925
======
Population Total........................... 21,344(h)
======
</TABLE>
--------
(a) This table is based on the most current available statistics, as calculated
by Paul Kagan Associates, Inc. All BTA information other than for
Milwaukee, WI, which is based on Kagan's 1999 data, is derived from Kagan's
1998 report.
(b) Estimated.
(c) Camden, Cedar, Dallas, Douglas, Hickory, Laclede, Polk, Stone, Taney,
Texas, Webster and Wright counties only.
(d) Licenses which may be received in connection with the pending transactions.
(e) To be determined.
(f) Licenses which may be transferred in connection with the pending
transactions.
(g) Rockingham and Strafford counties only excluding the Boston, Massachusetts
BTA.
(h) Total does not include the population in the Boston, Massachusetts BTA.
This total does not include an estimated population increase of 200,000 in
our licensed areas since 1998, which would result in a current estimated
total population of 16.7 million in our total existing markets and of 21.5
million in our licensed areas.
Marketing Strategy
We believe that our affiliation with the AT&T brand name and the distinctive
advantages of our TDMA network, combined with our simple-to-buy and easy-to-use
philosophy, will allow us to expand our customer
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base by capturing significant market share from existing providers of wireless
services in our markets. Additionally, we expect to attract new users to
wireless. We developed our marketing strategy on the basis of extensive market
research in each of our markets. This research indicates that limited coverage
of existing wireless systems, relatively high costs, inconsistent performance
and overall confusion about wireless services drive subscriber dissatisfaction
and reduce the attractiveness of wireless services for potential new
subscribers.
We are focusing our marketing efforts on four primary market segments:
. corporate accounts;
. current wireless users;
. individuals with the intent to purchase a wireless product within six
months; and
. prepaid subscribers.
For each segment, we are creating a specific marketing program, including a
service package, pricing plan and promotional strategy. We believe that
targeted service offerings will increase customer loyalty and satisfaction,
reducing customer turnover.
The following are key components of our marketing strategy:
Branding
We market our wireless services as "SunCom, Member of the AT&T Wireless
Network" and use the globally recognized AT&T brand name and logo in equal size
and prominence with the SunCom brand name and logo. We believe that consumers
associate the AT&T brand with reliability and quality.
We have entered into agreements with Tritel Communications and Triton PCS,
other companies similarly affiliated with AT&T, to adopt a common regional
brand, SunCom. We and the other SunCom companies are establishing the SunCom
brand as a strong local presence with a service area covering a population of
approximately 43.0 million. We enjoy preferred pricing on equipment, handset
packaging and distribution by virtue of our affiliation with AT&T and the other
SunCom companies.
Advertising/Promotion
We believe that the most successful marketing strategy is to establish a
strong local presence in each of our markets. We are directing our media
efforts at the community level by advertising in local publications and
sponsoring local and regional events. We combine these local efforts with mass
market media, including television, radio, newspaper, magazine, outdoor and
internet advertisements. Outside advertising agencies support our brand
campaigns, and also develop newspaper, radio and web page advertisements to
promote specific product offerings and direct marketing programs for targeted
audiences. All of our advertising materials use the SunCom and AT&T names and
the tagline, giving equal emphasis to each, "SunCom, Member of the AT&T
Wireless Network."
Pricing
Our pricing plans are designed to be competitive and straightforward,
offering large buckets of minutes, large local calling areas and usage
enhancing features. We offer pricing plans tailored for our market segments,
including local, regional and national pricing plans. We also offer shared
minute pools that are available for businesses and families who have multiple
wireless users who want to share the bucket of minutes. For the second quarter
ended June 30, 2000 our average usage per subscriber was approximately 330
minutes per month.
We believe the pre-paid subscriber segment represents a large market
opportunity, and we offer pricing plans that we expect will drive growth in
these categories. Pre-pay plans provide an opportunity for individuals
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whose credit profiles would not otherwise allow them access to wireless
communications to take advantage of our services. In addition, our pre-pay
plans provide an attractive alternative for families and business users to
control the usage of family members or employees. We also structure our plans
to be attractive to the youth market, who we believe want to pay as they use
the service.
We believe we differentiate ourselves from existing wireless competitors by
providing our pre-paid subscribers the same digital services and features
available to other customer segments. Our customers can use pre-pay service
virtually anywhere in the United States on our network, on AT&T's network or
through AT&T's extensive network of roaming agreements. Additionally, our pre-
pay customers hear a "whispered" announcement of time remaining in their
account before each call they place, which allows them to control usage and
reduce balance inquiries to customer service. By contrast, typical pre-pay
plans of our competitors limit service to their networks and usually provide
fewer features and a narrow selection of handsets.
AT&T introduced AT&T Digital One Rate SM in May 1998, a suite of rate plans
that allows customers to purchase a large bucket of minutes per month that can
be used locally, or across the U.S., on AT&T's wireless network and its
extensive network of roaming partners for a fixed price with no additional
roaming or long distance charges. The AT&T Digital One Rate SM and other
competing flat rate plans have caused shifts in calling patterns in the
wireless industry. We believe growth in this category will provide us a
valuable roaming revenue stream as AT&T Digital One Rate SM subscribers use
their minutes while visiting our networks.
We are able to offer a similar national SunRate plan by virtue of our
relationship with AT&T. Competing flat rate plans often limit flat rate usage
to the competitor's own networks. We are able to offer a differentiated
national rate plan by virtue of our roaming arrangements with AT&T and its
roaming partners.
We believe our pricing policies differentiate us from our competition
through simplicity and design. We offer 12 price plans per region, on average,
and we design our plans to encourage customers to enter into long-term
agreements.
Handsets
We sell our service exclusively with handsets that are compatible with
wireless communications systems that operate using digital service on the PCS
portion of the airwaves, as well as digital and analog service on the cellular
portion of the airwaves. Through the use of technologically advanced Nokia,
Ericsson and Motorola handsets, our customers can use their phones across a
variety of wireless networks.
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. As of June 30,
2000, we had opened 70 stores for the distribution and sale of our handsets and
expect to have a total of 89 SunCom stores open by the end of 2000. We believe
that company stores offer a considerable competitive advantage by providing a
strong local presence. We also believe that company stores offer one of the
lowest customer acquisition costs among our different distribution channels.
Sales representatives in company stores receive in-depth training to allow them
to explain wireless communications services simply and clearly. We believe this
process distinguishes us from our competitors and will improve our ability to
attract subscribers within our markets.
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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 currently have over 2,000 retail
outlet locations where customers can purchase our services. In some of these
retail store locations, we are implementing a store-within-a-store concept,
which uses visual merchandising to leverage the brand awareness created by both
SunCom and AT&T advertising.
Direct Sales and Marketing. Our direct corporate sales force focuses on
high-revenue, high-margin corporate users. As of June 30, 2000, our direct
corporate sales force consisted of approximately 112 dedicated professionals
targeting the wireless decision maker within large corporations. We also
benefit from AT&T's national corporate accounts sales force. AT&T, in
conjunction with us, supports our marketing of its services to AT&T's large
national accounts located in our service areas. We also employ 17 telesales
representatives in our Memphis call center and contract for 11 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, our products and our 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. As of June 30, 2000, the three centers employed 499
customer care representatives including 260 of our employees. The multiple
center structure allows us to distribute customer service calls between the
centers to promote cost effective 24 hour/seven day a week customer service.
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 also expanding 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 our services 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 its 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
June 30, 2000, we provide coverage to approximately 79% 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. As of
June 30, 2000, our entire network covers a population of approximately
13.3 million, and includes approximately 984 network equipment sites and seven
connection sites.
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As of June 30, 2000, we have launched commercial service in the following 32
markets:
<TABLE>
<S> <C>
Fayetteville, AR Nantucket, MA*
Fort Smith, AR Worcester, MA*
Hot Springs, AR Oxford, MS
Little Rock, AR Columbia/Jefferson City, MO
Jonesboro, AR Concord, NH*
Russellville, AR Manchester, NH*
Baton Rouge, LA Nashua, NH*
Hammond, LA Portsmouth, NH*
Houma, LA Arecibo, PR
Lafayette, LA Humacao, PR
Lake Charles, LA Mayaguez, PR
New Iberia, LA Ponce, PR
New Orleans, LA San Juan, PR
Thibodaux, LA Jackson, TN
Cape Cod, MA* Memphis, TN
Martha's Vineyard, MA* Beaumont, TX
</TABLE>
--------
* We have agreed to transfer the eight markets indicated to AT&T in the
pending transactions.
Network Operations
We maintain a network operations center for continuous monitoring and
maintenance of our network. The effective operation of our network requires:
. connection agreements and agreements to transmit signals from network
equipment sites to call connection equipment with other communications
providers;
. long distance connection;
. the implementation of roaming arrangements;
. the development of network monitoring systems; and
. the implementation of information technology systems.
Connection 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
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preferred pricing. These agreements, together with AT&T's wireless network,
cover approximately 98% of the U.S. population, including in-region roaming
agreements covering all of our launched service areas.
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 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:
. network management, including service activation, pre-pay systems,
traffic and usage monitoring, trouble management and operational
support systems;
. customer care, including billing systems and customer service and
support systems; and
. business systems, including financial, purchasing, human resources and
other administrative systems.
We have incorporated sophisticated network management and operations support
systems to facilitate network fault detection, correction and management,
performance and usage monitoring and security. System capabilities have been
developed to allow over-the-air activation of handsets and implement fraud
protection measures. We maintain stringent controls for both voluntary and
involuntary deactivations. We attempt to minimize customer disconnects
initiated by us through credit review and preactivation screening, to identify
prior fraudulent or bad debt activity and call pattern profiling, to identify
where activation and termination policy adjustments are needed.
Technology
TDMA Digital Technology
We have chosen digital TDMA technology for our network. TDMA technology
allows for:
. the use of advanced handsets which allow for roaming across the PCS and
cellular portion of the airwaves, including both analog and digital
technologies;
. enhanced services and features, such as short-messaging, extended
battery life, added call security and improved voice quality; and
. network equipment sites that are small and that improve network coverage
with low incremental investment.
TDMA technology is the digital technology choice of two of the largest
wireless communications companies in the United States, AT&T and SBC
Communications. This technology served an estimated 35 million subscribers
worldwide and 19 million subscribers 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 has increased the probability that this technology will remain an industry
standard. TDMA equipment is available from leading telecommunication vendors
such as Lucent, Ericsson and Northern Telecom, Inc.
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Future Technology Development
Our advanced TDMA technology provides us the ability to offer new services,
including information services, wireless service applications inside buildings,
two-way text messaging, voice-activated dialing, audio e-mail retrieval and web
browsing. In addition, TDMA technology provides us with a strong foundation for
the introduction of high-speed wireless data.
Our planned evolution to higher speed data applications, including video
conferencing, is through the implementation of enhanced data rates for global
evolution, which is expected to be available in 2001. With our TDMA
architecture, we expect to be able to support faster transmission speeds with
limited software and hardware upgrades. We are working with AT&T to plan for an
evolution to these third generation services in 2002, and with Lucent to
understand the implications on our network development.
Competition
We believe 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 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. Some of these providers have significant infrastructure in place,
often at low historical cost, have been operational for many years, and may
have greater capital resources than we do. The cellular operators we compete
with may upgrade their networks to provide services comparable to those we
offer.
We compete:
. in New Orleans, primarily against BellSouth for cellular services,
Sprint PCS and Verizon for PCS, and Nextel for enhanced special mobile
radio;
. in Memphis, primarily against Verizon and BellSouth for cellular
services, Powertel and Sprint PCS for PCS and Nextel for enhanced
special mobile radio;
. in Little Rock, primarily against ALLTEL and SBC Communications for
cellular services and Sprint PCS for PCS;
. in New England, primarily against SBC Communications and Verizon
Wireless for cellular services and Sprint PCS, Voicestream Wireless
Corporation for PCS and Nextel for enhanced special mobile radio; and
. in Puerto Rico, primarily against Puerto Rico Telephone Company and SBC
Communications for cellular services and Centennial Cellular and NewCom
Wireless Services, Inc. for PCS.
Upon the close of the contribution and exchange, we will compete:
. in Iowa, primarily against Sprint PCS, Verizon, US Cellular, Nextel,
Voicestream Wireless Corporation and Western Wireless; and
. in Wisconsin, primarily against US Cellular, SBC Communications,
BellSouth, Sprint PCS and Verizon.
We also compete with resellers of wireless communications services in each
of our markets. Resellers purchase large volumes of services on a wireless
operator's network, usually at a discount, and resell the services to end users
under the reseller's own brand name. While the network operator receives some
revenue from the sale of services to the reseller, the operator is competing
with its own customer for sales to the end users. The principal resellers in
our existing markets include WorldCom, Inc. 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.
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We have not obtained a significant share of the market in any of our areas
of operation. 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 pricing plans to be competitive and to emphasize the advantages
of our offerings. We have discounted 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.
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 these licenses, we issued to Digital PCS $2.3 million of our
common and preferred stock, paid Digital PCS approximately $0.3 million in
reimbursement of interest paid on U.S. government debt related to the licenses
and assumed debt owed to the U.S. government of $4.1 million less a discount of
$0.6 million, 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 24, 1999, we sold to AT&T Wireless $40.0 million of our series A, D
and F preferred stock. On May 25, 1999, we purchased PCS license and related
assets covering the San Juan major trading area from AT&T Wireless for $96.5
million in cash. In addition, we reimbursed AT&T Wireless $3.2 million for
microwave relocation and $0.3 million for other expenses AT&T Wireless 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 these licenses, we issued approximately $0.4 million of
common and preferred stock, paid approximately $0.2 million to Wireless 2000
for microwave relocation expenses related to the Monroe license and reimbursed
Wireless 2000 $0.4 million for interest paid on government debt related to
their licenses. Additionally, we assumed $7.4 million, less a discount of $1.0
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 Wireless' consent, develop the markets covered by the Monroe license.
Our agreements with AT&T Wireless were extended to cover the Baton Rouge,
Houma, Hammond and Lafayette, Louisiana basic trading areas; the San Juan,
Puerto Rico major trading area; and the Alexandria, Lake Charles and Monroe,
Louisiana basic trading areas, except for a portion of the Monroe basic trading
area, upon the closing of the Louisiana and Puerto Rico acquisitions.
On April 7, 2000, we completed our acquisition of TeleCorp LMDS, Inc.
(TeleCorp LMDS) through an exchange of all of the outstanding stock of TeleCorp
LMDS for 878,400 shares of our class A voting common stock. TeleCorp LMDS's
stockholders are Mr. Vento, Mr. Sullivan and three of our initial investors. By
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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.
On April 11, 2000, we completed our acquisition of the 15% of Viper
Wireless, Inc. that we did not yet own from Messrs. Vento and Sullivan in
exchange for an aggregate of 323,372 shares of our class A voting common stock
and 800 shares of our series E preferred stock through a merger of TeleCorp
Holding Corp. and Viper Wireless. TeleCorp Holding Corp. acquired 85% of Viper
Wireless on March 1, 1999 in exchange for $32.3 million 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 Federal
Communications Commission's reauction of PCS licenses. Viper Wireless was
subsequently granted six PCS licenses in the reauction.
On April 27, 2000, we acquired 15 MHz of additional airwaves in the Lake
Charles, Louisiana basic trading area from Gulf Telecom, LLC. As consideration
for the additional airwaves we paid Gulf Telecom $0.7 million in cash, assumed
approximately $2.0 million in Federal Communications Commission debt related to
the license and reimbursed Gulf Telecom for all interest it paid to the Federal
Communications Commission for debt related to the license from June 1998
through March 2000.
Government Regulation
We are subject to substantial regulation by the Federal Communications
Commission, state public utility commissions and, in some cases, local
authorities. Our principal operations are classified as commercial mobile radio
service by the Federal Communications Commission, 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 Federal
Communications Commission, 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 the
Federal Communications Commission and other requirements, as compared to
unregulated entities.
Federal Communications Commission Common Carrier Regulation Under Title II
Under Title II of the Communications Act, among other things, we are:
. required to offer service upon reasonable request;
. prohibited from imposing unjust or unreasonable rates, terms or
conditions of service;
. proscribed from unjustly or unreasonably discriminating among customers;
. required to reserve communications capacity for law enforcement
surveillance operations and to make technical network changes to
facilitate this surveillance;
. required to make our services and products accessible to, and usable by,
Americans with disabilities, if readily achievable; and
. 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, their 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 networks. The Federal Communications
Commission is still in the process of implementing some of these benefits.
While the rates of common carriers are subject to the Federal Communications
Commission's jurisdiction, the Federal Communications Commission 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.
Federal Communications Commission Radio License Regulation Under Title III
Among other things, Title III of the Communications Act:
. does not permit licenses to be granted or held by entities that have
been subject to the denial of federal benefits;
. requires us to seek prior approval from the Federal Communications
Commission to transfer control of us or to assign our radio
authorizations, including subdividing our radio airwaves or partitioning
geographic license areas, except in very limited circumstances; and
. limits foreign ownership in radio licensees, including PCS providers.
Federal Communications Commission Commercial Mobile Radio Service Regulation
The Federal Communications Commission rules and policies impose substantial
regulations on commercial mobile radio service providers. Among other
regulations, commercial mobile radio service providers such as the company:
. incur costs as a result of required contributions to federal programs;
. are prohibited from acquiring or holding an attributable interest in
PCS, cellular or special mobile radio licenses with more than 45 MHz of
airwaves in the same metropolitan area, and more than 55 MHz in rural
markets, although these rules are currently subject to requests for
modification;
. are required to provide at least manual roaming service to enable a
customer of one provider to obtain service while roaming in another
carrier's service area;
. are required to route emergency calls to public safety centers and
provide the public safety centers under certain circumstances with
information regarding the originating number and the general location
of the caller;
. are required to comply with federal rules governing radio frequency
transmissions in order to limit exposure, by both the general public
and maintenance personnel, to potentially harmful radiation; and
. will eventually be required to allow customers to retain their
telephone numbers when changing service providers in some
circumstances.
Federal Communications Commission Personal Communications Services Regulation
We are subject to service-specific regulations under the Federal
Communications Commission's rules. Among other things, these regulations
provide that PCS licensees, such as us, be granted licenses for a 10-year term,
subject to renewal. Under these policies, we will be granted a renewal
expectancy that would preclude the Federal Communications Commission from
considering competing applications if we have:
. provided "substantial" performance that is "sound, favorable and
substantially above a level of mediocre service just minimally
justifying renewal"; and
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. substantially complied with the Federal Communications Commission 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 areas within specified
time periods.
Recently, we filed the required notifications of the satisfaction of the
Federal Communications Commission's five-year build-out requirements for some
of our licenses. We have requested a waiver of the five-year build out
requirement to the extent deemed necessary by the Federal Communications
Commission because we relied on certain construction undertaken by other
partitionees for our partitioned licenses in the Louisville MTA and the St.
Louis MTA. This request has been placed on public notice for comment by other
parties. While we believe that we should be deemed to meet the five-year
construction requirements and, in the event that the Federal Communications
Commission deems a waiver technically necessary, that a waiver of those
requirements is justified, the determination by the Federal Communications
Commission that we have not met the construction requirements could result in a
loss of those licenses.
Relocation of Fixed Microwave Licensees
Because PCS carriers use airwaves occupied by existing microwave licensees,
the Federal Communications Commission has adopted special regulations governing
the relocation of incumbent systems and cost-sharing among licensees that pay
to relocate microwave incumbents. Relocation usually requires a PCS operator to
compensate an incumbent for the costs of system modifications and new equipment
required to move the incumbent to new portions of the airwaves, including
possible premium costs for early relocation to alternate portions of the
airwaves. The transition plan allows most microwave users to operate in the PCS
portion of the airwaves for a one-year voluntary negotiation period and an
additional one-year mandatory negotiation period following the issuance of the
PCS license. These periods are longer for public safety entities. We have
entered into all necessary agreements for microwave relocation. 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, referred
to as "LMDS," licenses that are subject to service specific Federal
Communications Commission regulations. Like the PCS service specific
regulations, these regulations provide that LMDS licensees such as the company
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
Federal Communications Commission from considering competing applications if we
have:
. provided "substantial" performance that is "sound, favorable and
substantially above a level of mediocre service just minimally
justifying renewal"; and
. substantially complied with Federal Communications Commission rules and
policies and the Communication 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 we use such licenses, we may become subject to
additional federal or state regulations.
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Federal Communications Commission and Federal Aviation Administration
Facilities Regulation
Because we acquire and operate antenna sites for use in our networks, we are
subject to Federal Communications Commission 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.
Federal Communications Commission Designated Entity Regulation
Federal Communications Commission licenses are held by certain of our
subsidiaries under the Federal Communications Commission'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
Federal Communications Commission'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:
. believe we met the relevant eligibility and benefits criteria at the
time such licenses were granted;
. believe our subsidiaries continue to hold such licenses in compliance
with the Federal Communications Commission's eligibility and benefits
criteria; and
. intend to diligently maintain our subsidiaries eligibility and benefits
in compliance with applicable Federal Communications Commission rules.
We rely on representations of our investors to determine their compliance
with the Federal Communications Commission's rules applicable to PCS licenses.
Entrepreneurial Eligibility. Under the Federal Communications Commission's
designated entity rules for PCS, the C and F Blocks of PCS spectrum were set
aside by the Federal Communications Commission 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 had less than $500 million in net
assets at the time they acquired their initial licenses and average aggregate
gross revenues of less than $125 million for the two years prior to filing
their applications for these licenses. To the extent an entrepreneur grows
beyond these limits as a result of normal business growth, it will retain its
eligibility to hold its licenses and even may continue to acquire additional
entrepreneurial licenses from other entrepreneurs.
Small Business and Very Small Business Status. Under the Federal
Communications Commission'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 and, in the case of Airwave Communications (the predecessor of
Tritel), as a small business. In order to qualify for bidding credits or
government financing, or to acquire licenses originally awarded with bidding
credits or government financing without being subject to penalty payments, the
Federal Communications Commission 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 governmental financing, but its status is not grandfathered
for other licenses it subsequently acquires. Each of TeleCorp Holding, TeleCorp
LMDS and Viper qualified as a
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very small business in the relevant auction. Airwave Communications qualified
as a small business. 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
designated entity subsidiaries are required to maintain a conforming control
group and to limit the amount of equity held by other entities on a fully-
diluted basis. These requirements mandate that the control group, among other
things, have and maintain both actual and legal control of the licensee. Under
these control group requirements:
. an established group of investors meeting the financial qualifications
must own at least three-fifths of the control group's equity, or 15% of
the licensee's overall equity, on a fully-diluted basis and at least
50.1% of the voting power in the licensee entity; and
. additional members of the control group may hold up to two-fifths of
the control group's equity, or up to 10% 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 Federal Communications Commission rules:
. eliminate the requirement that the 10% equity interest be held by
certain limited classes of investors; and
. allow the qualifying investors to reduce the minimum required equity
interest from 15% to 10%.
Federal Communications Commission 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 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
Federal Communications Commission 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 Federal Communications Commission permits the states to:
. regulate terms and conditions of our commercial mobile radio service
services other than rates and entry and may regulate all aspects of our
intrastate toll services;
. regulate the intrastate portion of services offered by local telephone
carriers, and therefore the rates we must pay to acquire critical
facilities from other common carriers;
. administer numbering resources, subject to federal oversight; and
. have other responsibilities that impact the nature and profitability of
our operations, including the ability to specify cost-recovery
mechanisms for network modifications to support emergency public safety
services.
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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 Federal Communications Commission
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 Federal Communications Commission 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 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 globe design
logo, on a royalty free basis, with equal emphasis on the 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, Tritel and Triton have adopted a common brand, SunCom. Each of the
SunCom companies owns one-third of Affiliate License Co., which owns the SunCom
name and has no other operations. We, along with 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 June 30, 2000, we employed approximately 1,270 people. None of our
employees currently are represented by a union, and we believe that our
relations with our employees are good.
Properties
We lease space for our call connection equipment in New Orleans, Boston and
Puerto Rico and for our network operations center, our call connection
equipment, our customer care and our data center in Memphis. Further, we have
operating leases primarily related to our headquarters, regional offices,
retail store locations, distribution outlets, office space and network
equipment sites.
Legal Proceedings
We are not a party to any lawsuit or proceeding which is likely, in the
opinion of management, to have a material adverse effect on our financial
position, results of operations and cash flows. We are a party to routine
filings and customary regulatory proceedings with the Federal Communications
Commission relating to our operations.
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MANAGEMENT
Executive Officers and Directors
The table below sets forth certain information regarding our directors and
executive officers. Upon the closing of the merger, we do not expect our
management to change.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gerald T. Vento......... 53 Chief Executive Officer and Chairman
Thomas H. Sullivan...... 38 Executive Vice President, Chief Financial Officer and Director
Julie Dobson............ 43 Vice President, Chief Operating Officer
Michael R. Hannon....... 40 Director
Scott Anderson.......... 42 Director
Rohit M. Desai.......... 61 Director
James M. Hoak........... 56 Director
William W. Hague ....... 45 Director
William Kussell......... 41 Director
Michael Schwartz........ 36 Director
</TABLE>
Gerald T. Vento: Mr. Vento is our co-founder and co-founder of our
predecessor company, TeleCorp Holding Corp., Inc., and has been our Chief
Executive Officer and a director since our inception in July 1997. He has been
Chairman of our board of directors since June 1999. From December 1993 to March
1995, Mr. Vento was Vice Chairman and Chief Executive Officer of Sprint
Spectrum/American PCS, L.P. From April 1995 to March 1998, Mr. Vento was
Chairman of Entel Technologies, Inc., a wireless site acquisition and
construction management company. From April 1996 to October 1996, Mr. Vento
also served as the Chief Executive Officer of National Fiber Networks, Inc. Mr.
Vento also served as managing partner in a joint venture with the Washington
Post Company to build and operate that company's systems in the United Kingdom
prior to its sale in 1993 to TCI/US West Communications. Mr. Vento has spent
over twenty years in cable, telephone and wireless businesses. Mr. Vento was
the founder and Managing General Partner of several cable television companies,
which he developed from inception throughout the United States and Puerto Rico.
Thomas H. Sullivan: Mr. Sullivan is the co-founder of TeleCorp and co-
founder of our predecessor company, TeleCorp Holding Corp., Inc., and has been
our Executive Vice President and one of our directors since our inception in
July 1997, and Chief Financial Officer since March 1999. Mr. Sullivan served as
President of TeleCorp Holding Corp., Inc. from 1996 to 1998 and has served as a
senior executive and founder of several wireless and wireline companies for the
past six years. From 1992 to 1999, Mr. Sullivan was a partner of, and counsel
to, McDermott, Will & Emery, where he served as co-head of its
telecommunications practice and co-chairman of its Boston corporate department.
Julie Dobson: Ms. Dobson has served as our Chief Operating Officer since
July 1998. Prior to joining the company, Ms. Dobson was President of Bell
Atlantic Corporation Mobile Systems(TM) New York/New Jersey Metro Region. She
was responsible for sales, marketing, customer service and the continued
expansion of that company's wireless communications network in the region. She
also oversaw more than 1,500 employees and an extensive retail store network in
22 counties in New York and northern and central New Jersey. Ms. Dobson had
been with Bell Atlantic since 1980, when she began her career as an account
executive in sales at Bell Atlantic-Pennsylvania, and had served in a variety
of positions in sales, sales management and marketing over the last two
decades.
Michael R. Hannon: Mr. Hannon is a General Partner of Chase Capital
Partners, a general partnership with over $15 billion under management, where
he has been employed since January 1988. Chase Capital Partners invests in a
wide variety of international equity opportunities, including management
buyouts, growth equity and venture capital situations. Chase Capital Partners
is an affiliate of The Chase Manhattan Corporation, one of the largest bank
holding companies in the United States. Mr. Hannon also serves as the
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global practice head of the media and telecommunications industry at Chase
Capital Partners. From 1998 until November 1999, Mr. Hannon served as our
Chairman and he is currently on the board of directors of Entercom
Communications, Telesystem International Wireless and several privately held
media and telecommunications firms. He has served as one of our directors since
July 1998.
Scott Anderson: Since 1997, Mr. Anderson has served as Principal in Cedar
Grove Partners, LLC, an investment and consulting/advisory partnership, and
since 1998 as Principal in Cedar Grove Investments, LLC, a private seed capital
investment fund. He was a board member of Tegic, a wireless technology
licensing company until its merger with American Online, Inc. in 1999 and is a
board member of Triton, Wireless Facilities, Inc., Telephia, Inc., ABC
Wireless, LLC and Xypoint, Inc. He was employed by McCaw Cellular
Communications and AT&T Wireless Services from 1986 until 1997, where he last
served as Senior Vice President of the Acquisitions and Development Group. Mr.
Anderson has served as one of our directors since July 1998 and as one of
Tritel's directors since January 1999.
Rohit M. Desai: Mr. Desai has been the Chairman, President and Chief
Investment Officer of Desai Capital Management Incorporated, an equity
investment firm with approximately $2 billion under management, since 1984.
Desai Capital Management is the investment advisor to Equity-Linked Investors
II, Private Equity Investors III, L.P., and Private Equity Investors IV, L.P.,
of which Mr. Desai is the managing general partner. Mr. Desai currently sits on
the board of The Rouse Company, Sunglass Hut International, Finlay Fine Jewelry
Holdings, Independence Community Bankcorp and Sitel Corporation. He has served
as one of our directors since July 1998.
James M. Hoak, Jr.: Mr. Hoak has served as Chairman and a Principal of Hoak
Capital Corporation, a private equity investment firm, since September 1991. He
has also served as Chairman of HBW Holdings, an investment bank, from July 1996
to November 1999, and continues to serve as a director of this firm. He served
as Chairman of Heritage Media Corporation, a broadcasting and marketing
services firm, from its inception in August 1987 to its sale in August 1997.
From February 1991 to January 1995, he served as Chairman and Chief Executive
Officer of Crown Media, Inc., a cable television company. From 1971 to 1987, he
served as President and Chief Executive Officer of Heritage Communications,
Inc., a diversified communications company, and as its Chairman and Chief
Executive Officer from August 1987 to December 1990. He is also a director of
PanAmSat Corporation, Pier 1 Imports and Texas Industries. He has served as one
of our directors since July 1998.
William W. Hague: Mr. Hague was appointed as a director on our board on
April 28, 2000 by AT&T Wireless and previously served as a member of our Board
of Directors from July 1998 through March 1999. Mr. Hague also served as a
member of the Board of Directors of our predecessor company from April 1998
through July 1998. Mr. Hague serves as the Senior Vice President, Corporate
Development, Mergers and Acquisitions at AT&T Wireless Services where he has
been employed since 1995. Prior to this position, and beginning in 1992, he
acted as Director of Acquisitions and Legal Affairs at Pacific Northwest
Cellular/Western Wireless Corporation. From 1986 through 1992, Mr. Hague
practiced law at the Seattle, Washington office of Stokes Lawrence, LLC where
he was a partner. Mr. Hague is also a member of the Board of Directors of
Triton PCS, Inc., where he serves on the Audit Committee and is a member of the
management committee of Far Eastone.
William Kussell: Mr. Kussell has served as a director on our board since
July 1998. Mr. Kussell has served as President of Dunkin' Donuts marketing
office since 1996, as well as Retail Concept Officer for Allied Domecq
Retailing USA since 1997. In this role, Mr. Kussell leads the overall strategy
for Dunkin' Donuts as well as oversees the development of the Baskin Robbins
Brand. Mr. Kussell has over 13 years of brand building marketing experience
within several industries, ranging from food to photography. He was Vice
President of worldwide marketing for Reebok where he helped build Reebok's
worldwide brand image and led the entry into the home fitness video and
programming business.
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Michael Schwartz: Mr. Schwartz is a co-founder, director and Executive Vice
President of habit.com, a technology infrastructure company. Prior to joining
habit.com in March 2000, he was a Vice President in AT&T Wireless Services'
Corporate Development, Mergers and Acquisitions group. Mr. Schwartz continues
to provide services to AT&T Wireless on a part-time basis. From September 1996
through September 1998, Mr. Schwartz was in private law practice in the Seattle
firm of Riddell Williams P.S. He has served as one of our directors since
November 1998.
After consummation of the merger our board of directors will consist of
Messrs. Vento and Sullivan and our officers will consist of Messrs. Vento and
Sullivan and Ms. Dobson.
Compensation of Directors
Representatives of our initial investors who serve on our board or any
committee of our board do not receive cash compensation for their service on
our board. Other non-management members of our board or its committees receive
a quarterly stipend of $1,875, $1,000 for attending each board or committee
meeting and $500 for participating in each teleconference. The directors are
also eligible to receive stock options. All members of our board or any
committee of our board, including our management members, will be reimbursed
for out-of-pocket expenses in connection with attendance at meetings.
Committees of the Board of Directors
Our bylaws provide that our board may establish committees to exercise
powers delegated by the company. Under that authority, the board has
established an audit committee and a compensation committee.
Option Grants in Fiscal Year Ending December 31, 1999
In the last fiscal year we did not award any stock options to the executive
officers named in the summary compensation table under "Executive
Compensation."
Management Agreement
Under the management agreement dated July 17, 1998, as amended, TeleCorp
Management Corp., under our oversight, review and ultimate control and
approval, assists us with:
. administrative services, such as accounting, payment of all bills and
collection;
. operational services, such as engineering, maintenance and construction;
. marketing services, such as sales, advertising and promotion;
. regulatory services, such as tax compliance, Federal Communications
Commission applications and regulatory filings; and
. general business services, such as supervising employees, budgeting and
negotiating contracts.
Mr. Vento and Mr. Sullivan own TeleCorp Management Corp.
TeleCorp Management Corp. has agreed to provide the services of Mr. Vento
and Mr. Sullivan in connection with the performance of TeleCorp Management
Corp.'s obligations under the management agreement. Mr. Vento and Mr. Sullivan
have agreed to devote their entire business time and attention to providing
these services, provided that they may devote reasonable periods of time to
other enumerated activities.
We reimburse TeleCorp Management Corp. for all out of pocket expenses it
incurs for the retention of third parties on our behalf. We pay TeleCorp
Management Corp. fees of $550,000 per year, payable in monthly installments.
TeleCorp Management Corp. is also entitled to a potential annual bonus based
upon the
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achievement of objectives established by the compensation committee of
TeleCorp's board of directors for a particular calendar year. In 1998 and 1999,
TeleCorp Management Corp. earned bonuses totaling approximately $282,500 and
$550,000, respectively.
The management agreement has a five-year term. We may terminate the
management agreement immediately in certain circumstances including:
. indictment of Mr. Vento or Mr. Sullivan for a felony;
. a material breach which remains uncured after 30 days written notice;
. the failure of TeleCorp Management Corp. to provide us with the services
of Mr. Vento and Mr. Sullivan;
. an event of default on any of our credit agreements for borrowings of
$25.0 million or more; or
. acceleration of any of our indebtedness over $25.0 million.
TeleCorp Management Corp. may terminate the agreement voluntarily upon 30
days written notice to us. TeleCorp Management Corp. may also terminate the
agreement immediately if:
. Mr. Vento and Mr. Sullivan are removed as directors or are demoted or
removed from their respective offices or there is a material
diminishment of Mr. Vento's and Mr. Sullivan's responsibilities, duties
or status, which diminishment is not rescinded within 30 days after the
date of receipt by our board of directors from Mr. Vento and Mr.
Sullivan of their respective written notice referring to the management
agreement and describing the diminishment; or
. we relocate our principal offices without TeleCorp Management Corp.'s
consent to a location more than 50 miles from our principal offices in
Arlington, Virginia.
If TeleCorp Management Corp. terminates the agreement for the two preceding
reasons or if we terminate the agreement because of a breach by TeleCorp
Management Corp., or we fail to comply with any of our credit agreements for
borrowed money in the amount of $25.0 million or more, TeleCorp Management
Corp. will be entitled to its management fee and annual bonus. Their annual
bonus will be determined as follows:
. if the date of termination is on or prior to June 30 or any applicable
calendar year, the annual bonus will be equal to a pro rata portion of
the annual bonus in respect of that year, as determined based upon our
achievement of the objectives for that year;
. if the date of termination is after June 30 of any applicable calendar
year, the annual bonus will be equal to the annual bonus payable in
respect of that year, as determined based upon our achievement of the
objectives for that year,
in either instance payable upon the later to occur of 30 days after
certification of our financial statements for that year and the last day of the
month after which we retained a new management service provider, and
conditioned upon TeleCorp Management Corp. having nominated a successor person
or persons, who are acceptable to our board of directors, and:
. who would not cause a significant and detrimental effect on our
eligibility to hold its PCS licenses and to realize the benefits, if
any, that we derive from TeleCorp Management Corp.'s status as a very
small business; and
. to whom our voting preference common stock and class C common stock will
be transferred by Mr. Vento and Mr. Sullivan.
Pursuant to the merger, Messrs. Vento and Sullivan will enter into a new
management agreement with the newly formed holding company which is
substantially similar to the original management agreement with the company.
Under the new management agreement, which will become effective on the closing
of the Tritel
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merger, if either Mr. Sullivan or Mr. Vento are removed without cause or leave
with good reason, then our repurchase rights with respect to Mr. Sullivan's and
Mr. Vento's unvested stock will terminate and Mr. Sullivan's and Mr. Vento's
unvested stock will become immediately vested.
The management agreement protects us if TeleCorp Management Corp. does not
nominate an acceptable person or persons to provide management services to
TeleCorp.
The shares of class A voting common stock and series E preferred stock that
Mr. Vento and Mr. Sullivan received under a securities purchase agreement vest
in accordance with the following schedule, which is contained in the management
agreement:
<TABLE>
<CAPTION>
Percent of
Vesting Date Shares
------------ ----------
<S> <C>
July 17, 1998................................................. 20%
July 17, 2000................................................. 15%
July 17, 2001................................................. 15%
July 17, 2002................................................. 15%
July 17, 2003................................................. 15%
</TABLE>
The remaining shares vest according to the completion of different steps in
our minimum construction plan.
We are obligated to repurchase from Mr. Vento and Mr. Sullivan, and they are
required to sell to us, following the termination of the management agreement
for any reason, the amount of our class A voting common stock, up to 5,764,596
shares, and our series E preferred stock, up to 18,219 shares, that have not
yet vested.
During the term of the management agreement, and under limited circumstances
for a period following termination, TeleCorp Management Corp., Mr. Vento and
Mr. Sullivan are prohibited from assisting or becoming associated with any
person or entity, other than as a holder of up to 5% of the outstanding voting
shares of any publicly traded company, that is actively engaged in the business
of providing mobile wireless communications services in our territory, and from
employing any person who we employed unless that person was not employed by us
for a period of at least six months.
Employment Agreement
On July 17, 1998, we entered into an employment agreement with Julie Dobson.
On February 27, 2000, we agreed to amend Ms. Dobson's employment agreement to
be effective upon the closing of the merger.
The Original Agreement. Under the original agreement Ms. Dobson serves as
our Chief Operating Officer at a base annual salary of $250,000. Ms. Dobson is
eligible under the employment agreement, at our board of directors' discretion,
to receive a potential annual bonus based upon the achievement of objectives
established by the compensation committee of the board of directors.
Ms. Dobson's employment agreement provides that she is an employee-at-will.
We will reimburse the reasonable expenses that she incurs while performing her
services under her employment agreement and she may participate in our employee
benefit plans available to employees of comparable status and position.
If Ms. Dobson should die, we will pay any amounts owed her under her
employment agreement accrued prior to her death to her estate, heirs and
beneficiaries. All family medical benefits under the employment agreement for
the benefit of Ms. Dobson will continue for six months after death.
If we terminate Ms. Dobson for cause, or she voluntarily quits, we will pay
her any amounts that we owe her that accrued prior to the cessation of
employment. If we terminate her other than for cause, we will pay
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Ms. Dobson an amount equal to her then annual base salary, at normal payroll
intervals, as well as continue to cover her under our employee benefit plans
for 12 months. Cause is:
. engaging in misconduct which has caused demonstrable and serious injury,
financial or otherwise, to us or our reputation;
. being convicted of a felony or misdemeanor as evidenced by a judgment,
order or decree of a court of competent jurisdiction;
. failing to comply with our board of directors' directions, or neglecting
or refusing to perform the executive's duties or responsibilities,
unless changed significantly without the executive's consent; or
. violating the employment agreement or restricted stock grant plan.
Under her employment agreement, Ms. Dobson is subject to confidentiality
provisions, and has agreed, for one year after cessation of employment with us,
to non-competition and non-solicitation provisions and to limit public
statements concerning the company.
The Amended Agreement. The amendment to the original employment agreement
provides that if:
. we terminate Ms. Dobson's employment without cause; or
. Ms. Dobson terminates her employment with us because:
(i) we failed to: (a) make payment of Ms. Dobson's annual base
salary or bonus, (b) reimburse Ms. Dobson for expenses she incurred
while performing her duties, and (c) include Ms. Dobson in all benefit
plans for which she qualified;
(ii) we cause a material breach of the amended agreement;
(iii) Ms. Dobson is demoted or removed from her offices or there is
a material diminishment of her responsibilities, duties or status;
in each case within 30 days of Ms. Dobson's written notice of the occurrence
of the event, or
(iv) we relocate our offices to a location more than 50 miles from
our principal offices in Arlington, Virginia without Ms. Dobson's
approval,
then any shares of our stock which were granted to Ms. Dobson pursuant to a
stock or award plan that had not vested will immediately vest. Neither the
merger nor the contribution will cause the demotion or diminishment of Ms.
Dobson's duties or responsibilities.
1998 Restricted Stock Plan
In July 1998 we established the TeleCorp PCS, Inc. 1998 Restricted Stock
Plan to award key employees shares of our series E preferred stock and class A
voting common stock. Each award is subject to a five- or six-year vesting
schedule that depends on the employee's date of hire, with unvested shares
being redeemed by us for $0.003 per share upon termination of employment. The
shares granted are subject to the same transfer restrictions and repurchase
rights as shares held by AT&T and our other initial investors. As of June 30,
2000, 6,655 shares of series E preferred stock and 3,780,233 shares of class A
voting common stock were outstanding under this plan. We repurchased 1,527
shares of series E preferred stock and 1,063,849 shares of class A voting
common stock from our stockholders, which we had granted under this plan, and
we have regranted some of these repurchased shares under this plan. Any shares
under the 1998 Restricted Stock Plan not granted on or prior to July 17, 2003
will be granted to Messrs. Vento and Sullivan.
1999 Stock Option Plan
On July 22, 1999, we implemented the 1999 Stock Option Plan to award
employees and members of our board of directors options to acquire shares of
our class A voting common stock. Our board of directors has the
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discretion to determine the terms of any options granted under this plan. We
have reserved 1,814,321 shares of our class A voting common stock for issuance
under this plan. On July 22, 1999, our board of directors approved the grant of
options to virtually all of our employees and three of our directors to
purchase an aggregate of 581,967 shares of class A voting common stock under
our plan at an exercise price of $0.0065 per share, the estimated fair value of
the class A voting common stock on the date of grant. We effected these grants
on August 31, 1999. On December 17, 1999, our board of directors also approved
the grant of options to employees employed on or prior to December 31, 1999 who
had not previously been granted options to purchase an aggregate of
approximately 260,000 shares of our class A voting common stock at a below fair
market value exercise price of $20.00 per share. These grants were effective as
of January 1, 2000. On March 20, 2000, our board of directors approved the
grant of options to newly hired employees to be granted on the last day of the
month the employee was hired at a per share price equal to the greater of the
estimated fair market value on that day or $44.02. As of June 30, 2000 we had
not granted any options to purchase shares of class A voting common stock to
employees hired from January 1, 2000 through June 30, 2000. All of the options
granted vest ratably over a three to four year period.
Separation Agreement
On March 8, 1999, we entered into a separation agreement with Mr. Dowski
under which we paid Mr. Dowski a lump sum payment of $105,000 plus additional
amounts representing unused vacation time and travel and relocation
reimbursements and an aggregate of $210,000 payable in 12 installments of
$17,500 per month. We also repurchased 577 shares of Mr. Dowski's series E
preferred stock and 406,786 of Mr. Dowski's class A voting common stock for an
aggregate amount of approximately $19.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of our class A voting common stock and voting preference common stock
as of June 30, 2000, for:
. each person known to us to beneficially own more than 5% of the
outstanding shares of our class A voting common stock;
. our directors;
. the Chief Executive Officer and the three other most highly compensated
executive officers who were serving as executive officers during 1999;
and
. all of our executive officers and directors, as a group.
Except as otherwise noted, the named individual has sole voting and
investment power with respect to such securities.
<TABLE>
<CAPTION>
Percentage of
Percentage of Outstanding Voting
Number of Outstanding Class A Preference Common
Shares of Voting Common Stock Stock Beneficially
Class A Beneficially Owned Owned Percent of
Voting ---------------------- ---------------------- Voting Power
Common Stock In Holding In Holding in Holding
Beneficially In TeleCorp Company In TeleCorp Company Company
Owned in before the after the before the after the After the
Stockholders TeleCorp(1) Merger Merger Merger(2) Merger Merger(3)
------------ ------------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Chase Capital Partners.. 15,618,648(4) 17.8 8.8 -- -- 3.8
Equity-Linked Investors
II..................... 14,835,023(5) 16.9 8.3 -- -- 3.6
Hoak Communications
Partners, L.P. ........ 10,974,781(6) 12.5 6.1 -- -- 2.7
Whitney Equity Partners,
L.P.................... 9,100,865(7) 10.4 5.1 -- -- 2.2
Media/Communications
Partners............... 5,923,519(8) 6.7 3.3 -- -- 1.5
AT&T Wireless PCS,
LLC.................... 17,867,452(9) 17.4 23.2 -- -- 12.4
Michael R. Hannon....... 15,618,648(4) 17.8 8.8 -- -- 3.8
Michael Schwartz........ 17,867,452(9) 17.4 23.2 -- -- 12.4
William Hague........... 17,867,452(9) 17.4 23.2 -- -- 12.4
Rohit M. Desai.......... 14,835,023(5) 16.9 8.3 -- -- 3.6
James M. Hoak........... 10,974,781(6) 12.5 6.1 -- -- 2.7
Scott I. Anderson....... 499,789(10) * * -- -- *
William Kussell......... 499,789(11) * * -- -- *
Gerald T. Vento......... 4,749,654(12) 5.4 2.7 50.0 49.95 26.2
Thomas H. Sullivan...... 3,394,229(13) 3.9 1.9 50.0 49.95 25.9
Julie A. Dobson......... 1,602,879(14) 1.8 * -- -- *
Robert Dowski........... 37,090(15) * * -- -- *
Directors and Executive
Officers as a Group (11
persons)............... 68,603,142 66.9 47.4 100.0 99.9 75.0(16)
</TABLE>
--------
* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission,
percentages of beneficial ownership of the class A voting common stock are
calculated assuming that shares of class A voting common stock issuable
upon conversion of securities convertible into class A voting common stock
are outstanding for purposes of each respective stockholder or group, but
not outstanding for purposes of computing the percentage of any other
person. Included in the calculation of beneficial ownership are shares of
class A voting common stock issuable upon conversion or exercise of
securities within 60 days of June 30, 2000. The number of shares of class
A voting common stock held in holding company after the merger remains
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the same for each person or entity listed in the table except that: (i)
AT&T will hold an aggregate of 47,978,426 shares of class A voting common
stock, consisting of 18,288,835 shares of class A voting common stock;
14,912,778 shares of series F preferred stock convertible into 14,717,715
shares of class A voting common stock and 195,063 shares of class D common
stock of holding company; and 46,374 shares of series G preferred stock
convertible into 14,971,876 shares of class A voting common stock and
9,494 shares of class F common stock, (ii) Scott Anderson will hold an
aggregate of 502,388 shares of class A voting common stock, which includes
options to purchase an aggregate of 10,005 shares of holding company class
A voting common stock, consisting of the conversion of options to purchase
2,280 shares of Tritel class A voting common stock and 7,725 shares of
TeleCorp class A voting common stock, and 492,064 shares of class A common
stock held by TeleCorp Investment Corp II, L.L.C. and (iii) TeleCorp's
directors and executive officers as a group hold 98,716,886 shares of
holding company class A voting common stock.
(2) Mr. Vento and Mr. Sullivan each own 1,545 shares of voting preference
stock. Together, the voting preference stock possesses 50.1% of the
voting power of all shares of TeleCorp's capital stock. Mr. Vento and Mr.
Sullivan are required to vote their shares of voting preference stock
together on all matters.
(3) The percentage of voting power held in holding company assumes the
conversion of 14,912,778 shares of series F preferred stock held by AT&T
into 14,717,715 shares of class A voting common stock and 195,063 shares
of class D common stock of holding company and 46,374 shares of series G
preferred stock held by AT&T into 14,971,876 shares of class A voting
common stock and 9,494 shares of class F common stock of holding company.
(4) Consists of 15,265,692 shares of class A voting common stock held by CB
Capital Investors, L.P., an affiliate of Chase Capital Partners, and
352,956 shares of class A voting common stock held by TeleCorp Investment
Corp., L.L.C., of which CB Capital Investors, LLC owns a majority of the
membership interest. These shares may also be deemed to be beneficially
owned by Mr. Hannon, a general partner of Chase Capital Partners, the
non-managing member of CB Capital Investors, LLC, who disclaims
beneficial ownership of all of these shares. The address of these
stockholders and of Mr. Hannon is 1221 Avenue of the Americas, 46th
Floor, New York, New York 10020.
(5) Consists of 8,848,318 shares of class A voting common stock held by
Private Equity Investors III, L.P. and 5,986,705 shares of class A voting
common stock held by Equity-Linked Investors-II. Each of these
stockholders is an affiliate of Desai Capital management. These shares
may also be deemed to be beneficially owned by Mr. Desai, the managing
general partner of each of these stockholders, who disclaims beneficial
ownership of all of these shares. The address of these stockholders and
Mr. Desai is 540 Madison Avenue, 36th Floor, New York, New York 10022.
(6) Consists of 919,881 shares of class A voting common stock held by HCP
Capital Fund, L.P. and 10,054,900 shares of class A voting common stock
held by Hoak Communications Partners, L.P. These shares may also be
deemed to be beneficially owned by Mr. Hoak, Principal and Chairman of
the manager of these stockholders, stockholder of the manager and General
Partner of Hoak Communications Partners, L.P. and limited partner and
stockholder of the General Partner of HCP Capital Fund, L.P. The address
of these stockholders and Mr. Hoak is One Galleria Tower, 13355 Noel
Road, Suite 1050, Dallas, Texas 75240.
(7) Consists of 6,255,861 shares of class A voting common stock held by J.H.
Whitney III, L.P., 150,744 shares of class A voting common stock held by
Whitney Strategic Partners III, L.P.; and 2,694,260 shares of class A
voting common stock held by Whitney Equity Partners, L.P. The address of
these stockholders is 177 Broad Street, 15th Floor, Stamford, Connecticut
06901.
(8) Consists of 5,657,726 shares of class A common stock held by
Media/Communications Partners III Limited Partnership and 265,793 shares
of class A voting common stock held by Media/Communications Investors
Limited Partnership. These shares may also be deemed to be beneficially
owned by Mr. Wade, President of M/C Investor General Partner-J, Inc.,
which is a General Partner in Media Communications Investors Limited
Partnerships and Manager of M/C III, L.L.C., which is a General Partner
in Media Communications Partners III Limited Partnership. The address of
these stockholders and Mr. Wade is 75 State Street, Suite 2500, Boston,
Massachusetts 02109.
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(9) Consists of (1) 3,149,737 shares of class A voting common stock and
14,912,778 shares of series F preferred stock, which is convertible into
14,717,715 shares of class A voting common stock and 195,063 shares of
class D common stock, held by AT&T Wireless PCS, LLC. These shares may
also be deemed to be held by Mr. Schwartz, Mr. Hague and various AT&T
affiliates. Mr. Schwartz and Mr. Hague disclaim beneficial ownership of
all of these shares. The address of Mr. Schwartz and Mr. Hague is c/o AT&T
Wireless PCS, LLC 7277 164th Avenue, N.E., Redmond, Washington 98052.
(10) Consists of 492,064 shares of class A voting common stock held by TeleCorp
Investment Corp. II, L.L.C., of which Cedar Grove Partners, LLC owns
4.49%, and vested options to purchase 7,725 shares of class A voting
common stock held by Mr. Anderson. Mr. Anderson is a principal of Cedar
Grove Partners, LLC. The address of Mr. Anderson is c/o Cedar Grove
Investments, 2415 Carillon Point, Kirkland, WA 98033.
(11) Consists of 492,064 shares of class A voting common stock held by TeleCorp
Investment Corp. II, L..L.C., of which Mr. Kussell owns 2.99% and vested
options to purchase 7,725 shares of class A voting common stock held by
Mr. Kussell. The address of Mr. Kussell is c/o Allied Domecq Retailing
USR, 15 Pacella Park Drive, Randolph, MA 02368.
(12) Consists of 492,064 shares of class A voting common stock held by TeleCorp
Investment Corp. II, L.L.C. and 4,257,590 shares of class A voting common
stock including all vested and unvested shares, held by Mr. Vento. Mr.
Vento serves as a manager and is a member of TeleCorp Investment Corp. II,
L.L.C. The address of the stockholder is c/o TeleCorp PCS, Inc. 1010 N.
Glebe Road, Suite 800, Arlington, VA 22201.
(13) Consists of 492,064 shares of class A voting common stock held by TeleCorp
Investment Corp. II, L.L.C.; 2,899,965 shares of class A voting common
stock including all vested and unvested shares, held by Mr. Sullivan; and
2,200 shares of class A voting common stock held by Mr. Sullivan's spouse.
Mr. Sullivan serves as a manager and is the manager of a member of
TeleCorp Investment Corp. II, L.L.C. The address of Mr. Sullivan is c/o
TeleCorp PCS, Inc. 1010 N. Glebe Road, Suite 800, Arlington, VA 22201.
(14) Consists of 1,601,279 shares of class A voting common stock held by Ms.
Dobson and 1,600 shares of class A voting common stock held by Ms.
Dobson's spouse.
(15) Robert Dowski's employment with TeleCorp terminated on March 8, 1999.
(16) This reflects the percentage of voting power our 11 directors and officers
will hold in holding company.
After consummation of the merger all of our equity securities will be owned
by the holding company.
Compensation Committee Report On Executive Compensation
Role of the Compensation Committee
The compensation committee is comprised of four members of our board of
directors, Mr. Michael Schwartz, Mr. Rohit Desai, Mr. Michael Hannon and Mr.
Scott Anderson, each of whom is neither a current nor former employee of our
company. The compensation committee sets our overall compensation principles
and reviews the entire compensation program at least once a year. The base
salaries of our executive officers are determined by the compensation
committee. In establishing base salaries for executive officers, the
compensation committee considers numerous factors such as: a review of salaries
in comparable telecommunications companies, the executive's responsibilities,
the executive's importance to the company, the executive's performance in the
prior year, historical salary levels of the executive and relative salary
levels within the company. To date, the compensation committee has not
considered the advice of independent outside consultants in determining whether
the amounts and types of compensation we pay to our officers are appropriate,
but the compensation committee may choose to do so from time to time in the
future.
Executive Compensation Guiding Principles
The goal of our compensation program is to attract, motivate and retain the
highly talented individuals we need to be a market leader in a highly
competitive industry. We developed the program with our leadership
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team to support our aggressive business strategy. The following principles
guided the development of the program:
Compensation Should Be Related To Performance
We believe that the better an individual performs, the higher the
individual's compensation should be. We also believe that individual
compensation should be tied to how well the company performs financially. That
is, when the company's performance exceeds its pre-established objectives, the
bonus pool will be higher and to the extent the company's performance does not
meet these objectives, the bonus pool is reduced, and to the extent the
company's performance is less than pre-determined levels, any award payment
will be subject to the compensation committee's discretion.
Our Employees Should Own Our Stock
We provide our employees at virtually all levels with a way to become
stockholders. In August 1999 we made stock option grants to all of our
employees employed prior to July 1, 1999 and in December 1999 we approved the
grant of stock options to all employees employed on or before December 31, 1999
who were not included in the previous grant of options. To date, the executive
officers have not received stock options under our 1999 Stock Option Plan. Our
goal is to encourage each employee to act like an owner of the business.
Incentive Compensation Should Be A Greater Part Of Total Compensation For More
Senior Management
The proportion of an individual's total compensation that depends on
individual and company performance objectives should increase as the individual
becomes more senior in the company.
Other Goals
Our compensation program is designed to balance short and long-term
financial objectives, build stockholder value and reward individual, team and
corporate performance.
We review compensation survey data from several independent sources to
ensure that our total compensation program is competitive. Companies selected
include those with whom we compete for executive and other employee talent. Our
competitors for executive and other employee talent are not necessarily the
same companies that are included in the index used to compare stockholder
returns because we may require specialized skills from a more varied set of
backgrounds.
Components of the Compensation Program
The principal components of our compensation program, other than the
employee benefits, including a 401(k) retirement plan and medical insurance
plans that are available to all of our employees, include the following:
. Base Salary;
. Short Term Incentives: Annual Bonus;
. Long Term Incentives: Stock Options; and
. Special Equity Grants: Stock Options and Restricted Stock Grants.
Base Salary. We set base salaries for all employees, officers and executives
at levels that are comparable to similar positions at companies with whom we
compare for compensation purposes. While we compare salaries on a regular
basis, we usually adjust salaries only when our review shows a significant
deviation. This
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is in line with our philosophy that compensation above competitive levels
should come primarily from the variable portion of the compensation package.
Short Term Incentives: Bonus. The annual bonus component of incentive
compensation is intended to align the compensation of our employees, officers
and executives with the short term, or annual, performance of the company. In
1999, the annual bonus opportunity was based on us achieving a number of
financial, operating and other objectives, including, without limitation,
meeting revenue and expense targets, meeting buildout requirements for our
licenses and the completion of our initial public offering of securities. When
we evaluate performance, we consider factors such as leadership, customer
focus, business knowledge and execution of our business strategy.
Long Term Incentives: Stock Options. We make grants of stock options to
independent members of the company's board of directors, as well as most of our
other employees. On July 22, 1999, our board approved the grant of options to
virtually all our employees and three of our directors to purchase an aggregate
of 581,967 shares of class A voting common stock under our plan at an exercise
price of $0.0065 per share, the estimated fair value of the class A voting
common stock on the date of grant. We effected these grants on August 31, 1999.
On December 17, 1999 our board also approved the grant of options to employees
employed on or prior to December 31, 1999 who had not previously been granted
options to purchase an aggregate of approximately 260,000 shares of our class A
voting common stock at a below fair market exercise price of $20.00 per share.
These grants will be effective as of January 1, 2000. We currently plan to
issue future options at an exercise price equal to the fair market value of our
class A voting common stock on the day we grant the options. These options
generally vest over a four year period of continuous service to the company and
expire ten years from the date of the grant. We base target grants on a
comparison to our selected sample group; however, grants to individuals can be
adjusted based on individual performance, retention and other special
circumstances.
Special Equity Grants: Stock Options and Restricted Stock Grants. We believe
that ownership of our stock is a key element of our compensation program and
that retention of our senior management team is essential to our future
success, both in the short and long term. From time to time, we may make
special equity grants to accomplish one or both of these objectives. Depending
on the circumstances, a special equity grant may take the form of a stock
option, restricted stock or a combination of the two.
Compensation of the Chief Executive Officer
In fiscal 1999, our most highly compensated officer was Gerald T. Vento, the
chairman of the board and chief executive officer. Each year, the board of
directors agrees on a set of objectives with Mr. Vento. At the end of the year,
the compensation committee reviews Mr. Vento's performance against those
objectives. This review includes analysis of our short and long term financial
results, as well as our progress towards our strategic objectives. In addition,
we consider individual factors such as Mr. Vento's leadership ability and
ability to execute our business strategy and our relationship with customers
and the investment community.
Base Salary
In the year ended December 31, 1999, we did not change Mr. Vento's annual
base salary from 1998 of $300,000. The compensation committee believes that Mr.
Vento's current annual base salary is competitive with those paid by other
companies in this industry to their chief executive officers.
Short Term Incentives
For fiscal 1999, Mr. Vento's annual bonus was based on corporate objectives,
as determined by our board of directors, including meeting revenue and expense
targets, meeting buildout requirements for our licenses, our performance
compared to our competitors and the completion of our initial public offering.
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When the compensation committee assessed Mr. Vento's performance and
determined his short-term incentive award at the end of the year, it considered
the following accomplishments:
. we ended 1999 with over 142,000 customers;
. we successfully completed our debt offering in April 1999;
. expenses continued to be in line with expectations;
. we successfully completed our initial public offering of securities in
November 1999; and
. at December 31, 1999 we had successfully launched service in 26 markets
with networks covering approximately 66% of the population where the
company held licenses.
Section 162(m)
Under Section 162(m) of the Internal Revenue Code of 1986, as amended, we
may not deduct certain executive compensation (in the form of cash, options or
stock) received by any of our three executive officers, when aggregated with
all other compensation received by such executive, in excess of $1.0 million
for federal income tax purposes unless such compensation is awarded under a
performance-based plan approved by our stockholders. To date, all awards of
stock to the executive officers have been made pursuant to agreements or plans
approved by our stockholders. The compensation committee intends to review the
potential effect of Section 162(m) when making future recommendations regarding
the compensation of the executive officers.
Committee Conclusion
The compensation committee believes that the caliber and motivation of our
employees and the quality of our leadership determine our long term
performance. The compensation committee further believes that it is in the
company's interests to compensate executives well when performance meets or
exceeds the high standards set by the board of directors, so long as there is
an appropriate downside risk to compensation when performance falls short of
such high standards. The compensation committee was satisfied with our progress
for 1999 and believes that the compensation paid was consistent with our
philosophy of linking executive compensation with the creation of stockholder
value.
This report was submitted by the compensation committee, composed of:
<TABLE>
<S> <C>
Michael Schwartz, Chairman Scott Anderson
Rohit Desai Michael Hannon
</TABLE>
Compensation Committee Interlocks and Insider Participation
Our compensation committee consists of Messrs. Anderson, Desai, Hannon and
Schwartz (chairman), none of whom is an employee or consultant of the company.
In addition, none of our executive officers has served as a director or member
of the compensation committee of any other entity whose executive officer
served as a director or member of our Compensation Committee.
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Executive Compensation
Summary Compensation Table
The following table contains information about the cash and other
compensation that we paid in 1998 and 1999 to Mr. Vento, our Chief Executive
Officer, and the three other most highly paid executive officers. The bonuses
in the table are shown in the year in which they were earned. In general,
bonuses were paid in the year after they were earned.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------ ------------
Other Annual Restricted All Other
Name and Principal Salary Bonus Compensation Stock Awards Compensation
Position* Year ($) ($) ($) ($) ($)
------------------ ----- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gerald T. Vento............ 1999 300,000(1) 300,000 -- -- --
Chief Executive Officer 1998 213,461(2) 157,500 -- -- --
and Chairman
Thomas H. Sullivan......... 1999 250,000(3) 250,000 -- -- --
Executive Vice President 1998 206,931(4) 125,000 106,637(5) -- --
and Chief Financial
Officer
Julie A. Dobson............ 1999 250,000 250,000 67,871(6) 47,574(7) --
Vice President and Chief 1998 124,289 155,000 66,134(8) 5,494(9) --
Operating Officer
Robert Dowski(10)............1999. 35,000 -- -- -- 275,497(11)
Chief Financial Officer 1998 181,196 105,000 -- 2,064(12) --
</TABLE>
--------
* We historically have had only four officers that constitute executive
officers, and as of March 1999, have had only three officers that
constitute executive officers as a result of the departure of Mr. Dowski in
March 1999.
(1) This amount consists of $300,000 that TeleCorp Management Corp. paid to
Mr. Vento out of amounts we paid to TeleCorp Management Corp. under the
management agreement.
(2) This amount consists of $111,538 that TeleCorp Management Corp. paid to
Mr. Vento out of amounts we paid to TeleCorp Management Corp. under the
management agreement and $101,923 that TeleCorp Holding Corp. paid to Mr.
Vento.
(3) This amount consists of $250,000 that TeleCorp Management Corp. paid to
Mr. Sullivan out of amounts we paid to TeleCorp Management Corp. under the
management agreement.
(4) This amount consists of $92,947 that TeleCorp Management Corp. paid to Mr.
Sullivan out of amounts we paid to TeleCorp Management Corp. under the
management agreement and $113,984 that TeleCorp Holding Corp. paid to Mr.
Sullivan.
(5) This amount consists of $103,637 in relocation expenses that TeleCorp
Management Corp. paid to Mr. Sullivan out of amounts that we paid to
TeleCorp Management Corp. under the management agreement and $3,000 that
we paid on behalf of Mr. Sullivan in our 401(k) plan.
(6) This amount consists of $67,871 in relocation expenses that TeleCorp
Communications paid to Ms. Dobson.
(7) Consists of 833 shares of series E preferred stock, valued at $52.00 per
share, and 532,308 shares of class A voting common stock, valued at $0.008
per share, issued under our restricted stock plan on July 1, 1999.
(8) This amount consists of $66,134 in relocation expenses that TeleCorp
Communications paid to Ms. Dobson.
(9) Consists of 2,287 shares of series E preferred stock, valued at $1.00 per
share, and 1,068,971 shares of class A voting common stock, valued at
$0.003 per share, issued under our restricted stock grant plan on July 17,
1998.
(10) Mr. Dowski ceased to be employed with us as of March 8, 1999, except for
transition support.
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(11) This amount consists of amounts we paid or are required to pay to Mr.
Dowski pursuant to his separation agreement as follows: $210,000 payable
in 12 monthly installments of $17,500 each, ending March 2000. $17,769 for
his vacation balance and $47,728 in relocation expenses.
(12) Consists of 714 shares of series E preferred stock, valued at $1.00 per
share, and 449,877 shares of class A voting common stock, valued at $0.003
per share, issued under our restricted stock grant plan on July 17, 1998.
In March 1999, we repurchased 577 of Mr. Dowski's shares of series E
preferred stock and 406,786 of Mr. Dowski's shares of class A voting
common stock, for a total of approximately $19, which is not reflected in
the table.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AT&T Agreements
On January 23, 1998, we and AT&T announced the formation of a venture to
finance, construct and operate a wireless communications network using the AT&T
and SunCom brand names and logos together, giving equal emphasis to both. AT&T
contributed licenses to us in exchange for an equity interest in us. The
venture provides the basis for an alliance between AT&T and us to provide
wireless communications services in particular markets. These agreements are
unique and were heavily negotiated by the parties. The parties entered into
these agreements as a whole, and, taken as a whole, we believe that the terms
of these agreements were no more favorable to any of the parties than could
have been obtained from third parties negotiated at arm's length. AT&T, as a
result of these agreements, owns shares of our capital stock. William W. Hague
serves as the Senior Vice President, Corporate Development, Mergers and
Acquisitions at AT&T Wireless Services, and currently is one of our directors.
Mr. Hague previously served as one of our directors from July 1998 through
March 1999 and served as a director of our predecessor company from April 1998
through July 1998. In addition, Mary Hawkins-Key, formerly one of our
directors, was a Senior Vice President of AT&T Wireless Services until April
2000. Michael Schwartz, one of our current directors, was a Vice President of
AT&T Wireless Services's Corporate Development, Mergers and Acquisitions group
until his departure in March 2000, and he continues to provide services to AT&T
on a part-time basis. The terms of the venture and the alliance are described
in a number of agreements, summaries of which are set forth below.
Securities Purchase Agreement
Under a securities purchase agreement, dated as of January 23, 1998, as
amended, among us, our initial investors, the former stockholders of TeleCorp
Holding Corp., and Mr. Vento and Mr. Sullivan, we received PCS licenses from
AT&T Wireless and TWR Cellular, Inc. in exchange for shares of our series A
preferred stock, series D preferred stock and series F preferred stock and
$21.0 million in cash. Our initial investors include AT&T Wireless, Chase
Capital Partners, Desai Associates, Hoak Capital Corporation, J. H. Whitney &
Co., M/C Partners, One Liberty Fund III, L.P., Toronto Dominion Investments,
Inc. and Northwood Capital Partners. Under the securities purchase agreement,
the initial investors other than AT&T Wireless agreed to contribute $128.0
million to us in exchange for shares of our series C preferred stock, class A
voting common stock, class C common stock, and class D common stock. In
addition, the securities purchase agreement provides that, upon our closing of
an acquisition of PCS licenses covering populations of one million or more
people, our initial investors other than AT&T Wireless will contribute an
additional $5.0 million to us in exchange for additional shares of our series C
preferred stock and class A voting common stock. This obligation was satisfied
in connection with our purchase of licenses of Digital PCS LLC. Approximately
$39.0 million of the contributions to be made by our initial investors other
than AT&T Wireless were made upon the closing of the transactions contemplated
by the securities purchase agreement, which occurred on July 17, 1998. The
remainder of the contributions will be made over a three-year period ending in
2001. The obligations of such initial investors to make their remaining
contributions are:
. irrevocable and unconditional, and not subject to counterclaim, set-off,
deduction or defense, or to abasement, suspension, deferment, diminution
or reduction for any reason whatsoever; and
. secured by a pledge of the shares of our capital stock issued to each
such initial investor under the securities purchase agreement.
Under the securities purchase agreement, Mr. Vento and Mr. Sullivan
exchanged their shares of stock in TeleCorp Holding Corp. for shares of our
series E preferred stock, class A voting common stock, class C common stock and
class D common stock. Mr. Vento and Mr. Sullivan also each received 1,545
shares of our voting preference stock in exchange for shares of stock we
previously issued to them. The other former stockholders of TeleCorp Holding
Corp. exchanged their shares of stock in TeleCorp Holding Corp. for shares of
our series C preferred stock, class A voting common stock, class C common stock
and class D common
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stock. The table below indicates each of the parties to the securities purchase
agreement, their contribution and the consideration received:
Stockholder Contribution Consideration Received
. AT&T Wireless . PCS licenses . 30,650 shares of our
covering some of series A preferred stock
the basic trading . 15,741 shares of our
areas or other series D preferred stock
areas within the . 4,735,410 shares of our
St. Louis major series F preferred stock
trading area, the
Louisville-
Lexington-
Evansville major
trading area, and
the Boston-
Providence major
trading area
. TWR Cellular, . PCS licenses . 36,073 shares of our
Inc. covering the Little series A preferred stock
Rock, Arkansas . 18,526 shares of our
major trading area series D preferred stock
and covering some . 5,573,267 shares of our
of the basic series F preferred stock
trading areas or
other areas within
the Memphis-Jackson
major trading area
. Chase Capital . $27,782,016 . 28,942 shares of our
Partners . 363 class A shares series C preferred stock
Contribution of TeleCorp Holding . 8,500,982 shares of our
Corp. class A voting common
. 2,296 class C stock
shares of TeleCorp . 180,459 shares of our
Holding Corp. class D common stock
. 58 series A
preferred shares of
TeleCorp Holding
Corp.
. Desai Associates . $27,782,016 . 27,782 shares of our
series C preferred stock
. 8,148,027 shares of our
class A voting common
stock
. 26,914 shares of our
class C common stock
. 176,680 shares of our
class D common stock
. Hoak Capital . $20,836,512 . 20,837 shares of our
Corporation series C preferred stock
. 6,111,022 shares of our
class A voting common
stock
. 20,184 shares of our
class C common stock
. 132,512 shares of our
class D common stock
. J.H. Whitney & . $17,363,760 . 17,364 shares of our
Co. series C preferred stock
. 5,092,518 shares of our
class A voting common
stock
. 16,822 shares of our
class C common stock
. 110,427 shares of our
class D common stock
. Entergy . $13,891,008 . 15,051 shares of our
Technology . 1,974 class B series C preferred stock
Holding Company, shares of TeleCorp . 4,426,969 shares of our
who has since Holding Corp. class A voting common
transferred all . 685 class C shares stock
of our capital of TeleCorp Holding . 106,151 shares of our
stock it owned to Corp. class D common stock
other of our . 58 series A
initial investors preferred shares of
TeleCorp Holding
Corp.
. M/C Partners and . $10,418,256 . 11,578 shares of our
M/C Investors . 363 class A shares series C preferred stock
of TeleCorp Holding . 3,408,462 shares of our
Corp. class A voting common
. 2,296 class C stock
shares of TeleCorp . 10,667 shares of our
Holding Corp. class C common stock
. 58 series A . 70,035 shares of our
preferred common class D common stock
stock shares of
TeleCorp Holding
Corp.
. One Liberty Fund . $3,472,752 . 5,004 shares of our series
III, LP . 837 class A shares C preferred stock
Contribution of TeleCorp Holding . 1,431,461 shares of our
Corp. class A voting common
. 2,273 class C stock
shares of TeleCorp . 4,039 shares of our class
Holding Corp. C common stock
. 77 series A . 26,506 shares of our class
preferred common D common stock
stock shares of
TeleCorp Holding
Corp.
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Contribution Consideration Received
Stockholder
. $3,472,752 . 3,473 shares of our
. Toronto Dominion series C preferred stock
Investments . 1,018,504 shares of our
series A voting common
stock
. 3,365 shares of our
series C common stock
. 22,084 shares of our
class D common stock
. Northwood Capital . $2,430,928 . 3,591 shares of our series
Partners and . 363 class A shares C preferred stock
Northwood of TeleCorp Holding . 1,065,908 shares of our
Ventures Corp. class A voting common
. 2,296 class C stock
shares of TeleCorp . 2,929 shares of our class
Holding Corp. C common stock
. 58 series A . 19,241 shares of our class
preferred shares of D common stock
TeleCorp Holding
Corp.
. Gilde Investment . 8 class A shares of . 15 shares of our series C
Fund B.V. TeleCorp Holding preferred stock
Corp. . 4,168 shares of our class
. 23 class C shares A voting common stock
of TeleCorp Holding . 6 shares of our class C
Corp. common stock
. 1 series A . 43 shares of our class D
preferred share of common stock
TeleCorp Holding
Corp.
. TeleCorp . 2,659 class C . 352,956 shares of our
Investment Corp., shares of TeleCorp class A voting common
L.L.C. Holding Corp. stock
. 58 series A . 575 shares of our class C
preferred shares of common stock
TeleCorp Holding . 3,780 shares of our class
Corp. D common stock
. 1,160 shares of our
series C preferred stock
. Gerald T. Vento . $450,000 . 1,545 shares of our
. 1,788 class A voting preferred common
shares of TeleCorp stock
Holding Corp. . 450 shares of our series
C preferred stock
. 8,729 shares of our
series E preferred stock
. 3,462,725 shares of our
class A voting common
stock
. 105,443 shares of our
class C common stock
. 2,861 shares of our class
D common stock
. Thomas H. . $100,000 . 1,545 shares of our
Sullivan . 1,112 class A voting preferred common
shares of TeleCorp stock
Holding Corp. . 100 shares of our series
C preferred stock
. 5,426 shares of our
Series E preferred stock
. 2,099,927 shares of our
class A voting common
stock
. 65,372 shares of our
class C common stock
. 637 shares of our class D
common stock
Our investors other than AT&T also committed in the securities purchase
agreement to make additional irrevocable equity contributions in the aggregate
amount of $5.0 million in return for the issuance of preferred and common stock
in connection with our acquisition of licenses from Digital PCS LLC. In
addition, upon the closing of the transactions contemplated by the securities
purchase agreement, we also issued to other members of management shares of
TeleCorp's series E preferred stock and class A voting common stock. Up to
35.7% of the class A voting common stock issued to members of management are
under our restricted stock plan. Shares issued under the restricted stock plan
are subject to forfeiture according to a schedule if we terminate the
employment of such stockholder within six years after the closing of the
securities purchase agreement.
Network Membership License Agreement
Under a network license agreement dated as of July 17, 1998 between AT&T and
us, AT&T granted to us a royalty-free, non-transferable, non-sublicensable,
non-exclusive, limited license to use some of their licensed marks in our
markets, including:
. the logo containing the AT&T name and globe design;
. the expression "Member, AT&T Wireless Services Network"; and
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. AT&T colors, graphics and overall configurations.
The licensed marks may only be used in connection with licensed activities.
These licensed activities include:
. providing our customers and resellers of our wireless services, solely
within the areas covered by our licenses, mobile wireless communications
services; and
. marketing and offering the licensed services within the areas covered by
our licenses with limited advertising outside our licensed area.
The license agreement also grants us the right to use licensed marks on
specified mobile phones distributed to our customers.
Except in specified instances, AT&T has agreed not to grant to any other
person a right to provide or resell, or act as agent for any person offering,
mobile wireless communications services under the licensed marks in our
licensed markets. AT&T retains all rights of ownership in the licensed marks,
subject to its exclusivity obligations to us, in both the areas covered by our
licenses and all other areas.
The license agreement restricts our use and modification of any of the
licensed marks. Although we may develop our own marks, we may not use them
together with the licensed marks without the prior approval of AT&T. Any
services we market or provide using the licensed marks must be of comparable
quality to similar services that AT&T markets and provided in areas that are
comparable to the areas covered by our licenses. We may take into account
commercial reasonableness and the relative stage of development of the licensed
areas to determine what is comparable service. We must also provide
sufficiently high quality services to provide maximum enhancement to and
protection of licensed marks, such as attaining specified levels of network
quality, audio quality, system performance and meeting customer care standards.
The license agreement also defines specific testing procedures to determine
compliance with these standards and affords us with a grace period to cure any
instances of noncompliance. Following the cure period, we must stop using the
licensed marks until we comply with the standards, or we may be in breach of
the license agreement and may lose our rights to the licensed marks.
We may not assign, sublicense or transfer, by change of control or
otherwise, any of our rights under the license agreement, except that the
license agreement may be, and has been, assigned to our lenders under our
senior credit facilities. After the expiration of any applicable grace and cure
periods under our senior credit facilities, the lenders may then enforce our
rights under the license agreement and assign the license agreement to any
person with AT&T's consent.
The initial term of the license agreement is for a period of five years,
which will be automatically renewed for an additional five-year period if each
party gives written notice to the other party of the election to renew the
license agreement and neither party gives notice of non-renewal.
The license agreement may be terminated by AT&T at any time in the event of
our significant breach and the exhaustion of any applicable cure periods, which
include:
. Our misuse of any licensed marks;
. Our bankruptcy;
. Our licensing or assigning of any of our rights under the license
agreement, except as permitted by the terms of the license agreement;
. Our loss of the licenses acquired from AT&T;
. Our failure to maintain AT&T's quality standards in any material
respect; or
. Our change of control, which is defined as a transaction, other than a
transfer by AT&T, that results in any person other than our initial
stockholders or our senior lenders acquiring beneficial ownership
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of more than 50% of our voting stock, or 33.3% of our voting stock if
the person acquiring our stock acquires more than our initial
stockholders hold at that time. Also included is a transaction that
results in any of the three largest telecommunications carriers,
excluding AT&T and any wireless carrier using TDMA technology, or any
regional bell operating company, or Microsoft, acquiring more than 15%
of our voting stock, excluding acquisitions through open market
transactions or when a majority of our directors are removed in a proxy
contest.
Our rights under the license agreement are also subject to the minimum
construction plan set forth in the stockholders' agreement. After the initial
term, AT&T may also terminate the license agreement in connection with a
disqualifying transaction.
Upon closing of the Digital PCS acquisition, the license agreement was
automatically amended to include the Baton Rouge, Houma, Hammond and
Lafayette, Louisiana basic trading areas under its scope. Upon closing of the
Puerto Rico acquisition, the license agreement was automatically amended to
include the San Juan major trading area under its scope. Upon the closing of
the Wireless 2000 acquisition, the license agreement was automatically amended
to include the Alexandria and Lake Charles, Louisiana basic trading areas and
certain other counties under the Monroe, Louisiana basic trading area under
its scope.
Stockholders' Agreement
As of July 17, 1998 we entered into a stockholders' agreement among us, our
initial investors, and Messrs. Vento and Sullivan, which sets guidelines for
our management and operations and restricts the sale, transfer or other
disposition of our capital stock.
Board of Directors. Our stockholders' agreement requires that any action of
our board of directors be approved by the affirmative vote of a majority of
our entire board of directors, except in circumstances where voting by
particular classes of our directors is required. Our stockholders' agreement
also provides that the our board of directors consists of nine directors. The
parties to the stockholders' agreement have agreed to vote all of their shares
of our class A voting common stock and voting preference stock to cause the
election of the following nine individuals to our board of directors:
. Mr. Vento and Mr. Sullivan, so long as each remains an officer of the
company and the management agreement with TeleCorp Management Corp.
remains in effect;
. two individuals selected by holders of a majority in interest of our
common stock beneficially owned by our initial investors other than AT&T
Wireless;
. two additional individuals selected by Mr. Vento and Mr. Sullivan, so
long as they remain officers of the company, who must be acceptable to
the holders of a majority in interest of our common stock beneficially
owned by our initial investors other than AT&T Wireless on the one hand,
and AT&T Wireless on the other hand;
. one individual nominated by AT&T Wireless in its capacity as the holder
of our series A preferred stock so long as AT&T has the right to
nominate one of our directors in accordance with our restated
certificate of incorporation;
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers of the company, who must be acceptable to AT&T Wireless;
and
. one individual selected by Mr. Vento and Mr. Sullivan, so long as they
remain officers of the company, who must be acceptable to the holders of
a majority in interest of our class A voting common stock beneficially
owned by our initial investors other than AT&T.
Our stockholders' agreement provides that when Federal Communications
Commission ownership restrictions no longer apply to us, our board of
directors will have seven members and the right of Mr. Vento and Mr. Sullivan
to appoint the individuals set forth in the last two items above will expire.
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Exclusivity. The parties to our stockholders' agreement have agreed that,
during the term of our stockholders' agreement, neither they nor any of their
respective affiliates will provide or resell, or act as the agent for any
person offering, within the areas covered by our licenses, wireless
communications services initiated or terminated using TDMA and portions of the
airwaves licensed by the Federal Communications Commission. The exception is
that AT&T and its affiliates may:
. resell or act as agent for us in connection with mobile wireless
communications services;
. provide or resell wireless communications services only to or from
specific locations, provided that any equipment sold in connection with
the service must be capable of providing our wireless communications
services; and
. resell mobile wireless communications services from another person in
any area where we have not placed a system into commercial service.
Additionally, with respect to some markets identified in the intercarrier
roamer services agreement with AT&T Wireless Services, each of the company and
AT&T Wireless Services has agreed to cause our respective affiliates in their
home carrier capacities to:
. program and direct the programming of customer equipment so that the
other party, in its capacity as the serving carrier, is the preferred
provider in these markets; and
. refrain from inducing any of its customers to change such programming.
AT&T Wireless has retained some PCS licenses within the areas covered by our
licenses for which we have a right of negotiation in the event of a proposed
transfer.
If we materially breach any of our obligations, AT&T Wireless may terminate
its exclusivity obligations under our stockholders' agreement and may terminate
our rights to the AT&T brand and logo under the license agreement if a default
continues after the applicable cure periods lapse. These material breaches
include, if:
. AT&T Wireless and its affiliates decide to adopt a new technology
standard other than TDMA in a majority of its markets, and we decline to
adopt the new technology;
. each portion of our network does not, within one year after being placed
into service, meet or exceed technical standards that AT&T has developed
regarding voice quality and performance of network and call completion
equipment. Each portion of our network must, within one year after being
placed into service, perform on a level, as measured by these standards
manuals, that meets or exceeds the levels achieved by the average of all
comparable wireless communications networks owned and operated by AT&T;
. we fail to satisfy specific percentages that our entire network,
measured as a single system, must meet, including as to percentage of
calls completed, percentage of established calls that are dropped,
percentages of calls that are not successfully transferred from one
network equipment site to another as a handset moves, as well as
technical standards regarding the functioning of network and call
connection equipment; or
. we fail to meet specified customer care, reception quality and network
reliability standards.
In all of our launched markets, we believe we currently meet all of the
standards that we are required to satisfy by the first anniversary of each
launch date.
The exclusivity provisions in the stockholders' agreement do not apply to
approximately 100,000 people that overlapped with the coverage area of licenses
AT&T purchased from Vanguard Cellular in Strafford, New Hampshire. We have
agreed with AT&T to exchange our licenses covering the Strafford, New Hampshire
market for an alternative license or licenses covering other people. These
exchanged populations will be covered under the scope of our agreements with
AT&T.
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Construction. The stockholders' agreement requires us to construct a PCS
system in the areas covered by our licenses according to a minimum construction
plan, which requires us to construct a system in areas covering:
. 20% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 1999, focusing on designated
areas of Memphis and New Orleans;
. 30% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2000, focusing on the
core urban and suburban cities of the San Juan metropolitan area;
. 40% of the total 1995 population of the area covered by our licenses in
Puerto Rico and U.S. Virgin Islands by May 25, 2001, and also focusing
on secondary cities throughout Puerto Rico;
. 40% of the total 1995 population of the area covered by our licenses by
July 17, 2000, and also focusing on designated areas of New England,
Little Rock and Missouri and enhancing coverage in all markets;
. 55% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2001 and also focusing on
secondary cities and the important associated connecting highways;
. 55% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2002, and continuing
to expand the secondary cities of Puerto Rico and key cities to the U.S.
Virgin Islands and the important associated connected highways;
. 70% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2002, and continuing to expand
the secondary cities and enhancing coverage of the core areas;
. 70% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2003, and continuing
to expand secondary cities and enhancing coverage and capacity of core
areas;
. 75% of the total 1995 population of the area covered by our licenses in
the mainland United States by July 17, 2003, and also focusing on adding
capacity sites and filling in the remaining suburban areas; and
. 75% of the total 1995 population of the area covered by our licenses in
Puerto Rico and the U.S. Virgin Islands by May 25, 2004, and also
focusing on adding capacity sites and filling in the remaining suburban
areas.
In addition to the minimum construction plan, we are bound to do the
following:
. arrange for all necessary microwave relocation for our licenses and
AT&T's retained licenses;
. ensure compatibility of our systems with the majority of systems in
Louisiana, Oklahoma, Minnesota, Illinois and Texas, excluding Houston;
. satisfy the Federal Communications Commission construction requirements
in the areas covered by our licenses and AT&T's retained licenses;
. offer service features such as call forwarding, call waiting and
voicemail with respect to our systems, causing our systems to comply
with AT&T's network, audio and system performance quality standards; and
. refrain from providing or reselling services other than mobile wireless
services and long distance services that constitute mobile wireless
communications services initiated or terminated using TDMA and portions
of the airwaves licensed by the Federal Communications Commission or
that are procured from AT&T.
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Disqualifying Transaction. If AT&T and an entity that:
. derives annual revenues from communications businesses in excess of $5
billion;
. derives less than one-third of its aggregate revenues from wireless
communications; and
. owns Federal Communications Commission licenses to offer, and does
offer, mobile wireless communications services serving more than 25% of
the residents, as determined by Equifax Marketing Decision Systems Inc.,
within the areas covered by our licenses
merge, consolidate, acquire or dispose of assets to each other, or otherwise
combine, then AT&T, upon written notice to us, may terminate its exclusivity
obligations where the territory covered by our licenses overlaps with
commercial mobile radio service licenses of the business combination partner.
Upon such termination, we have the right to cause AT&T, or any transferee that
acquired any shares of our series A preferred stock, our series D preferred
stock or our series F preferred stock owned by AT&T Wireless on July 17, 1998,
and any shares of our common stock into which any of these shares are
converted, to exchange their shares into shares of our series B preferred
stock. If we decide to convert AT&T Wireless's shares into shares of our series
B preferred stock, AT&T may terminate its exclusivity obligations in all of our
markets.
Once so converted, we may redeem the shares of our series B preferred stock
at any time in accordance with our restated certificate of incorporation.
Under some circumstances, if AT&T proposes to sell, transfer or assign to
any person that is not an affiliate of AT&T Wireless, any PCS system owned and
operated by AT&T Wireless and its affiliates in any of the St. Louis, Missouri;
Louisville, Kentucky; or Boston, Massachusetts basic trading areas, then AT&T
must provide us with the opportunity to offer our network for sale jointly with
AT&T for a 90-day period.
Acquisition of Licenses. The stockholders' agreement provides that we may
acquire any cellular license that our board of directors has determined is a
demonstrably superior alternative to constructing a PCS system within the
corresponding areas covered by our licenses, if:
. a majority of the population covered by the license is within the areas
covered by our licenses;
. AT&T Wireless and its affiliates do not own commercial mobile radio
service licenses in the area covered by the license; and
. our ownership of the license will not cause AT&T Wireless or any
affiliate to be in breach of any law or contract.
Vendor Discounts; Roaming Agreements. AT&T Wireless has agreed in our
stockholders' agreement that, if we request, and if such request shall not
result in any adverse impact to AT&T, it will use all commercially reasonable
efforts:
. to assist us in obtaining discounts from any AT&T Wireless vendor with
whom we are negotiating for the purchase of any infrastructure equipment
or billing services; and
. to enable us to become a party to the roaming agreements between AT&T
Wireless and its affiliates and operators of other cellular and PCS
systems.
Resale Agreements. We will, upon the request of AT&T Wireless, enter into
resale agreements relating to the areas covered by our licenses under which
AT&T may resell our services. The rates, terms and conditions of service that
we provide are to be at least as favorable, and to the extent permitted by
applicable law, more favorable, to AT&T Wireless, taken as a whole, as the
rates, terms and conditions that we provide to other customers.
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Subsidiaries. Our stockholders' agreement provides that all of our
subsidiaries must be direct or indirect wholly owned subsidiaries. Our
stockholders' agreement also provides that, without the prior written consent
of, or right of first offer to, AT&T Wireless, the company and our subsidiaries
may not:
. sell or dispose of a substantial portion of our assets or the assets of
any of our subsidiaries; or
. liquidate, merge or consolidate until we meet minimum construction
requirements.
Restrictions on Transfer. Our stockholders' agreement restricts the sale,
transfer or other disposition of our capital stock, such as by giving rights of
first offer and tag along rights and providing demand and piggyback
registration rights.
If one of our stockholders who is a party to our stockholders' agreement
desires to transfer any or all of its shares of our preferred or common stock,
other than voting preference stock and class C common stock, the selling
stockholder must first give written notice to us and:
. if the selling stockholder is one of our initial investors other than
AT&T Wireless or any other of our stockholders who is a party to our
stockholders' agreement, to AT&T Wireless; and
. if the selling stockholder is AT&T Wireless, to every other of our
initial investors.
Those of our stockholders who receive notice from the selling stockholders
may acquire all, but not less than all, of the shares offered to be sold at the
price offered by the selling stockholder. If none of our stockholders opt to
purchase the shares of the selling stockholder, the selling stockholder can
sell its shares to any other person on the same terms and conditions as
originally offered to our stockholders. The right of first offer does not apply
to our repurchase of any shares of our class A voting common stock or class E
preferred stock from one of our employees in connection with the termination of
the employee's employment with us.
Any stockholder of the company that is subject to the stockholders'
agreement may not transfer 25% or more of any of the following shares of our
capital stock, whether alone or with other stockholders or whether in one
transaction or a series of transactions:
. series A preferred stock;
. series C preferred stock;
. series D preferred stock;
. series E preferred stock;
. series F preferred stock;
. voting preference stock;
. class A voting common stock;
. class B non-voting common stock;
. class C common stock; or
. class D common stock,
unless the proposed transfer includes an offer to our initial investors and Mr.
Vento and Mr. Sullivan to join in the transfer. Class C common stock and class
D common stock will count as one class of stock for purposes of the 25% test.
If a selling stockholder receives an offer from a bona fide purchaser to
transfer a selling stockholder's shares, the selling stockholder must follow
procedures included in our stockholders' agreement to include the other
stockholders in the proposed transfer.
In addition to the foregoing restrictions, our initial investors have agreed
not to transfer any shares of their common stock until July 17, 2001 except to
affiliates, and Mr. Vento and Mr. Sullivan have agreed not to
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transfer any shares of common stock prior to July 17, 2003, subject to limited
exceptions, including that 25% of their common stock may be transferred after
July 17, 2001.
Our stockholders who are subject to our stockholders' agreement also have
demand and piggyback registration rights. In some circumstances, stockholders
may demand that we register some or all of their securities with the Securities
and Exchange Commission under the Securities Act. Also, if we propose to
register any shares of our class A voting common stock or securities
convertible into or exchangeable for class A voting common stock with the
Securities and Exchange Commission under the Securities Act, we must notify all
stockholders of our intention to do so, and our stockholders may include in our
registration their shares of class A voting stock or securities convertible
into or exchangeable for class A voting common stock.
Amendments. In addition to the approval of our senior lenders, the terms of
our stockholders' agreement may be amended only if agreed to in writing by us
and the beneficial holders of a majority of the class A voting common stock
party to the stockholders' agreement, including AT&T Wireless, 66 2/3% of the
class A voting common stock beneficially owned by our initial investors other
than AT&T Wireless, and 66 2/3% of the class A voting common stock beneficially
owned by Mr. Vento and Mr. Sullivan.
Termination. The stockholders' agreement will terminate upon the earliest to
occur of:
. the receipt of the written consent of each party;
. July 17, 2009; and
. under specified circumstances, the date on which a single stockholder
beneficially owns all of the outstanding shares of our class A voting
common stock.
Upon completion of the merger with Tritel, our stockholders' agreement will
be terminated and a new stockholders' agreement will go into effect.
Proposed Holding Company Stockholders' Agreement
General. The new stockholders' agreement among our initial investors, the
Tritel initial investors, Messrs. Mounger, Martin, Vento and Sullivan and the
holding company, to be executed on or before the consummation of the merger,
will set guidelines for the management and operations of the holding company
and will restrict the sale, transfer or other disposition of holding company
capital stock.
No definitive stockholders' agreement has yet been executed; the
stockholders' agreement is still in the process of being finalized, and is
subject to change by the parties to the agreement.
Board of Directors. The new stockholders' agreement will provide that any
action of holding company's board of directors be approved by the affirmative
vote of a majority of the entire holding company board of directors, except in
circumstances where voting by particular classes of directors is required. The
new stockholders' agreement will also provide that, upon closing of the merger,
holding company's board of directors will consist of 14 directors (two of whom
will have only one-half vote, as described below).
The parties to the new stockholders' agreement will vote all of the shares
of holding company stock to cause the election of the following 14 individuals
to holding company's board of directors:
. Mr. Vento and Mr. Sullivan so long as each remains an officer and the
management agreement with TeleCorp Management Corp. remains in effect;
. subject to the provisions described below which limit such selection
rights, two individuals selected by holders of a majority in interest of
the class A voting common stock beneficially owned by our initial
investors other than AT&T Wireless;
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. subject to the provisions described below which limit such selection
rights, two individuals selected by holders of a majority in interest of
the class A voting common stock beneficially owned by Tritel's initial
investors other than AT&T Wireless;
. two individuals selected by AT&T Wireless in its capacity as the holding
company series A convertible preferred stock and series B convertible
preferred stock so long as AT&T has the right to elect each such
director in accordance with holding company's certificate of
incorporation;
. six individuals designated by the holders of holding company voting
preference stock, which include:
. one individual who must be reasonably acceptable to AT&T Wireless;
. two individuals who will be Messrs. Martin and Mounger so long as
each remains an officer and employee of holding company, or two
individuals who must be reasonably acceptable to Messrs. Martin and
Mounger, each individual in either case having one-half vote on all
matters requiring a vote of the board of directors; and
. three individuals who must be reasonably acceptable to holders of a
majority in interest of holding company class A voting common stock
beneficially owned by AT&T Wireless on the one hand, and the initial
investors other than AT&T Wireless, on the other hand, so long as
the initial investors other than AT&T Wireless remain entitled to
designate at least two directors, or, if they are not entitled, then
by the remaining directors on the board of directors.
In the event that Mr. Martin ceases to be an officer or employee of holding
company, Mr. Martin will resign or be removed from the board of directors, and
in the event that Mr. Mounger ceases to be an officer or employee of holding
company and either the number of shares of holding company common stock
beneficially owned by Messrs. Mounger and Martin falls below seventy percent of
the number of shares of holding company common stock beneficially owned by them
on the date of closing of the merger, or two years elapse from the date of the
closing of the merger, Mr. Mounger will resign or be removed from the board of
directors. Following the first resignation or removal of either Mr. Martin or
Mr. Mounger, the holding company board of directors will be reduced by one, all
remaining board of directors seats will have one vote on all matters requiring
vote of the board of directors, and any nominated director requiring the
approval of Messrs. Martin and Mounger will only require the approval of
whoever remains as director. In the event that neither Mr. Martin nor Mr.
Mounger remains on the holding company board of directors, the number of
directors designated by the holders of the voting preference common stock who
require approval by Messrs. Martin and Mounger will be reduced to zero, and the
number of directors designated by the holders of the voting preference stock
and acceptable to holders of a majority in interest of holding company class A
voting common stock beneficially owned by AT&T Wireless on one hand and our
initial investors and Tritel's initial investors other than AT&T Wireless on
the other hand will be increased to four.
In the event that Mr. Vento or Mr. Sullivan ceases to be an officer of
holding company, or the management agreement between holding company and
TeleCorp Management Corp. ceases to be in full force and effect, Mr. Vento or
Mr. Sullivan, as applicable, will resign or be removed from holding company's
board of directors and the holders of the holding company voting preference
stock will select a replacement or replacements who must be acceptable to a
majority in interest of our initial investors and the Tritel investors other
than AT&T Wireless, in its sole discretion. In the event that AT&T Wireless
ceases to be entitled to designate holding company directors, the director or
directors elected by AT&T Wireless will resign or be removed from holding
company's board of directors and the remaining holding company directors will
take action so that the number of holding company directors constituting the
entire holding company board of directors will be reduced accordingly.
The number of holding company directors our initial investors and Tritel's
initial investors other than AT&T Wireless will be permitted to designate will
be reduced when the number of shares of holding company common stock
beneficially owned by our initial investors and Tritel's initial investors
other than AT&T Wireless on a fully diluted basis falls below:
. 85% of the number of shares of common stock beneficially owned by them
on the date of the closing of the merger;
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. 70% of the number of shares of common stock beneficially owned by them
on the date of the closing of the merger;
. 60% of the number of shares of common stock beneficially owned by them
on the date of the closing of the merger; and
. 50% of the number of shares of common stock beneficially owned by them
on the date of the closing of the merger;
so that our initial investors and Tritel's investors other than AT&T Wireless
will be permitted to designate three, two, one or zero directors respectively;
provided, however, that the reductions in the board of directors may not take
place or may be delayed if certain of our initial investors and Tritel's
investors other than AT&T Wireless hold or maintain a specified percentage of
common stock as set forth in the new stockholders' agreement.
In each instance in which the number of directors our initial investors and
Tritel's initial investors other than AT&T Wireless are entitled to designate
is reduced, the director designated by our initial investors and Tritel's
initial investors other than AT&T Wireless beneficially owning the smallest
percentage of shares of common stock then owned by any of our initial investors
and Tritel's initial investors other than AT&T Wireless whose designees then
remain as directors designated will resign or be removed from holding company's
board of directors and the size of holding company's board of directors will be
reduced accordingly. In the event that either:
. the number of holding company directors our initial investors and
Tritel's initial investors other than AT&T Wireless are entitled to
designate falls below two; or
. both our initial investors and Tritel's initial investors other than
AT&T Wireless entitled to designate the last two directors that our
initial investors and Tritel's initial investors other than AT&T
Wireless may designate cease to beneficially own at least 75% of the
number of shares of common stock beneficially owned by them on the date
of the closing of the merger,
our initial investors and Tritel's initial investors other than AT&T Wireless
will no longer be entitled to approve any designation of holding company
directors nor approve any director that replaces Messrs. Vento or Sullivan on
the holding company board of directors.
Exclusivity. The parties to the new stockholders' agreement will agree that,
during the term of the stockholders' agreement, neither they nor any of their
respective affiliates will provide or resell, or act as the agent for any
person offering, within the areas covered by holding company licenses, wireless
communications services initiated or terminated using TDMA and portions of the
airwaves licensed by the Federal Communications Commission, except that AT&T
Wireless and its affiliates will be able to:
. resell or act as agent for holding company in connection with mobile
wireless communications services;
. provide or resell wireless communications services only to or from
specific locations, provided that any equipment sold in connection with
the service must be capable of providing holding company wireless
communications services; and
. resell mobile wireless communications services from another person in
any area where holding company has not placed a system into commercial
service.
Additionally, with respect to some markets identified in the intercarrier
roamer services agreement with AT&T Wireless, each of holding company and AT&T
Wireless will agree to cause their respective affiliates in their home carrier
capacities to:
. program and direct the programming of customer equipment so that the
other party, in its capacity as the serving carrier, is the preferred
provider in these markets; and
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. refrain from inducing any of its customers to change such programming.
AT&T Wireless will retain some PCS licenses within the areas covered by
holding company licenses for which holding company has a right of negotiation
in the event of a proposed transfer.
If holding company materially breaches any of its obligations, AT&T Wireless
will be able to terminate its exclusivity obligations under the new
stockholders' agreement and will be able to terminate holding company's rights
to the AT&T brand and logo under the license agreement if a default continues
after the applicable cure periods lapse. These material breaches include, if:
. holding company fails to meet its minimum buildout requirements for its
systems as set forth in the new stockholders' agreement;
. AT&T Wireless and its affiliates decide to adopt a new technology
standard other than TDMA in a majority of its markets, and holding
company declines to adopt the new technology;
. each portion of holding company's network does not, within one year
after being placed into service, meet or exceed technical standards that
AT&T has developed regarding voice quality and performance of network
and call completion equipment. Each portion of holding company's network
must, within one year after being placed into service, perform on a
level, measured by these standards manuals, that meets or exceeds the
levels achieved by the average of all comparable wireless communications
networks owned and operated by AT&T;
. holding company fails to satisfy specific performance requirement
percentages that its entire network, measured as a single system, must
meet, including percentage of calls completed, percentage of established
calls dropped, percentages of calls not successfully transferred from
one network equipment site to another as a handset moves, or fails to
satisfy technical standards regarding the functioning of network and
call connection equipment; or
. holding company fails to meet specified customer care, reception quality
and network reliability standards.
The exclusivity provisions in the new stockholders' agreement will also not
apply to AT&T with respect to certain rural portions of Kentucky.
Construction. The new stockholders' agreement will require holding company
to construct a PCS system in the areas covered by its licenses according to a
minimum construction plan. The minimum construction plan will consist of the
minimum construction plan set forth in each of the TeleCorp Stockholders'
Agreement and Tritel Stockholders' Agreement. In addition, prior to the
consummation of the merger, the parties will agree on additional provisions
which will be included in the buildout plan with respect to the construction of
systems in the Wisconsin and Iowa markets acquired by us in our exchange of
markets with AT&T Wireless.
Disqualifying Transaction. If AT&T (or any of its affiliates) and an entity
that:
. derives annual revenues from communications businesses in excess of $5
billion;
. derives less than one-third of its aggregate revenues from wireless
communications; and
. owns Federal Communications Commission licenses to offer, and does
offer, mobile wireless communications services serving more than 25% of
the residents, as determined by Paul Kagan Associates, Inc. within the
areas covered by holding company licenses
merge, consolidate, acquire or dispose of assets to each other, or otherwise
combine, then AT&T, upon written notice to holding company, will be able to
terminate its exclusivity obligations where the territory covered by holding
company licenses overlaps with commercial mobile radio service licenses of the
business combination
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partner. Upon such termination, holding company will have the right to cause
AT&T or any transferee that acquired any shares of holding company series A
convertible preferred stock, series B convertible preferred stock, series D
preferred stock, series F preferred stock or series G preferred stock then
owned by AT&T Wireless, and any shares of holding company common stock into
which any of these shares are converted, to exchange all, or a proportionate
share based on overlapping service areas after such disqualifying transaction,
of their shares into shares of series H and I preferred stock. In case of any
such exchange, AT&T will be able to terminate its exclusivity obligations in
all of holding company's markets.
Once so converted, holding company will be able to redeem the shares of
series H and I preferred stock at any time in accordance with its restated
certificate of incorporation.
Under some circumstances, if AT&T proposes to sell, transfer or assign to
any person that is not an affiliate of AT&T Wireless, any PCS system owned and
operated by AT&T Wireless and its affiliates in any of the St. Louis, Missouri;
Louisville, Kentucky; or Atlanta, Georgia basic trading areas, then AT&T will
have to provide holding company with the opportunity to offer its network for
sale jointly with AT&T for a 90-day period.
Acquisition of Licenses. The new stockholders' agreement will provide that
holding company may acquire any cellular license that holding company's board
of directors has determined is a demonstrably superior alternative to
constructing a PCS system within the corresponding areas covered by holding
company licenses, if:
. a majority of the population covered by the license is within the areas
covered by holding company licenses;
. AT&T Wireless and its affiliates do not own commercial mobile radio
service licenses in the area covered by the license; and
. holding company's ownership of the license will not cause AT&T Wireless
or any affiliate to be in breach of any law or contract.
Vendor Discounts; Roaming Agreements. AT&T Wireless will agree in the new
stockholders' agreement that, if holding company so requests, and if such
request shall not result in any adverse impact to AT&T Wireless, it will use
all commercially reasonable efforts:
. to assist holding company in obtaining discounts from any AT&T Wireless
vendor with whom the holding company is negotiating for the purchase of
any infrastructure equipment or billing services; and
. to enable holding company to become a party to the roaming agreements
between AT&T Wireless and its affiliates and operators of other cellular
and PCS systems.
Resale Agreements. Holding company, upon the request of AT&T Wireless, will
enter into resale agreements relating to the areas covered by holding company
licenses under which AT&T Wireless may resell holding company services. The
rates, terms and conditions of service that holding company provides are to be
at least as favorable, and to the extent permitted by applicable law, more
favorable, to AT&T Wireless, taken as a whole, as the rates, terms and
conditions that holding company provides to other customers.
Subsidiaries. The new stockholders' agreement will provide that all of
holding company's subsidiaries must be direct or indirect wholly owned
subsidiaries. The stockholders' agreement will also provide that with respect
to such subsidiaries, holding company may not sell or dispose of a substantial
portion of the assets or any of the capital stock of any of such subsidiaries
except in connection with a pledge to secure indebtedness.
Restrictions on Transfer. The new stockholders' agreement will restrict the
sale, transfer or other disposition of holding company capital stock, such as
by giving rights of first offer and tag along rights and providing demand and
piggyback registration rights.
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If one of holding company's stockholders who is a party to the new
stockholders' agreement desires to transfer any or all of its shares of holding
company preferred or common stock other than holding company voting preference
stock and class C common stock, the selling stockholder must first give written
notice to holding company and:
. if the selling stockholder is one of our initial investors or Tritel's
initial investors other than AT&T Wireless or any other stockholder who
is a party to the new stockholders' agreement, to AT&T Wireless; and
. if the selling stockholder is AT&T Wireless, to every other initial
investor other than AT&T Wireless.
The stockholders who receive notice from the selling stockholders may
acquire all, but not less than all, of the shares offered to be sold at the
price offered by the selling stockholder. If none of the stockholders opt to
purchase the shares of the selling stockholder, the selling stockholder will be
able to sell its shares to any other person on the same terms and conditions as
originally offered to the stockholders. The right of first offer will not apply
to holding company's repurchase of any shares of its class A voting common
stock or class E preferred stock from one of its employees in connection with
the termination of the employee's employment with holding company.
A stockholder subject to the stockholders' agreement will not be able to
transfer 25% (on a fully diluted basis as calculated under the new
stockholders' agreement) or more of any of the shares of holding company
capital stock, whether alone or with other stockholders or whether in one
transaction or a series of transactions, unless the proposed transfer includes
an offer to AT&T Wireless, our initial investors and Tritel's initial investors
other than AT&T Wireless and Mr. Vento and Mr. Sullivan to join in the transfer
in accordance with the procedures included in the new stockholders' agreement
regarding the inclusion of other stockholders in the proposed transfer.
Registration Rights. Holding company stockholders who are subject to the new
stockholders' agreement will also have certain demand and piggyback
registration rights. In some circumstances, holding company stockholders will
be able to demand that holding company register some or all of their securities
with the Securities and Exchange Commission under the Securities Act of 1933.
Also, if holding company proposes to register any shares of its class A voting
common stock or securities convertible into or exchangeable for class A voting
common stock with the Securities and Exchange Commission under the Securities
Act of 1933, holding company will have to notify stockholders party to the new
stockholders' agreement of holding company's intention to do so, and such
holding company stockholders may be able to include in the registration their
shares of class A voting common stock or securities convertible into or
exchangeable for class A voting common stock, subject to certain cutback
provisions based on limitations on the number of shares which may be offered as
determined by the underwriters in the offering.
Lockup and Subsequent Offering. In the new stockholders' agreement, each
party will agree not to effect any public sale or distribution of holding
company class A voting common stock or a similar security, or any securities
convertible into or exchangeable or exercisable for such securities, including
a sale pursuant to Rule 144, Rule 145 or Rule 144A under the Securities Act of
1933 during the 90 day period beginning on the effective date of the merger,
and additionally during such period commencing upon the filing of the
registration statement for the offering described in the next paragraph
(provided that the registration statement for such offering is filed within 60
days of the effective date of the merger) and continuing so long as the company
is using commercially reasonable efforts to pursue such registration until such
registration becomes effective, and for such additional period of time as is
reasonably requested by the managing underwriter(s) of the offering described
in the next paragraph, unless such sale or distribution is effected through the
offering described in the next paragraph.
In the new stockholders' agreement, holding company will agree to use
commercially reasonable efforts to file a registration statement giving rise to
a piggyback registration relating to the holding company class A voting common
stock within 60 days of the effective date of the merger and have such
registration statement
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declared effective within 150 days of the effective date of the merger,
provided, however, that the holding company has agreed to include no more than
50% of newly issued holding company shares in such offering, or $150 million,
up to the first $300 million registered in such offering; and thereafter no
more than the 30% of the incremental shares registered by the holding company
as primary for offerings over and above $300 million.
Amendments. In addition to the approval of holding company's senior lenders,
the terms of the new stockholders' agreement will only be amended if agreed to
in writing by holding company and the beneficial holders of a majority of the
class A voting common stock party to the stockholders' agreement, including
AT&T Wireless, 66 2/3% of the class A voting common stock beneficially owned by
our initial investors and Tritel's initial investors other than AT&T Wireless,
and 66 2/3% of the class A voting common stock beneficially owned by Mr. Vento
and Mr. Sullivan.
Termination. The new stockholders' agreement will terminate upon the
earliest to occur of:
. the receipt of the written consent of each party;
. July 17, 2009; and
. the date on which a single stockholder beneficially owns all of the
outstanding shares of class A voting common stock.
Intercarrier Roamer Service Agreement/Roaming Administration Service Agreement
Intercarrier Roamer Service Agreement. We entered into the intercarrier
roamer service agreement dated as of July 17, 1998 with AT&T Wireless Services
and several of its affiliates. We have agreed with AT&T Wireless that each
party, in its capacity as a serving provider, will provide services to each
others' customers where it has a license or permit to operate a wireless
communications system. Each home carrier whose customers receive service from a
serving provider will pay to the serving provider all of the serving provider's
charges for wireless service and all of the applicable charges. Each serving
provider's service charges per minute or partial minute for use for the first
three years will be fixed at a declining rate.
The intercarrier roamer service agreement has a term of 20 years, which is
automatically renewed on a year-to-year basis unless terminated by either party
upon 90-days prior written notice. The intercarrier roamer service agreement
may be terminated immediately by either party upon written notice to the other
of a default of the other party or after 10 years by either party upon 90 days
prior written notice. A party will be in default under the intercarrier roamer
service agreement upon any of the following:
. a material breach of any material term of the intercarrier roamer
service agreement by a party that continues for 30 days after receipt
of written notice of the breach from the nonbreaching party;
. voluntary liquidation or dissolution or the approval by the management
or owners of a party of any plan or arrangement for the voluntary
liquidation or dissolution of the party; or
. bankruptcy or insolvency of a party.
The intercarrier roamer service agreement may also be suspended by either
party immediately upon written notice to the other party of the existence of a
breach of the agreement, whether or not the breach constitutes a default, if
the breach materially affects the service being provided to the customers of
the non-breaching party. While the suspension is in effect, either in whole or
in part, the parties will work together to resolve as quickly as possible the
difficulty that caused the suspension. When the party who originally gave
notice of suspension concludes that the problem causing the suspension has been
resolved, that party will give to the other written notice to this effect, and
the agreement will resume in full effect within five business days after the
parties have mutually agreed that the problem has been resolved. Neither party
may assign or transfer its rights and obligations under the intercarrier roamer
service agreement without the written consent of the other party, except to an
affiliate or an assignee of its license.
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Roaming Administrative Service Agreement. Under the roaming administrative
service agreement dated as of July 17, 1998 between AT&T Wireless Services and
us, AT&T Wireless Services has agreed to make available to us the benefits of
the intercarrier roaming services agreements it has entered into with other
wireless carriers, subject to the consent of the other wireless carriers and to
our remaining a member in good standing of the North American Cellular Network.
The roaming administrative service agreement has an initial term of two
years, which is automatically renewed on a year-to-year basis unless terminated
by either party upon 90-days prior written notice. Either party may terminate
the roaming administrative service agreement for any reason at any time upon
180-days prior written notice. Either party may also terminate the roaming
administrative service agreement:
. upon a material breach of the other party that is not cured or for
which cure is not reasonably begun within 30 days after written notice
of the claimed breach; or
. immediately by either party, after reasonable prior notice, if the
other party's operations materially and unreasonably interfere with its
operations and the interference is not eliminated within 10 days.
AT&T Wireless Services can terminate the roaming administrative service
agreement if:
. we are no longer a member in good standing of the North American
Cellular Network; or
. the agreement under which AT&T Wireless Services receives roaming
administration services is terminated or expires; provided, however,
that AT&T Wireless Services will offer to resume its services in the
event that it extends or continues that agreement.
Neither party may assign or transfer its rights and obligations under the
roaming administrative service agreement without the written consent of the
other party, except to an affiliate or an assignee of its license, except that
AT&T Wireless Services may subcontract its duties.
Resale Agreement
Our stockholders' agreement provides, and our new stockholders agreement
will provide, that, from time to time, at AT&T Wireless's request, we are
required to enter into a resale agreement with AT&T Wireless or other of its
affiliates. The resale agreement would grant to AT&T Wireless the right to
purchase from us its wireless services on a non-exclusive basis within a
designated area and resell access to, and use of, our services. AT&T Wireless
must pay charges for any services that are resold, including usage, roaming,
directory assistance and long distance charges, and taxes and tariffs. Any
resale agreement would have an initial term of ten years that would be
automatically renewed on a year-to-year basis unless terminated by either party
upon 90-days prior written notice. In addition, AT&T Wireless would be able to
terminate any resale agreement for any reason at any time upon 180-days prior
written notice.
Long Distance Agreement
Under the long distance agreement dated as of December 21, 1998 between AT&T
Wireless Services and the company, we purchase interstate and intrastate long
distance services from AT&T Wireless Services at preferred rates. We then
resell these long distance services to our customers. We can only obtain these
preferred rates if we continue our affiliation with AT&T Wireless Services. The
long distance agreement has a term of up to three years.
The long distance agreement requires that we meet a minimum traffic volume
during the term of the agreement, which is adjusted as least once each calendar
year at the time specified by AT&T Wireless Services. The minimum traffic
volume commitments may be adjusted more frequently upon mutual agreement by
AT&T Wireless Services and the company. During the first year, we set the
minimum traffic volume commitment in our sole discretion. After the first
calendar year, the commitment may be increased by any amount or decreased by
any amount up to ten percent at our discretion. We may reduce the minimum
traffic volume commitments
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by more than ten percent with AT&T Wireless Services' permission. If we fail to
meet the volume commitments, we must pay to AT&T Wireless Services the
difference between the expected fee based on the volume commitment and the fees
based on actual volume.
The long distance services we purchase from AT&T Wireless Services may only
be used in connection with:
. our commercial mobile radio services;
. calls that originate on our network; and
. those commercial mobile radio services that share our call connection
equipment.
Puerto Rico License
In a series of transactions, we acquired a license and related assets
covering the San Juan major trading area from AT&T Wireless on May 25, 1999.
The following transactions took place ultimately to effect the acquisition of
the license and related assets from AT&T Wireless:
. on May 24, 1999, we sold to AT&T 30,750 shares of our series A
preferred stock, 10,250 shares of our series D preferred stock, and
3,090,000 shares of our series F preferred stock for $40.0 million
under a preferred stock purchase agreement;
. on May 25, 1999, we sold to our initial investors, other than AT&T,
39,997 shares of our series C preferred stock and 12,358,950 shares of
our class A voting common stock in exchange for an aggregate amount of
$40.0 million in cash under a stock purchase agreement, which will be
funded over a three-year period;
. on May 25, 1999, we purchased the license for the San Juan major
trading area and related assets, which included 27 constructed network
equipment sites, call connection equipment and leases for additional
network equipment sites, from AT&T Wireless for $96.5 million in cash
under an asset purchase agreement; and
. we incurred $3.2 million for microwave relocation and $0.3 million for
legal expenses in connection with this acquisition.
In addition, Mr. Vento and Mr. Sullivan were issued fixed and variable
awards of 4,063 and 1,633,899 restricted shares of our series E preferred stock
and class A voting common stock, respectively, in exchange for their interest
in Puerto Rico Acquisition Corporation. Puerto Rico Acquisition Corporation was
an entity wholly-owned by Mr. Vento and Mr. Sullivan that was created for the
special purpose of acquiring the license and related assets of the San Juan
major trading area. The fixed awards typically vest over a five-year period.
The variable awards vest based upon certain events taking place, including
the company reaching milestones in our minimum construction plan, which were
probable at December 31, 1999. The stockholders' agreement sets forth network
development requirements for the Puerto Rico license.
The San Juan major trading area covers a population of approximately 3.9
million people in Puerto Rico, as well as the U.S. Virgin Islands. Our
agreements with AT&T were automatically amended to include the San Juan major
trading area under the scope of those agreements.
Relationship with Entel Technologies and other Site Acquisition Service
Providers
We receive site acquisition, construction management, program management,
microwave relocation and engineering services under a master services agreement
with Wireless Facilities, Inc. Payments under the agreement were approximately
$30.7 million in the 1998 fiscal year. At the time of entering into the master
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services agreement, Mr. Vento was a senior officer, and he and Mr. Sullivan
were the controlling stockholders of Entel Technologies. In February 1998, they
sold their interests in Entel Technologies to Wireless Facilities, Inc. The
terms of this agreement were no more favorable to the parties than they could
have obtained from third parties negotiated at arm's length.
American Towers, Inc. provides us with network site leases for PCS
deployment under a master site lease agreement. Chase Capital Partners, one of
our beneficial owners, has a noncontrolling interest in American Towers. The
terms of these lease agreements were no more favorable to the parties than they
could have obtained from third parties negotiated at arm's length.
Relationship with the Initial Purchasers of the 11 5/8%Notes and the Notes
Chase Securities Inc. was one of the initial purchasers of the outstanding
11 5/8% notes and the notes. Chase Securities Inc. and its affiliates perform
various investment banking and commercial banking services from time to time
for us and our affiliates. Chase Securities Inc. acted as our lead manager for
the offering of the 11 5/8% notes and was a joint manager for the offering of
the notes. The Chase Manhattan Bank, an affiliate of Chase Securities Inc., is
the agent bank and a lender under our senior credit facilities. Michael R.
Hannon, a member of our board of directors, is a General Partner of Chase
Capital Partners, an affiliate of Chase Securities Inc. In addition, CB Capital
Investors, L.P., an affiliate of Chase Capital Partners, is one of our initial
investors and owns shares of our common and preferred stock. The terms of
TeleCorp's senior credit facilities were no more favorable to the parties than
they could have obtained from third parties negotiated at arm's length.
Relationships with Tritel Communications and Triton
We have formed Affiliate License Co. with Triton and Tritel Communications
to adopt a common brand, SunCom, that is co-branded with AT&T on an equal
emphasis basis. Under the agreement, we, Triton and Tritel Communications each
own one third of Affiliate License Co., the owner of the SunCom name. We, along
with the other SunCom companies license the SunCom name from Affiliate License
Co. Mr. Sullivan is a director of Affiliate License Co. The terms of this
agreement were no more favorable to the parties than they could have obtained
from third parties negotiated as arm's length.
AT&T owns stock in the company and in Tritel and we and Tritel may be deemed
affiliates by virtue of a common ownership. Mr. Anderson, one of our directors,
also serves as a director of Tritel, AT&T, CB Capital Investors and Equity-
Linked Investors own stock in the company and in Triton, and we and Triton may
be deemed affiliates by virtue of common ownership. Mr. Anderson also serves as
a director of Triton.
Tritel Communications owned a controlling interest in Digital PCS at the
time we acquired licenses from Digital PCS. Tritel Communications may be deemed
an affiliate of Digital PCS. In addition, at the time we acquired licenses from
Digital PCS, Mr. Anderson, one of our current directors, and Mr. Fuqua, one of
our directors at the time of the acquisition, were directors of Tritel
Communications. The terms of this agreement were no more favorable to the
parties than they could have obtained from third parties negotiated at arm's
length.
Relationship with Other Entities
TeleCorp Holding Corp. Our predecessor company, TeleCorp Holding Corp., was
incorporated to participate in the Federal Communications Commission's auction
of licenses in April 1997. TeleCorp Holding Corp. raised money from investors
to develop any licenses it obtained in the auction. TeleCorp Holding Corp.
successfully obtained licenses in the New Orleans, Memphis, Beaumont, Little
Rock, Houston, Tampa, Melbourne and Orlando basic trading areas. In August
1997, TeleCorp Holding Corp. transferred the Houston,
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Tampa, Melbourne and Orlando basic trading area licenses to four newly-formed
entities created by TeleCorp Holding Corp.'s stockholders:
. THC of Houston;
. THC of Tampa;
. THC of Melbourne; and
. THC of Orlando;
and issued notes in the aggregate amount of approximately $2.7 million to these
entities to develop these licenses. These licenses were transferred along with
the related operating assets and liabilities in exchange for investment units
consisting of class A voting, B non-voting and C common stock and series A
preferred stock in August 1997. Concurrently, TeleCorp Holding Corp.
distributed the investment units, on a pro rata basis, in a partial stock
redemption to TeleCorp Holding Corp.'s existing stockholder group. As a result
of this distribution, TeleCorp Holding Corp. no longer retains any ownership
equity interest in the newly formed entities. TeleCorp Holding Corp. performed
administrative and management services and paid costs on behalf of these
entities for the year ended December 31, 1997 worth the aggregate amount of
$0.7 million. In 1998, upon the closing of the agreements with AT&T, TeleCorp
Holding Corp. paid approximately $2.0 million to the four THC entities as
payment of the notes, offset by the approximately $0.7 million in services and
costs. The terms of these transactions were no more favorable to the parties
than they could have obtained from third parties negotiated at arm's length.
TeleCorp WCS. On May 5, 1997, TeleCorp Holding Corp. lent approximately $3.0
million to TeleCorp WCS, Inc. in exchange for interest-free notes from TeleCorp
WCS. On May 5, 1997, TeleCorp Holding Corp. received equity investments in
exchange for the right to receive:
. the notes from TeleCorp WCS;
. any cash, notes or other assets received by TeleCorp Holding Corp. on
behalf of the notes; or
. any capital stock into which the notes were converted.
TeleCorp WCS repaid approximately $2.7 million of the notes with cash to
TeleCorp Holding Corp., and TeleCorp Holding Corp. forwarded this cash to the
equity investors. TeleCorp WCS issued a note in the amount of approximately
$0.3 million directly to the investors on behalf of the remaining $0.3 million
outstanding under the notes. TeleCorp WCS converted these notes into capital
stock issued to the investors in 1998.
Mr. Sullivan and Mr. Vento own 2,875 and 4,625 shares of class C common
stock of TeleCorp WCS, respectively, which represents 60% of its outstanding
class A voting common stock. At the time of entering into the transactions with
TeleCorp WCS, Mr. Sullivan and Mr. Vento were stockholders in TeleCorp Holding
Corp.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arm's length.
TeleCorp Investment Corp.; TeleCorp Investment Corp. II. TeleCorp Investment
Corp. owns 352,956 shares of our class A voting common stock, 575 shares of our
class C common stock, 3,780 shares of our class D common stock and 1,160.17
shares of our series C preferred stock. Some of our stockholders own stock in
TeleCorp Investment Corp., as follows:
. Chase Capital Partners, one of our initial investors, owns an 80% equity
interest;
. Mr. Sullivan and Mr. Vento each own a 2.4% equity interest; and
. Mr. Dowski owns a 1.6% equity interest.
In addition, TeleCorp Investment Corp. II was formed to purchase from
Entergy Technology Holding Corporation 492,064 shares of our class A voting
common stock and 11,366 shares of our class D common stock. The purchase of
shares was concluded on July 15, 1999. Mr. Vento, Mr. Sullivan and Ms. Dobson
each
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own 5.99% of TeleCorp Investment Corp. II. Mr. Vento and Mr. Sullivan serve as
managers of TeleCorp Investment Corp. II.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arm's length.
Viper Wireless. On April 11, 2000, pursuant to Federal Communications
Commission consent, we acquired the 15% of Viper Wireless, Inc. that we did not
yet own from Messrs. Vento and Sullivan in exchange for an aggregate of 323,372
shares of our class A voting common stock and 800 shares of our series E
preferred stock through a merger of TeleCorp Holding Corp. and Viper Wireless.
TeleCorp Holding Corp. acquired 85% of Viper Wireless on March 1, 1999 in
exchange for $32.3 million contributed by AT&T Wireless and some of our other
initial investors for additional shares of our preferred and common stock. As
part of this financing, we paid approximately $0.5 million to Chase Securities,
Inc., an initial purchaser and an affiliate of one of our initial investors,
for placement advice. Viper Wireless used the proceeds to participate in the
Federal Communications Commission's reauction of PCS licenses. Viper Wireless
was subsequently granted six PCS licenses in the reauction.
TeleCorp LMDS. On April 7, 2000, pursuant to Federal Communications
Commission consent, we acquired TeleCorp LMDS, Inc. through an exchange of all
of the outstanding stock of TeleCorp LMDS for 878,400 shares of our class A
voting common stock. TeleCorp LMDS's stockholders are Mr. Vento, Mr. Sullivan
and three of our initial investors. By acquiring TeleCorp LMDS, we gained LMDS
licenses covering airwaves in Little Rock, Arkansas, Beaumont, Texas, New
Orleans, Louisiana, San Juan and Mayaguez, Puerto Rico, and the U.S. Virgin
Islands. See "Securities Ownership of Certain Beneficial Owners and
Management."
Relationship with Toronto Dominion
Toronto Dominion Investments, one of our initial investors, and TD
Securities (USA), an affiliate of Toronto Dominion Investments, which is a
lender under our senior credit facilities, may be deemed to be under common
control by virtue of their relationship to each other and to us. The terms of
our senior credit facilities were no more favorable to the parties than they
could have obtained from third parties negotiated at arm's length.
Relationships with Stockholders
From inception through June 1998, our primary source of financing was notes
issued to some of our initial investors. In July 1996, we issued $0.5 million
of subordinated promissory notes to such investors. These notes were converted
into 50 shares of our series A preferred stock in April 1997. In December 1997,
we issued various promissory notes to some of our initial investors. These
notes were converted into mandatorily redeemable preferred stock in July 1998.
From January 1, 1998 to June 30, 1998, we borrowed approximately $22.5 million
in the form of promissory notes to existing and prospective investors to
satisfy working capital needs. These notes were converted into equity in July
1998 in connection with the completion of the venture with AT&T.
The terms of these transactions were no more favorable to the parties than
they could have obtained from third parties negotiated at arm's length.
Relationship with McDermott, Will & Emery
We use the services of a law firm, McDermott, Will & Emery. Mr. Sullivan,
TeleCorp's Executive Vice President and Chief Financial Officer, was counsel
until October 1999 and a partner prior to July 1998. The
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terms of these arrangements were no more favorable to McDermott, Will & Emery
than terms that could have been obtained from third parties negotiated at arm's
length.
Relationship with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
We use the services of a law firm, Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., whose affiliate, ML Strategies, LLC, pursuant to an agreement and
for matters unrelated to us, utilizes the services of Mr. Sullivan, our
Executive Vice President and Chief Financial Officer, as a consultant, for a
consulting fee. The terms of these arrangements are no more favorable to Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., ML Strategies or Mr. Sullivan,
than could be obtained from third parties negotiated at arm's length.
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Selected Unaudited As Adjusted and Pro Forma As Adjusted Financial Data
The following unaudited as adjusted and pro forma as adjusted financial data
combines the historical consolidated balance sheets and statements of
operations of TeleCorp, Tritel, Indus, Inc. (Indus) and Airadigm
Communications, Inc. (Airadigm). These unaudited as adjusted and pro forma as
adjusted financial statements give effect to the merger with Tritel using the
purchase method of accounting, the contribution from AT&T, the acquisition of
all of the common and preferred stock of Indus, the acquisition of additional
wireless properties and assets from Airadigm, the exchange with AT&T, which
includes the acquisition of PCS licenses from ABC Wireless, L.L.C. (ABC) and
Polycell Communications, Inc. (Polycell), the offering of the new Senior
Subordinated Notes and pro forma inter-entity eliminations.
We derived this information from the audited consolidated financial
statements of TeleCorp and Tritel and from the unaudited financial statements
of Indus and Airadigm as of and for the year ended December 31, 1999 and from
the unaudited consolidated financial statements of TeleCorp and Tritel and from
the unaudited financial statements of Indus and Airadigm as of and for the six
months ended June 30, 2000. This information is only a summary and should be
read in conjunction with the historical consolidated financial statements and
related notes of TeleCorp and Tritel for those periods, contained elsewhere
herein. For presentation of the pro forma financial aspects of each of these
transactions, both individually and combined, see "Financial Information--
Unaudited Pro Forma Condensed Combined Financial Statements."
The unaudited as adjusted and pro forma as adjusted condensed combined
statement of operations data for the year ended December 31, 1999 assumes each
of the transactions was effected on January 1, 1999. The unaudited as adjusted
and pro forma as adjusted condensed combined statement of operations data for
the six months ended June 30, 2000 assumes each of the transactions was
effected on January 1, 1999. The unaudited as adjusted and pro forma as
adjusted condensed combined balance sheet data as of June 30, 2000 gives effect
to each transaction as if it had occurred on June 30, 2000. The accounting
policies of TeleCorp, Tritel, Indus and Airadigm are substantially comparable.
Certain reclassifications have been made to Tritel's, Indus' and Airadigm's
historical presentation to conform to TeleCorp's presentation. These
reclassifications do not materially impact Tritel's, Indus' or Airadigm's
statements of operations or financial position for the periods presented.
We are providing the unaudited as adjusted and pro forma as adjusted
condensed combined financial information for illustrative purposes only. The
companies may have performed differently had they always been combined. You
should not rely on the unaudited as adjusted and pro forma as adjusted
condensed combined financial information as being indicative of the historical
results that would have been achieved had the companies always been combined or
the future results that the combined company will experience.
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TELECORP PCS, INC.
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
For the six months
ended June 30, 2000
-------------------------------------------
Pro Forma
Historical(1) As Adjusted(2) As Adjusted(3)
------------- -------------- --------------
(unaudited) (unaudited) (unaudited)
($ in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue:
Service......................... $ 88,056 $ 88,056 $ 105,420
Roaming......................... 26,151 26,151 35,940
Equipment....................... 13,250 13,250 16,882
----------- ----------- -----------
Total revenue................. 127,457 127,457 158,242
----------- ----------- -----------
Operating expenses:
Cost of revenue................. 40,433 40,433 65,718
Operations and development...... 25,535 25,535 50,284
Selling and marketing........... 74,766 74,766 102,058
General and administrative...... 74,347 74,347 169,667
Depreciation and amortization... 50,383 50,383 199,664
Restructuring charges........... -- -- --
----------- ----------- -----------
Total operating expenses...... 265,464 265,464 587,391
----------- ----------- -----------
Operating loss................ (138,007) (138,007) (429,149)
Other (expense) income:
Interest (expense).............. (34,263) (58,820) (101,122)
Interest income and other....... 3,897 3,897 16,056
----------- ----------- -----------
Loss before income taxes.......... (168,373) (192,930) (514,215)
Income tax benefit................ -- -- 1,076
----------- ----------- -----------
Net loss.......................... (168,373) (192,930) (513,139)
Accretion of mandatorily
redeemable preferred stock....... (15,889) (15,889) (20,422)
----------- ----------- -----------
Net loss attributable to common
equity........................... $ (184,262) $ (208,819) $ (533,561)
=========== =========== ===========
Net loss attributable to common
equity per share--basic and
diluted.......................... $ (1.84) $ (2.08) $ (2.79)
=========== =========== ===========
Weighted average common equity
shares outstanding--basic and
diluted.......................... 100,414,647 100,414,647 191,059,489
=========== =========== ===========
<CAPTION>
As of June 30, 2000
-------------------------------------------
Pro Forma
Historical(1) As Adjusted(2) As Adjusted(3)
------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 28,223 $ 465,223 $ 758,858
Working capital................... (53,405) 396,595 594,187
Property and equipment, net....... 531,034 531,034 884,079
PCS licenses and microwave
relocation costs, net............ 277,275 277,275 3,999,573
Intangible assets and goodwill,
net.............................. 34,330 34,330 3,107,402
Total assets...................... 966,597 1,416,597 8,917,271
Total debt........................ 729,544 1,179,544 1,916,876
Mandatorily redeemable preferred
stock, net....................... 279,128 279,128 380,543
Total stockholders' equity
(deficit)........................ $ (203,416) $ (203,416) $ 5,162,663
</TABLE>
--------
(1) Historical TeleCorp data
(2) Historical TeleCorp data as adjusted for this offering
(3) Historical TeleCorp data as adjusted for this offering plus pro forma
adjustments for all pending transactions
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TELECORP PCS, INC.
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
For the year ended
December 31, 1999
-------------------------------------------
Pro Forma
Historical(1) As Adjusted(2) As Adjusted(3)
------------- -------------- --------------
(unaudited) (unaudited)
($ in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenue:
Service......................... $ 41,319 $ 41,319 $ 45,866
Roaming......................... 29,010 29,010 24,544
Equipment....................... 17,353 17,353 19,565
---------- ---------- -----------
Total revenue................. 87,682 87,682 89,975
---------- ---------- -----------
Operating expenses:
Cost of revenue................. 39,259 39,259 46,348
Operations and development...... 35,979 35,979 57,519
Selling and marketing........... 71,180 71,180 107,514
General and administrative...... 92,585 92,585 315,628
Depreciation and amortization... 55,110 55,110 251,426
Restructuring charges........... -- -- 32,000
---------- ---------- -----------
Total operating expenses...... 294,113 294,113 810,435
---------- ---------- -----------
Operating loss................ (206,431) (206,431) (720,460)
Other (expense) income:
Interest (expense).............. (51,313) (100,426) (148,109)
Interest income and other....... 6,748 6,748 24,314
---------- ---------- -----------
Loss before income taxes.......... (250,996) (300,109) (844,255)
Income tax benefit................ -- -- 28,976
---------- ---------- -----------
Net loss.......................... (250,996) (300,109) (815,279)
Accretion of mandatorily
redeemable preferred stock....... (24,124) (24,124) (33,042)
---------- ---------- -----------
Net loss attributable to common
equity........................... $ (275,120) $ (324,233) $ (848,321)
========== ========== ===========
Net loss attributable to common
equity per share--basic and
diluted.......................... $ (3.58) $ (4.22) $ (5.06)
========== ========== ===========
Weighted average common equity
shares outstanding--basic and
diluted.......................... 76,895,391 76,895,391 167,540,233
========== ========== ===========
</TABLE>
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<PAGE>
Unaudited Comparative Per Share Information
The following reflects (a) the historical net loss attributable to common
equity per share and book value per share of TeleCorp common equity shares in
comparison with the pro forma net loss and book value per common equity share
after giving effect to the proposed merger with Tritel under the purchase
method of accounting, the contribution and exchange with AT&T and the
acquisitions related to Indus, Airadigm, ABC and Polycell; and (b) the
historical net loss and book value per share of Tritel common equity shares in
comparison with the equivalent pro forma net loss and book value per share
attributable to 0.76 of a share of TeleCorp-Tritel Holding Company common
equity shares which will be received for each share of Tritel. This information
should be read in conjunction with the unaudited pro forma condensed combined
financial statements of TeleCorp and the separate financial statements of the
respective companies and the notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
As of and for
As of and the six months
for the year ended ended
December 31, 1999 June 30, 2000
Pro Forma Pro Forma
------------------ --------------
(unaudited) (unaudited)
<S> <C> <C>
TeleCorp
Net loss attributable to common equity per
share
Historical............................... $ (3.58) $(1.84)
Pro forma................................ $ (5.06) $(2.79)
Book value per share(1)
Historical............................... $ (0.90) $(1.96)
Pro forma................................ $ 27.69 $26.54
Cash dividends per share(2)
Historical............................... $ -- $ --
Pro forma................................ $ -- $ --
Tritel
Net loss per share
Historical............................... $(33.25) $(1.43)
Equivalent pro forma(3).................. $ (3.85) $(2.12)
Book value per share(1)
Historical............................... $ 3.06 $ 2.21
Equivalent pro forma(3).................. $ 21.04 $20.17
Cash dividends per share(2)
Historical............................... $ -- $ --
Equivalent pro forma..................... $ -- $ --
</TABLE>
--------
(1) Computed by dividing net worth (assets less liabilities less mandatorily
redeemable preferred stock) by the number of shares outstanding as of
December 31, 1999 and June 30, 2000, respectively.
(2) No cash dividends have been paid since the inception of TeleCorp or Tritel.
(3) Computed by multiplying pro forma loss per share and pro forma book value
per share of Holding Company by the exchange ratio of 0.76.
Stock Split
On August 27, 1999, TeleCorp amended its certificate of incorporation to
effect a 100 for 1 stock split for its series F preferred stock and all classes
of its common stock to be effective as of August 27, 1999. On November 8, 1999,
TeleCorp amended its certificate of incorporation to effect a 3.09 for 1 stock
split for its series F preferred stock and all classes of its common stock to
be effective as of November 8, 1999. All TeleCorp common stock and preferred
stock share data has been retroactively adjusted to reflect this change.
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<PAGE>
On November 19, 1999, Tritel's board of directors approved a 400 for 1 stock
split for class A voting, class B non-voting, class C and class D common stock
which became effective December 13, 1999. All Tritel common stock share data,
except voting preference common shares, has been retroactively adjusted to
reflect this change.
The Pending Merger
Overview
We recently entered into a merger agreement with Tritel. This agreement
provides for each of us to merge with a subsidiary of the holding company. Upon
completion of these pending mergers, Tritel and we will both become wholly
owned subsidiaries of the holding company. Pursuant to the merger agreement,
our common stockholders will receive one share of a corresponding class of
substantially similar holding company class A voting common stock through class
D common stock and voting preference common stock for each share of each class
of our class A voting common stock through class D common stock and voting
preference common stock they own, except that our class B non-voting common
stockholders will receive one share of holding company class A voting common
stock for each share they own. Our preferred stockholders will receive one
share of a corresponding series of substantially similar holding company
preferred stock for each share of each series of our preferred stock they own.
Tritel class A voting common and class B non-voting common stockholders will
receive 0.76 shares of holding company class A voting common stock for each
share they own and cash in lieu of any fractional share. Tritel class C common
and class D common stockholders will receive 0.0076 shares of holding company
class E common and class F common stock, respectively, and 0.7524 shares of
holding company class A voting common stock for each share they own and cash in
lieu of any fractional share. Tritel series A preferred and series D preferred
stockholders will receive one share of holding company series B preferred and
series G preferred stock, respectively, for each share they own. E.B. Martin,
as a voting preference common stockholder, will receive an aggregate amount of
$10 million for all the shares of voting preference common stock he owns.
William M. Mounger, II, as a Tritel voting preference common stockholder, will
also receive three shares of holding company voting preference common stock for
all of the shares of voting preference common stock he owns and will receive a
put to sell his shares of Tritel voting preference common stock for $10
million. Both Mr. Martin and Mr. Mounger could potentially receive contingent
payments for the shares of Tritel voting preference common stock they own
immediately prior to the merger under certain circumstances. In the event that
either Thomas Sullivan or Gerald Vento or both engage in a transaction in which
voting preference stock representing in excess of 50% of the voting power of
holding company capital stock entitled to vote generally in the election of
directors is directly or indirectly sold, transferred, assigned, exchanged or
converted, Mr. Mounger will be entitled to receive from Tritel either (1) if
prior to the exercise of Mr. Mounger's put right, an amount equal to the sum of
(A) $10 million and (B) 50% of the sum of (i) the amount by which the
consideration received by Thomas Sullivan in the control transfer transaction
exceeds $10 million (consideration received for shares of holding company
capital stock other than voting preference stock is not attributed to the
control transfer transaction) and (ii) the amount by which the consideration
received by Gerald Vento in the control transfer transaction exceeds $10
million (consideration received for shares of holding company capital stock
other than voting preference stock is not attributed to the control transfer
transaction) or (2) if after the exercise of Mr. Mounger's put right, an amount
equal to 50% of the sum of the amounts in (i) and (ii) above, as reduced to
reflect interest calculated from the date of the exercise of the put right on
$10 million received by Mr. Mounger. In addition, upon such a control transfer
transaction, Mr. Martin will be entitled to receive an amount equal to 50% of
the sum of the amounts in (i) and (ii) above, as reduced to reflect interest
calculated from the closing date of the merger on $10 million received by Mr.
Martin.
Concurrently with the execution of the merger agreement, TeleCorp, Tritel,
and a number of major stockholders of each of TeleCorp and Tritel entered into
an agreement whereby (1) our stockholders with greater than 50% of the voting
power of TeleCorp have agreed to vote the number of shares of our class A
voting common stock and voting preference common stock beneficially owned by
them at the time of the
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<PAGE>
TeleCorp special meeting in favor of the pending merger and (2) Tritel
stockholders with greater than 50% of the voting power of Tritel have agreed to
vote the number of shares of common stock of Tritel beneficially owned by them
at the time of the Tritel special meeting in favor of the pending merger. In
addition, the pending merger has been unanimously approved by our and Tritel's
board of directors, with three of our directors abstaining and both the
TeleCorp board and the Tritel board have agreed to recommend that their
respective stockholders adopt, and approve the transactions contemplated by,
the merger agreement.
Conditions to the Completion of the Merger
The obligations of Tritel and us to complete the merger is subject to the
satisfaction or waiver of specified conditions, including those listed below:
. the merger agreement must be adopted by both our and Tritel's
stockholders, which occurred on August 8, 2000;
. no law, injunction or order preventing the completion of the merger may
be in effect;
. the final approval of the Federal Communications Commission;
. the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act must expire or be terminated;
. we and Tritel must obtain other regulatory approvals from domestic
governmental entities;
. the shares of the holding company's class A voting common stock to be
issued in the merger must have been approved for listing on the Nasdaq
National Market;
. we and Tritel must have complied with their respective covenants in the
merger agreement;
. Tritel's and our respective representations and warranties in the merger
agreement must be true and correct; and
. we and Tritel must each receive an opinion of tax counsel to the effect
that the merger will qualify as a tax-free exchange or reorganization.
Termination of the Merger Agreement
We and Tritel can jointly agree to terminate the merger agreement at any
time. Either company may also terminate the merger agreement if:
. the merger is not completed on or before December 31, 2000 or, if
certain regulatory approvals are pending, March 31, 2001, so long as the
failure to complete the merger is not the result of the willful failure
by that company to fulfill any of its material obligations under the
merger agreement;
. government actions do not permit the completion of the merger;
. either company's stockholders do not vote to adopt the merger agreement
at a duly held meeting of either company's stockholders (both companies'
stockholders adopted these agreements on August 8, 2000); or
. the other company breaches its representations, warranties or covenants
in the merger agreement in a material way.
Our Interim Operations
Pending the completion of the merger, we have agreed to carry on our
respective businesses in the ordinary course and we are bound by covenants set
forth in the merger agreement that restrict us from taking a variety of
actions. For example, without the prior written consent of Tritel, we have
agreed to specific restrictions relating to the following:
. the amendment of our certificate of incorporation or by-laws;
. the merger or consolidation with other entities;
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<PAGE>
. the issuance or sale of capital stock, any voting debt or other equity
interests;
. the disposition of assets;
. the alteration of share capital, including, among other things, stock
splits, combinations or reclassifications;
. the declaration or payment of dividends;
. the repurchase or redemption of capital stock;
. compensation of directors, executive officers and key employees;
. employment or severance agreements;
. the acquisition of assets or other entities;
. the incurrence, assumption or guarantee of loans or advances;
. the incurrence of capital expenditures;
. the incurrence of purchase commitments;
. accounting policies and procedures;
. the incurrence of debt;
. the disposition of intellectual property;
. actions that would result in a material violation, default or waiver of
rights under any material agreements;
. actions or failure to take actions that would result in any of the
representations and warranties becoming untrue in any material respect,
or any of the conditions to the mergers not being satisfied;
. the taking of actions that would prevent or impede the mergers from
qualifying as an exchange under Section 351 of the Internal Revenue Code
or the qualification of either merger as a reorganization under Section
368 of the Internal Revenue Code; or
. the entering into or amending of any agreements, commitments or
arrangements with respect to any conduct of business prohibited during
the period before completion of the merger.
Concurrent Transactions
AT&T Wireless Services Contribution
In connection with the pending merger, and as part of an overall plan with
the merger, simultaneously with the closing of the merger, AT&T Wireless
Services is expected to contribute to holding company rights, pursuant to
separate asset purchase and merger agreements, to designate a qualified
assignee for wireless licenses in Milwaukee and Madison, Wisconsin and Des
Moines and Davenport, Iowa.
In connection with the contribution, the merger agreement provides for the
following transactions to occur:
. AT&T Wireless Services agreed to assign to holding company or us its
right to enter into, and all its rights, title and interest in, an asset
purchase agreement with Airadigm Communications, Inc. Pursuant to this
agreement, on June 2, 2000, we entered into the asset purchase agreement
to purchase from Airadigm certain of its assets, including licenses
representing approximately 3.1 million people in Wisconsin and Iowa, for
approximately $74.0 million in cash and the assumption or payment in
full of approximately $74.6 million in debt. This agreement is subject
to approval in connection with the bankruptcy proceedings of Airadigm;
. AT&T Wireless Services has agreed to assign to holding company or us all
of its rights, title and interest in a merger agreement with Indus, Inc.
including the assumption of approximately
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<PAGE>
$54.0 million of Federal Communications Commission debt, $54.7 million
of other liabilities and a $34.7 million cash payment (of which up to
$4.0 million can be satisfied in holding company class A voting common
stock at Indus's option). Indus licenses represent a population of
approximately 1.9 million in Milwaukee, Wisconsin;
. the Existing Network Membership License Agreement, as defined in the
merger agreement, between AT&T and holding company or us will be amended
by the License Extension Agreement to extend the initial five-year brand
sharing for an additional two years until July 17, 2005 and extend our
rights to all people covered by holding company licenses;
. AT&T Wireless Services will contribute approximately $20.0 million in
cash to holding company; and
. in consideration for AT&T Wireless Services' contribution of licenses,
assignment of rights and contribution of cash, AT&T Wireless Services
will receive 9,272,740 shares of holding company class A voting common
stock.
Conditions to the Completion of the Contribution
The obligations of Tritel and us to complete the contribution is subject to
the satisfaction or waiver of specified conditions, including those listed
below:
. the merger agreement must be adopted by both our and Tritel's
stockholders which occurred on August 8, 2000;
. no law, injunction or order preventing the completion of the
contribution may be in effect;
. the completion of the merger of the first merger subsidiary into us and
the merger of the second merger subsidiary into Tritel;
. the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act must expire or be terminated;
. we and Tritel must obtain other regulatory approvals from domestic
governmental entities;
. we and Tritel must have complied with our respective covenants in the
merger agreement;
. the simultaneous issuance of 9,272,740 shares of the holding company's
class A voting common stock to AT&T Wireless Services;
. Tritel's and our respective representations and warranties in the merger
agreement must be true and correct; and
. the exchange transaction must have been completed.
The completion of the contribution requires the completion of the merger,
however the failure of the contribution to occur will not prevent the
completion of the merger.
AT&T Wireless Exchange
At the same time we entered into the merger agreement, we entered into a
separate exchange agreement with AT&T Wireless to exchange certain wireless
assets to extend our respective service areas.
In connection with the exchange, the exchange agreement provides for the
following transactions:
We will sell the 20 MHz PCS licenses in the New England territory,
including some suburbs of Boston, Hyannis and Worcester, Massachusetts and
Manchester, Nashua and Concord, New Hampshire, representing a population of
approximately 1.9 million people and certain property and equipment to AT&T
Wireless in exchange for the following assets and rights of AT&T Wireless:
. ABC Wireless has obtained the right to purchase the licenses of Polycell
Communications, Inc. and Clinton Communications, Inc., which is a wholly
owned subsidiary of Polycell, pursuant to the
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amended and restated acquisition agreement among Polycell, Clinton
Communications and ABC Wireless and has assigned its rights to transfer
the right to hold two of such licenses and all of its other rights
related to such licenses under the acquisition agreement to AT&T
Wireless. AT&T Wireless has agreed to assign to us the right to hold the
licenses and all of its other rights related to such licenses under the
acquisition agreement. We will acquire from Polycell and Clinton
Communications licenses covering approximately 0.3 million people in
Iowa;
. AT&T Wireless has obtained the right to assign the right to hold certain
licenses of ABC Wireless and to assign all of its other rights and
obligations under its acquisition agreement with ABC Wireless. We will
acquire from AT&T Wireless licenses representing a population of
approximately 1.5 million people in Iowa, including Des Moines,
Davenport, Dubuque and Iowa City;
. AT&T Wireless has agreed to transfer to us its 10 MHz licenses in
Wisconsin held by AT&T Wireless or its affiliates. We will acquire from
AT&T Wireless licenses representing a population of approximately 1.95
people million in Wisconsin, including Madison, Appleton-Oshkosh and
Green Bay;
. AT&T Wireless has agreed to transfer to us its 10 MHz licenses in Iowa
held by AT&T Wireless or its affiliates. We will acquire from AT&T
Wireless licenses representing approximately 385,400 people in Iowa; and
. AT&T Wireless will pay us $80.0 million in cash, less the cash
consideration of approximately $12.0 million paid in connection with the
Polycell, Clinton Communications and ABC Wireless licenses, for certain
of the assets associated with our New England territory. As of February
29, 2000, ABC has paid out of funds loaned to ABC by AT&T Wireless
$3,384,350 in cash to Polycell of which $950,650 will be reimbursed to
ABC Wireless by AT&T Wireless upon the closing of the merger. Upon the
closing of the merger, Polycell and Clinton Communications will receive
an aggregate additional $3,384,350. Upon closing of the merger, AT&T
Wireless will pay $6,867,750 in cash to ABC Wireless.
Replacement Assets. In the event that AT&T Wireless is unable to deliver any
of the licenses of Polycell, Clinton Communications or ABC Wireless within 35
days after we, or any of our affiliates are treated as transferring any of our
assets under certain tax regulations, then, within 45 days after the date of
transfer, AT&T Wireless will deliver to an intermediary (a corporation who will
hold the assets, cash and stock consideration, if any, pending the completion
of the exchange transaction in order to qualify the exchange transaction as a
tax-free exchange under Section 1031 of the Internal Revenue Code) one of the
following (chosen at AT&T Wireless' option):
. cash in an amount equal to (1) $133 times the number of people covered
by the licenses of Polycell, Clinton Communications or ABC Wireless, as
the case may be, less (2) the amount of the cash consideration that was
required to be paid under the acquisition agreements;
. our class A voting common stock having a value equal to the cash payable
as described above, valued based on the average of the closing prices of
our class A voting common stock for the ten trading days immediately
preceding the closing date of the exchange transactions; or
. executed assignments satisfactory to us for replacement assets
consisting of PCS licenses held by AT&T Wireless or its affiliates in
markets of equivalent size and density to markets covered by the
licenses of Polycell, Clinton Communications and ABC Wireless and
reasonably acceptable to us covering at least an equivalent number of
people in licensed areas, which shall be exchanged as a like-kind
exchange. If AT&T Wireless chooses to deliver the replacement assets
described in this paragraph, then:
. we will deliver to the intermediary, who will deliver to AT&T
Wireless, our class A voting common stock, valued based on the
average of the closing prices of our class A voting common stock for
the ten trading days immediately preceding the closing date of the
exchange
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<PAGE>
transactions, equal to the amount of the cash consideration that was
required to be paid under the acquisition agreement(s) governing the
undistributed licenses;
. if the number of people in licensed areas included in the replacement
assets exceeds the number of people covered by the licenses of
Polycell, Clinton Communications or ABC Wireless, we will deliver to
the intermediary, who will deliver to AT&T Wireless, an additional
amount of our class A voting common stock, valued as described above,
equal to $133 times the number of the excess people; and
. the replacement assets will be considered as "replacement assets"
within the meaning of Section 1031 of the Internal Revenue Code.
The intermediary will transfer the replacement assets and any cash
consideration to our appropriate affiliate and any cash consideration to AT&T
Wireless at the closing of the exchange transactions.
Termination. In the event that we are unable to deliver any of our licenses
or if the exchange agreement terminates prior to delivery of our licenses, and
prior to termination, any of our affiliates has acquired any of the Polycell
and ABC Wireless assets pursuant to the exchange agreement, then promptly upon
termination of the exchange agreement, we will, as directed by AT&T Wireless,
either:
. sell the licenses of Polycell, Clinton Communications or ABC Wireless to
an entity designated by AT&T Wireless for a purchase price and otherwise
on the same terms and conditions as our acquisition of the Polycell
assets or the ABC Wireless assets; or
. issue to AT&T Wireless our class A voting common stock having a value
equal to (1) $133 times the number of people covered by the licenses of
Polycell, Clinton Communications or ABC Wireless, as the case may be,
less (2) the amount of the cash consideration that was required to be
paid pursuant to the Polycell acquisition agreement or the ABC Wireless
acquisition agreement, as the case may be. Our class A voting common
stock is to be valued based on the average of the closing prices of the
stock for the ten trading days immediately preceding the date of closing
of the exchange transactions.
We and AT&T Wireless have agreed to enter into a transition agreement
requiring us to provide operational and administrative services for AT&T
Wireless with respect to our licenses for a certain period of time.
Conditions to the Completion of the Exchange Transaction
The obligations of the parties to the exchange agreement to complete the
exchange is subject to the satisfaction or waiver of specified conditions,
including those listed below:
. no law, injunction or order preventing the completion of the exchange
may be in effect;
. consent of the Federal Communications Commission;
. the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act must expire or be terminated;
. all of the parties must obtain other regulatory approvals from domestic
governmental entities;
. we and AT&T Wireless must have complied with their respective covenants
in the exchange agreement;
. AT&T Wireless' and our respective representations and warranties in the
exchange agreement must be true and correct;
. we must receive the consent of our lenders required under the Credit
Agreement dated July 17, 1998; and
. we must have acquired the assets of Indus.
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Side Letters With AT&T Wireless and AT&T Wireless Services
At the same time we entered into the merger agreement and the exchange
agreement, we entered into the following two side letters with AT&T Wireless or
AT&T Wireless Services, as described below:
Replacement Assets Side Letter. In connection with the contribution, we and
AT&T Wireless Services have agreed that if AT&T Wireless Services does not have
the ability to deliver the assets of Indus or the replacement assets to holding
company, then we, instead of terminating the contribution, will have the option
to elect to have AT&T Wireless Services' 10 MHz license for the Milwaukee BTA
constitute the replacement assets.
Side Letter to Merger and Exchange Agreements. Pursuant to a side letter,
we, AT&T Wireless Services and AT&T Wireless have agreed to the following:
Additional Markets. Upon the effective time of the exchange
transactions, we, AT&T Wireless Services and AT&T Wireless have agreed to
the following:
Des Moines-Quad Cities MTA. If we, or an affiliate tries to acquire
any PCS license in the Des Moines, Iowa territory within two years of
the closing of the exchange transactions, the area encompassed by the
additional license, which covers 0.6 million people, will be included
in the licensed territory under the network membership license
agreement and will be subject to the roaming agreement, except that
AT&T Wireless, AT&T Wireless Services and their affiliates will not be
obligated under the stockholders' agreement to program subscriber
equipment so that the PCS system which we operate in the additional
Iowa territory is the preferred provider for the subscribers of AT&T
Wireless, AT&T Wireless Services and their affiliates.
Airadigm. If any PCS license originally granted to Airadigm or an
affiliate is auctioned by the Federal Communications Commission, AT&T
Wireless, AT&T Wireless Services or an affiliate has agreed to enter
into an agreement with a qualified entity chosen by AT&T Wireless and
AT&T Wireless Services pursuant to which (1) AT&T Wireless and AT&T
Wireless Services will fund one-third of the purchase price, up to a
specified limit, of any auctioned license for which the qualified
entity is the successful bidder, and we have agreed to fund the
remaining two-thirds, and (2) the qualified entity will, subject to
applicable Federal Communications Commission requirements, promptly
disaggregate each auctioned license, so that 10 MHz of each auctioned
license will be retained by the qualified entity and 20 MHz of each
auctioned license will be transferred to us. We, along with AT&T
Wireless and AT&T Wireless Services have agreed to cooperate in
obtaining any regulatory approvals required.
Right of First Refusal. We, along with AT&T Wireless Services and
AT&T Wireless have agreed that AT&T Wireless and AT&T Wireless Services
will have a right of first refusal to purchase the ROFR, or right of
first refusal, assets, which refer collectively to: (1) the assets of
AT&T under the exchange agreement; (2) all of the assets to be
transferred under the terms of the Airadigm purchase agreement; and (3)
all of the assets currently held by Indus, under the following
circumstances:
Asset Sale. If we agree to sell, assign, transfer or otherwise
dispose of any or all of the ROFR assets to any person other than one
of our subsidiaries, AT&T Wireless or AT&T Wireless Services have the
right to purchase the ROFR assets at a price per person in a licensed
coverage area equal to the price per person in a licensed coverage area
agreed to be paid by the purchaser, subject to approval by the Federal
Communications Commission or other governmental entities; or
Transfer of Control. If we agree to a consolidation, merger or
reorganization of our company with or into any person in which our
stockholders will own less than 60% of the voting securities of the
surviving entity, or any transaction in which over 40% of our voting
power is transferred, or the sale, transfer or lease of all or
substantially all of our assets, then AT&T Wireless and AT&T Wireless
Services have the right to purchase the ROFR assets at a price per
person in a licensed coverage area equal to the price per person in a
licensed coverage area being paid for us as a whole in connection with
the transfer of control.
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If a transfer of control occurs within 18 months after the closing of the
merger agreement and either (1) the markets covered by the ROFR assets do not
have at least negative 95 dB signal strength coverage over 50% of the people in
these markets or (2) the number of active customers we have in these markets is
less than one percent of the people within the territory of the ROFR assets,
then the price per person in a licensed coverage area will be reduced, however,
the aggregate purchase price to be paid by AT&T Wireless and AT&T Wireless
Services will be equal to at least $175 per person in a licensed coverage area
plus the amount of any capital contributed and operating expenses paid by us
with respect to the ROFR Assets.
Transfers to Third Parties. If AT&T Wireless and AT&T Wireless Services do
not elect to purchase all of the assets being offered, then we may sell all or
any part of the assets being offered to one or more third party transferees at
an aggregate purchase price in an amount that equals or exceeds the purchase
price being offered by the purchaser. If there is a transfer of control, AT&T
Wireless and AT&T Wireless Services do not elect to purchase all of the ROFR
assets we own, or if AT&T Wireless and AT&T Wireless Services fail to respond
in writing to the control notice in a timely manner, then we will be free to
complete the transfer of control in connection with the required notice without
regard to the right of first refusal unless the price per person in a licensed
coverage area being paid for us is reduced by more than 5% from the price per
person in a licensed coverage area contained in the necessary control notice.
Termination. If any agreement giving rise to a transfer of control is
terminated without a transfer of control taking place, AT&T Wireless and AT&T
Wireless Services shall have no rights to acquire the assets being offered or
the ROFR assets unless a new sale of assets or transfer of control is proposed.
Amendment of Certain Agreements
Upon the completion of the transactions contemplated by the exchange
agreement, the network membership license agreement, the stockholders
agreement, the intercarrier roamer services agreement and the roaming
administration agreement will be amended to require:
. the expansion of the territories under these agreements to include the
territories covered by licenses transferred to holding company, us or an
affiliate pursuant to the exchange agreement; and
. the contraction of the territories under these agreements to exclude the
territories covered by licenses transferred by holding company, us or an
affiliate pursuant to the exchange agreement.
Upon the completion of the contribution pursuant to the merger agreement,
the network membership license agreement, the stockholders agreement, the
intercarrier roamer services agreement and the roaming administration agreement
will be amended as necessary to expand the territories to which the agreements
apply to include the territories covered by the licenses transferred to holding
company, us or an affiliate pursuant to the contribution transactions.
New Areas Minimum Buildout Plan. We have agreed that holding company should
be obligated to buildout new areas covered by leases transferred to us in the
exchange or contribution transactions in accordance with a minimum buildout
plan to be agreed upon by the holding company (or us before the merger), AT&T
Wireless and AT&T Wireless Services. The minimum buildout plan will provide
that within five years, specifying the year by year targets, the new areas will
be built out to a level of 80% of the people in the Milwaukee BTA and 75%
elsewhere, plus appropriate coverage of highways and interstates. Licensed
areas are deemed to be built out if they have coverage of at least negative 95
dB signal strength.
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DESCRIPTION OF OTHER INDEBTEDNESS
Senior Credit Facilities
On July 17, 1998, we entered into senior credit facilities for $525.0
million with a group of lenders, including The Chase Manhattan Bank, as
administrative agent and issuing bank, TD Securities (USA) Inc., as syndication
agent, and Bankers Trust Company, as documentation agent. We have entered into
amendments to the senior credit facilities under which the amount of credit
available to us was increased to $560.0 million. The senior credit facilities
provide for (1) $150.0 million of senior secured term loans, which are referred
to as the "Tranche A Term Loans", which mature in January 2007, (2) $225.0
million of senior secured term loans, which are referred to as the "Tranche B
Term Loans", which mature in January 2008, (3) a $150.0 million senior secured
revolving credit facility, which matures in January 2007 and (4) $35.0 million
of senior secured term loans in the form of an expansion facility, which will
mature in May 2009. The senior credit facilities also provide for an
uncommitted $40.0 million senior term loan (the Expansion Facility).
The Tranche A Term Loans must be repaid, beginning on October 17, 2002 in 18
consecutive quarterly installments (the amount of each of the first six
installments, $3.75 million, each of the next four installments, $9.4 million,
and each of the last eight installments, $11.25 million). The Tranche B Term
Loans are required to be repaid, beginning on October 17, 2002, in 22
consecutive quarterly installments (the amount of each of the first 18
installments, $0.6 million, and each of the last four installments, $54.0
million). The commitment to make loans under the revolving credit facility
automatically and permanently is reduced, beginning on April 17, 2005, by
virtue of eight consecutive quarterly reductions (the amount of each of the
first four reductions, $12.5 million, and each of the last four reductions,
$25.0 million).
Interest on all of the loans, including the revolving credit facility,
accrues, at our option, either at (1)(A) LIBOR multiplied by a fraction, the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board of Governors of the Federal Reserve System to which
the administrative agent is subject for eurocurrency funding, plus (B) the
Applicable Margin (as defined below) (each loan bearing such rate of interest,
a "Eurodollar Loan") or (2)(A) the higher of (x) the administrative agent's
prime rate and (y) the Federal Funds Effective Rate (as defined in the senior
credit agreement) plus 0.50%, plus (B) the Applicable Margin (each loan bearing
such rate of interest, an "ABR Loan"). Interest on any overdue amounts will
accrue at a rate per annum equal to 2.00% plus the rate otherwise applicable to
such amounts. The "Applicable Margin" means, with respect to the Tranche A Term
Loans and the revolving credit loans, a rate between 1.25% and 2.75% per annum
(depending on our leverage ratio), in the case of a Eurodollar Loan, and a rate
between 0.25% and 1.75% per annum (depending on our leverage ratio), in the
case of an ABR Loan, and, with respect to the Tranche B Term Loans, 3.25% per
annum, in the case of a Eurodollar Loan, and 2.25% per annum, in the case of an
ABR Loan.
The senior credit facilities require us to pay an annual commitment fee
between 0.50% and 1.25% (depending on the percentage drawn) of the unused
portion of the commitments of the lenders to make loans under the revolving
credit facility. The Tranche A Term Loans and Tranche B Term Loans are payable
quarterly in arrears, and a separate agent's fee is payable to the
administrative agent. The senior credit facilities also require us to purchase
an interest rate hedging contract covering an amount equal to at least 50% of
the total amount of our outstanding indebtedness (other than indebtedness which
earns interest at a fixed rate).
The Tranche A Term Loans automatically will be reduced to the extent the
undrawn portion thereof exceeds $50.0 million on July 17, 2000 by the amount of
such excess. As of July 17, 2000, the Company had drawn $100.0 million of the
$150.0 million Tranche A Term Loan. The Tranche A and Tranche B Term Loans will
be prepaid, and commitments under the Revolving Credit Facility will be
reduced, in an aggregate amount equal to (1) 50% of the excess cash flow of
each fiscal year commencing with the fiscal year ending December 31, 2001, (2)
100% of the net proceeds of asset sales outside of the ordinary course of
business, in excess of a
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$1.0 million annual threshold, or unused insurance proceeds, (3) 100% of the
net cash proceeds of issuances of debt obligations (other than debt obligations
permitted by the Senior Credit Agreement, including the issuance of the notes
and the 11 5/8% notes) and (4) 50% of the net cash proceeds of certain
issuances of equity securities; provided that the prepayments and reductions
set forth under clauses (3) and (4) will not be required if, after giving
effect to such issuance, (A) our leverage ratio would be less than 5.0 to 1.0
and (B) in the case of clause (4), we would be in pro forma compliance with
each covenant contained in the Senior Credit Agreement.
The expansion facility may be established by us so long as, both before and
after giving effect to the expansion facility, no default exists under the
senior credit agreement and we are in pro forma compliance with each of the
financial covenants contained in the senior credit agreement. No lender is
required to participate in the expansion facility. All our obligations under
the senior credit facilities are unconditionally guaranteed by each of our
existing and subsequently acquired or organized domestic subsidiaries. All of
the loans, including the revolving credit facility and the subsidiary
guarantees, and any related hedging contracts provided by the lenders under the
senior credit facilities are secured by substantially all of our assets and
each of our existing and subsequently acquired or organized domestic
subsidiaries, including a first priority pledge of all of the capital stock
held by us or any of our subsidiaries; provided that the pledge of shares of
foreign subsidiaries will be limited to 65% of the outstanding shares of such
foreign subsidiaries. Under the senior credit facilities, no action may be
taken against the licenses contributed to us unless and until the requisite
approval is obtained from the Federal Communications Commission. We have
organized special purpose subsidiaries to hold our licenses, our real property
and our equipment. Each such single purpose subsidiary is prohibited from
incurring any liabilities or obligations other than the subsidiary guarantee
issued by it, obligations under the security agreement entered into by it in
connection with the senior credit facilities, obligations resulting from
regulatory requirements, taxes and liabilities incurred in the ordinary course
of its business incident to its business or necessary to maintain its
existence.
The senior credit agreement contains covenants customary for facilities
similar to the senior credit facilities, including covenants that restrict,
among other things, the incurrence of indebtedness and the issuance of certain
equity securities, the creation of liens, sale and lease-back transactions,
mergers, consolidations and liquidations, certain investments, loans,
guarantees, advances and acquisitions, sales of assets, hedging agreements,
certain payments, including the payment of dividends or distributions in
respect of capital stock and prepayments of the loans, certain transactions
with affiliates, the entering into of certain restrictive agreements and the
amendment of certain material agreements. The senior credit agreement requires
us to maintain certain ratios, including a senior debt to capital ratio, a
senior debt to EBITDA ratio, a total debt to EBITDA ratio, an interest coverage
ratio and a fixed charges ratio, and to satisfy certain tests, including tests
relating to the minimum population covered by our network, the minimum number
of subscribers to our services, the minimum aggregate service revenue per
subscriber and limits on capital expenditures. In particular, we may not permit
the ratio of (1) senior debt to (2) the sum, as of the date of determination,
of (A) all indebtedness for borrowed money of us and our subsidiaries which by
its terms matures more than one year after the date of calculation and any
indebtedness maturing within one year from such date which is renewable or
extendable at our or our subsidiaries' option to a date more than one year from
such date, including loans under the revolving credit facility, outstanding as
of such date, (B) certain equity contributions, plus (C) the commitments of the
cash equity investors to purchase shares of our capital stock pursuant to the
securities purchase agreement (such sum, the "Total Capital") to exceed 0.5 to
1.0. However, if (1) all commitments of the cash equity investors to purchase
shares of our capital stock pursuant to the securities purchase agreement have
been satisfied in full in cash and (2) the aggregate number of residents within
the areas covered by our licenses (as determined by the Donnelley Marketing
Service Guide published in 1995) for which facilities owned by us or our
subsidiaries have achieved substantial completion exceeds 60% of such
residents, the ratio of senior debt to Total Capital may exceed 0.50 to 1.00
but may not exceed 0.55 to 1.00. The senior credit agreement also contains
customary representations, warranties, indemnities, conditions precedent to
borrowing and events of default.
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Borrowings under the senior credit facilities are available to finance
capital expenditures related to the construction of our network, the
acquisition of related businesses, working capital needs and subscriber
acquisition costs. As of June 30, 2000, $290.0 million had been drawn under the
senior credit facilities and was then accruing interest at an annual rate of
9.12%.
Existing Vendor Financing
In May 1998, we entered into a vendor procurement contract with Lucent,
pursuant to which we agreed to purchase up to $285.0 million of radio, call
connection, switching and related equipment and services for the development of
our wireless communications network. At March 31, 2000, we had satisfied our
purchase requirements under this contract through our purchase of approximately
$294.5 million of equipment and services from Lucent. In connection with the
procurement contract, Lucent agreed to provide us with $80.0 million of junior
subordinated vendor financing.
On August 1, 2000, the Company extended its existing agreement with Lucent
for the supply and installation of Time Division Multiple Access (TDMA) IS-136
PCS wireless equipment for the markets being acquired from AT&T Wireless in the
Contribution and Exchange.
On May 11, 1998, we entered into a note purchase agreement with Lucent for
the $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
the proceeds of our sale of senior subordinated discount notes. This amount
cannot be reborrowed. As of June 30, 2000, we had outstanding approximately
$45.4 million of our Lucent series A notes, including $5.4 million of accrued
interest and accruing interest at a rate per annum through December 31, 2000 of
8.5%. 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 over $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 which will replace the May 11, 1998 note purchase
agreement 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 $20.0 million on a dollar for dollar basis for any additional
amounts Lucent otherwise lends to us for such purposes under our senior credit
facilities, exclusive of amounts Lucent lent 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.
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The series A notes accrue interest at a rate of 8.5% per annum through
December 31, 2000. If the series A notes are not redeemed in full on or prior
to January 1, 2001, the rate will increase by 1.5% per annum on each January 1
thereafter, beginning January 1, 2001, provided that the maximum interest rate
will not exceed 12.125%.
The series B notes accrued interest at a rate of 10% per annum through
December 31, 1999. The rate on any series B notes will increase by 1.5% per
annum on each January 1 thereafter beginning on January 1, 2000, provided that
the maximum interest rate will not exceed 12.125%.
Interest payable on the Lucent series A notes and the Lucent series B notes
on or prior to May 11, 2004 will be payable semi-annually 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.
Upon a change of control, as defined by the amended and restated note
purchase agreement, the series A and series B notes must be repaid at their
principal amount plus a premium. The series A and series B notes may not be
prepaid, however, if prohibited by the amended and restated terms of the senior
credit facilities, the indenture or other indebtedness that ranks senior to the
series A and series B notes. In the event a change of control occurs prior to
May 1, 2002, in the case of the series A notes, the notes may be prepaid in
accordance with the optional prepayment provisions.
Under the amended and restated note purchase agreement, Lucent was
prohibited from engaging in any remarketing efforts of the series A or series B
notes (or unused commitments relating thereto) prior to nine months after the
closing of the offering of the notes which was April 23, 1999. If Lucent has
not completed certain sales in respect of the series A or series B notes then
outstanding prior to January 1, 2003, we will be required to pay Lucent up to
3% of the then outstanding principal amount of all series A and series B notes
to defray any actual marketing, distribution and other costs incurred by Lucent
in connection with any such sales remarketing.
Series A and series B notes retained by Lucent or its affiliates may be
prepaid without premium at any time. Series A notes not held by Lucent or its
affiliates may be prepaid without payment of a premium at any time prior to May
1, 2002.
In the event we are subject to any bankruptcy or related procedures or there
is any default in the payment of our debt (including borrowings under the
senior credit facilities, the notes and the 11 5/8% notes) that ranks senior in
right of payment to the series A and series B notes, the senior debt shall be
paid in full before payments are made on the series A and series B notes. In
the event of a default that does not relate to the non-payment of principal or
interest with respect to any such debt, the holders of more than $25.0 million
principal amount of such debt may declare a payment blockage period of up to
179 days.
Events of default under the amended and restated note purchase agreement
include, subject to certain cure periods, the failure to pay principal or
interest under such agreement when due, violation of covenants, inaccuracy of
representations and warranties, cross-default for other indebtedness,
bankruptcy, material judgments and termination of the procurement contract.
New Vendor Financing
On July 14, 2000, the new holding company entered into a commitment letter
with Lucent pursuant to which Lucent agreed to purchase, following the merger
of us and Tritel with subsidiaries of the new holding company, the new holding
company's senior subordinated discount notes due ten years from issuance
yielding up to $350.0 million of gross proceeds. These Lucent notes will be
senior subordinated unsecured obligations of the new holding company, ranking
equivalent in right of payment to all of the holding company's future
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senior subordinated debt, subordinate in right of payment to any future senior
debt incurred by the new holding company or its guarantor subsidiaries and
senior in right of payment to all of the new holding company's and its
guarantor subsidiaries' subordinated debt. We are not currently, nor will we be
after the consummation of the pending merger transaction, a subsidiary
guarantor of the new holding company under these Lucent notes.
These Lucent notes will be issued at a discount to their principal amount.
These notes will bear interest at an annual rate equal to the market rate of
our 11 5/8% notes, less 25 basis points (but in no event more than 12%), with
the market rate based on the market rate on the date of issuance or an average
price for a specified period of time, as determined by the new holding company
and Lucent.
Under the terms of the commitment letter, the new holding company is under
no obligation to issue these Lucent notes. Lucent is obligated to purchase
these notes if they are issued by the new holding company; however, Lucent's
obligation to purchase these notes is contingent upon either TeleCorp or Tritel
receiving written consents from the senior lenders under each of their
respective senior credit facilities allowing us to make certain restricted
payments to the new holding company. Additionally, Lucent's commitment to
purchase these notes terminates upon the earlier of June 30, 2002 and the first
anniversary of the consummation of the merger.
The new holding company has the option of selling these Lucent notes to
Lucent on two separate occasions, each of which would be for half of the total
principal amount of these notes. Lucent has the option of paying for these
notes by providing the new holding company with a credit for amounts owed to
Lucent by us under the General Agreement for Purchase of Personal
Communications Systems and Services, effective as of May 12, 1998, provided
that, at the time of the closing of these Lucent notes, the General Agreement
will no longer be our obligation but will become an obligation of the new
holding company.
These Lucent notes will mature ten years from the date of issuance. These
Lucent notes will accrete in value until five years from the date of issuance,
compounded semi-annually. At that time, interest on these Lucent notes will
become payable semi-annually on January 15 and July 15 of each year, commencing
five years after the issuance of these Lucent notes. These Lucent notes will be
redeemable at the new holding company's option, in whole or in part, at any
time on or after five years after issuance, six years after issuance, seven
years after issuance, and eight years after issuance, and thereafter at
105.313%, 103.542%, 101.771% and 100.000% of the principal amount thereof,
respectively, in each case, plus accrued and unpaid interest to the date of
redemption. In addition, prior to the third anniversary of the issuance of
these Lucent notes, the new holding company may redeem up to 35% of the
original aggregate principal amount of these Lucent notes at a redemption price
of 110.625% of the accreted value of these Lucent notes, with the net cash
proceeds of certain public equity offerings, provided that at least 65% of the
aggregate principal amount of these Lucent notes at maturity remains
outstanding immediately after the redemption. Upon the occurrence of a change
of control (as defined in the indenture for these Lucent notes), the new
holding company would be required to make an offer to purchase all of these
Lucent notes at a purchase price equal to 101.00% of the accreted value (if on
or prior to the fifth anniversary of the issuance of these Lucent notes) or the
principal amount at maturity, plus accrued and unpaid interest, if any, to the
date of repurchase (if after the fifth anniversary of the issuance of these
Lucent notes). The new holding company may not have sufficient funds or the
financial resources necessary to satisfy its obligations to repurchase these
Lucent notes upon any change of control.
The indenture governing these Lucent notes contains financial covenants
relating to, among other things, the following matters:
. limitations on the ability of the new holding company, us, Tritel and
each entity's restricted subsidiaries, to incur additional debt, unless
at the time of such incurrence,
. with respect to the new holding company and any subsidiary
guarantors, the ratio of debt to operating cash flow would be less
than 8.0 to 1.0, if the debt is incurred prior to the fifth
anniversary of the Indenture; or 7.0 to 1.0, if the debt is incurred
after the fifth anniversary of the Indenture; or if the debt is
incurred prior to April 1, 2005 only, the total consolidated debt of
those entities would be equal to or less than 75% of the total
invested capital in such entities;
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. with respect to us and our restricted subsidiaries, the ratio of
debt to operating cash flow would be less than 8.0 to 1.0, if the
debt is incurred prior to June 30, 2005; or 6.5 to 1.0, if the debt
is incurred on or after June 30, 2005; or if the debt is incurred
prior to June 30, 2005 only, the total consolidated debt of those
entities would be equal to or less than 75% of the total invested
capital in such entities;
. with respect to Tritel and its restricted subsidiaries, the ratio of
debt to operating cash flow would be less than 8.0 to 1.0, if the
debt is incurred prior to June 30, 2005; or 6.5 to 1.0, if the debt
is incurred on or after June 30, 2005; or if the debt is incurred
prior to June 30, 2005 only, the total consolidated debt of those
entities would be equal to or less than 75% of the total invested
capital in such entities;
in all cases, subject to certain permitted incurrences of debt;
. a limitation on the new holding company's payment of cash dividends,
repurchase of capital stock, making of certain investments and payment
of principal on subordinated debt, until June 30, 2004 and, thereafter,
unless after giving effect to each such payment, repurchase or
investment, certain financial tests are met, excluding certain permitted
payments and investments;
. a limitation on the incurrence of liens by the new holding company and
its restricted subsidiaries;
. a limitation on the ability of the new holding company and its
restricted subsidiaries to create or incur restrictions on the ability
of the holding company's restricted subsidiaries to make distributions
to, make investments in, or transfer property to the new holding
company;
. a limitation on transactions with affiliates of the new holding company
and its subsidiaries;
. a limitation on the ability of the new holding company or its
subsidiaries to engage in any business not substantially related to a
telecommunications business;
. a limitation on the ability of the new holding company to designate
unrestricted subsidiaries;
. a limitation on the ability of the new holding company or certain of its
subsidiaries to layer debt;
. a limitation on certain mergers, consolidations and sales of assets by
the new holding company and its subsidiaries; and
. a limitation on the use of the proceeds of these Lucent notes with
respect to the investment in or contribution to certain entities or
joint ventures.
Additionally, under these Lucent notes, we and Tritel will be subject to
covenants regarding:
. incurring additional limitations on restricted payments (but only as to
redemption, repurchase or other retirement of capital stock or
subordinated indebtedness of the holding company or, in the case of
subordinated indebtedness, of a restricted subsidiary of the holding
company that has guaranteed the notes); and
. incurring additional limitations on restrictions affecting restricted
subsidiaries (with an additional exception for any agreement entered
into after the date of the indenture by us or Tritel or their
subsidiaries that in the reasonable judgment of the board of directors
of the holding company does not create a material likelihood that the
holding company will not be able to pay when due all scheduled payments
of principal and interest at the times and in the manner contemplated by
the indenture and the notes).
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The events of default under the indenture governing these Lucent notes
include various events of default customary for this type of agreement,
including, among others, the failure to pay principal and interest when due on
these Lucent notes, cross-defaults on other debt in excess of $15.0 million,
and certain events of bankruptcy, insolvency and reorganization.
Black Label Credit Agreement
On July 14, 2000, Black Label Wireless, Inc., a company wholly owned by
Messrs. Sullivan and Vento, entered into a credit agreement with Lucent, under
which Lucent agreed to lend Black Label up to $175.0 million. Black Label
intends to use the proceeds of loans under the credit agreement to develop the
network related to the licenses being acquired from AT&T Wireless in the
Contribution and the Exchange. Upon consummation of the merger, Black Label
intends to transfer its assets to TeleCorp and TeleCorp intends to satisfy
Black Label's indebtedness to Lucent.
The obligations under the Black Label credit agreement must be repaid upon
the later to occur of the date six months after the consummation of the merger
of TeleCorp and Tritel and related AT&T transactions and July 14, 2001.
Additionally, if the obligations under the credit agreement are assumed by
TeleCorp, the commitments under the credit agreement shall immediately
terminate and all obligations due under the credit agreement shall immediately
become due and payable.
Interest on the loans under the credit agreement accrues, at Black Label's
option, either at: (a) if Lucent is not the lender, LIBOR divided by the
difference of one minus the maximum reserve percentage (expressed as a decimal,
rounded up to the next 1/100 of 1%) in effect on the first day of the
applicable period with respect to any lender under regulations issued from time
to time by the Federal Reserve Board for determining the maximum reserve
requirement, plus 200 basis points, or (b) the higher of: (i) the corporate
base rate, prime rate or base rate of interest most recently published by The
Wall Street Journal as the current prime rate and (ii) the Federal Funds Rate
for such date plus one and one-half percent (1.5%). However, if Lucent is the
lender, the LIBOR loans made by Lucent or its affiliates will accrue interest
at LIBOR in effect on the first day of the interest period, plus 200 basis
points.
The credit agreement is secured by substantially all of the assets of Black
Label, along with a pledge of all of the stock of Black Label owned by Messrs.
Vento and Sullivan. The credit agreement contains covenants customary for
credit facilities, including covenants that restrict, among other things, the
incurrence of debt, the
creation of liens, the making of restricted payments, the consolidation or
merger of Black Label, transactions with affiliates and creation of affiliates.
The Black Label credit agreement also contains customary representations,
warranties, indemnities, conditions precedent to borrowing and events of
default.
Government Debt
In connection with our purchase of our F-Block licenses, we issued to the
Federal Communications Commission secured installment payment plan notes in an
aggregate principal amount of $7.9 million, net of a discount of $1.3 million.
These Federal Communications Commission notes are due April 28, 2007, and bear
interest at a rate of 6.25% per annum. In addition, we assumed $4.1 million in
aggregate principal amount of additional secured installment payment plan notes
in connection with the Digital PCS acquisition. These Digital PCS notes are due
August 21, 2007, and bear interest at a rate of 6.125% per annum. In connection
with the Wireless 2000 acquisition, we will assume $7.4 million in aggregate
principal amount of additional secured installment payment plan notes. These
Wireless 2000 notes are due September 17, 2006, and bear interest at a rate of
7.0% per annum. The Federal Communications Commission notes, Wireless 2000
notes and Digital PCS notes are each secured by a security agreement that
grants the Federal Communications Commission a first priority security interest
in the license for which the applicable note was issued. In the event of a
default under the Federal Communications Commission notes, Wireless 2000 notes
or Digital PCS notes, the Federal Communications Commission may revoke the
licenses for which such defaulted notes were issued. At June 30, 2000, our
Federal Communications Commission debt was $22.0 million less a discount of
$2.7 million.
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11 5/8% Senior Subordinated Discount Notes
We have outstanding $575.0 million aggregate principal amount at maturity of
the 11 5/8% notes. The 11 5/8% notes were issued at a discount to their
principal amount. The aggregate accreted value of the 11 5/8% notes at June 30,
2000 was $374.9 million. The 11 5/8% notes are senior subordinated unsecured
obligations ranking equivalent in right of payment to all of our and our
guarantor subsidiaries' future senior subordinated indebtedness, subordinate in
right of payment to all of our and our guarantor subsidiaries' existing and
senior debt (including their obligations under the senior credit facilities)
and senior in right of payment to all of our and our guarantor subsidiaries'
subordinated indebtedness. The 11 5/8% notes were issued under an indenture
dated as of April 23, 1999 between us and Bankers Trust Company, as Trustee.
The 11 5/8% notes will mature on April 15, 2009. The 11 5/8% notes will
accrete in value until April 15, 2004, compounded semi-annually. At that time,
interest on the 11 5/8% notes will become payable semi-annually on April 15 and
October 15 of each year, commencing October 15, 2004. The 11 5/8% notes are
redeemable at our option, in whole or in part, at any time on or after April
15, 2004, 2005, 2006 and 2007 and thereafter at 105.813%, 103.875%, 101.938%
and 100% of the principal amount thereof, respectively, in each case, plus
accrued and unpaid interest to the date of redemption. In addition, prior to
April 15, 2002, we may redeem up to 35% of the original aggregate principal
amount of the 11 5/8% notes at a redemption price of 111.625% the accreted
value of the 11 5/8% notes, with the net cash proceeds of certain public equity
offerings, provided that at least 65% of the aggregate principal amount of the
11 5/8% notes at maturity remains outstanding immediately after such
redemption. Upon the occurrence of a change of control (as defined in the 11
5/8% notes indenture), we will be required to make an offer to purchase all of
the 11 5/8% notes at a purchase price equal to 101% of the accreted value (if
on or prior to April 15, 2004) or the principal amount at maturity, plus
accrued and unpaid interest, if any, to the date of repurchase (if on or prior
to April 15, 2004). We may not have sufficient funds or the financial resources
necessary to satisfy our obligations to repurchase the 11 5/8% notes upon such
change of control.
The 11 5/8% notes indenture contains certain financial covenants with which
we must comply relating to, among other things, the following matters:
. a limitation on our payment of cash dividends, repurchase of capital
stock, payment of principal on subordinated indebtedness and making of
certain investments, until December 31, 2002 and, thereafter, unless
after giving effect to each such payment, repurchase or investment,
certain financial tests are met, excluding certain permitted payments
and investments;
. a limitation on our and our subsidiaries' incurrence of additional
indebtedness, unless at the time of such incurrence, our ratio of debt
to annualized operating cash flow would be less than or equal to 7.0 to
1.0 prior to April 1, 2005 and less than or equal to 6.0 to 1.0 on or
after April 1, 2005, or if debt was incurred prior to April 1, 2005, the
total consolidated debt would be equal to less than 75% of the total
invested capital, in either case subject to certain permitted
incurrences of debt;
. a limitation on our and our subsidiaries' incurrence of liens;
. a limitation on the ability of any subsidiary of ours to layer
indebtedness;
. a limitation on certain mergers, consolidations and sales of assets by
us or our subsidiaries;
. a limitation on certain transactions with our affiliates;
. a limitation on the ability of any subsidiary of ours to guarantee or
otherwise become liable with respect to any of our indebtedness unless
such subsidiary provides for a guarantee of the 11 5/8% notes on a
senior subordinated basis; and
. a limitation on our, or our subsidiaries' ability to engage in any
business not substantially related to a telecommunications business.
The events of default under the 11 5/8% senior notes indenture include
various events of default customary for such type of agreement, including,
among others, the failure to pay principal and interest when due on the 11 5/8%
notes, cross-defaults on other indebtedness for borrowed monies in excess of
$15.0 million, certain judgments or orders for payment of money in excess of
$15.0 million, and certain events of bankruptcy, insolvency and reorganization.
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DESCRIPTION OF THE NOTES
General
As used in this section entitled "Description of the Notes," the term
"Company" means TeleCorp PCS, Inc., a Delaware corporation, but does not
include any of the Company's subsidiaries. Capitalized terms used in this
section entitled "Description of the Notes" and not otherwise defined have the
meanings set forth under "--Certain Definitions."
The Notes have been, and the Exchange Notes will be, issued under an
Indenture, to be dated as of July 14, 2000 (the "Indenture"), among the
Company, TeleCorp Communications, Inc., as Subsidiary Guarantor, and Bankers
Trust Company, as Trustee (the "Trustee"), a copy of the form of which is
available upon request to the Company.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee, at 4 Albany Street, New
York, New York 10006), except that, at the option of the Company, payment of
interest may be made by check mailed to the registered holders of the Notes at
their registered addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
Terms of the Notes
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $450.0 million aggregate principal amount, and will mature on July
15, 2010.
Each Note we issue will bear interest at a rate of 10 5/8% per annum from
July 14, 2000, or from the most recent date to which interest has been paid or
provided for, payable semiannually to holders of record at the close of
business on the January 1 or July 1 immediately preceding the interest payment
date on January 15 and July 15 of each year, commencing January 15, 2001. The
Company will pay interest on overdue principal at 1% per annum in excess of
such rate, and it will pay interest on overdue installments of interest at such
higher rate to the extent lawful.
The Company and the Subsidiary Guarantor will be obligated to pay liquidated
damages to holders of Notes in certain circumstances if the Company and the
Subsidiary Guarantor do not file a registration statement relating to the Notes
or if such registration statement is not declared effective on a timely basis
or if certain other conditions are not satisfied, all as further described
under "Exchange and Registration Rights Agreement."
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to July 15, 2005. Thereafter, the
Notes will be redeemable at the option of the Company, in whole or in part, on
not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest, if any, due
on the
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relevant interest payment date), if redeemed during the 12-month period
commencing on July 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2005.......................................................... 105.313%
2006.......................................................... 103.542%
2007.......................................................... 101.771%
2008 and thereafter........................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to July 15, 2003, the
Company may redeem up to a maximum of 35% of the original aggregate principal
amount of the Notes with the proceeds of one or more Equity Offerings (1) by
the Company or (2) by Holdings to the extent that the proceeds thereof are
contributed to the Company, at a redemption price equal to 110.625% of the
principal amount on the redemption date; provided, however, that, after giving
effect to any such redemption at least 65% of the original aggregate principal
amount of the Notes remains outstanding. In addition, any such redemption shall
be made within 180 days of such Equity Offering upon not less than 30 nor more
than 60 days' notice mailed to each holder of Notes being redeemed and
otherwise in accordance with the procedures set forth in the Indenture.
At any time on or prior to July 15, 2005, the Notes may be redeemed as a
whole but not in part at the option of the Company upon the occurrence of a
Change of Control, upon not less than 30 or more than 60 days' prior notice
(but in no event may any such redemption occur more than 90 days after the
occurrence of such Change of Control) mailed by first-class mail to each
Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued but
unpaid interest, if any, to, the redemption date, subject to the right of
Holders on the relevant record date to receive interest due on the relevant
interest payment date.
"Applicable Premium" means with respect to a Note at any redemption date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess
of (A) the present value of (1) the redemption price of such Note at July 15,
2005 (such redemption price being set forth in the table above) plus (2) all
required interest payments due on such Note through July 15, 2005, computed
using a discount rate equal to the Treasury Rate plus 50 basis points, over (B)
the then-outstanding principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H. 15(519)
which has become publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data) most nearly equal to the
period from the redemption date to July 15, 2005; provided, however, that if
the period from the redemption date to July 15, 2005 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to July 15, 2005 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Selection
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although Notes in denominations of $1,000 or less will not be redeemed in part.
If any Note is to be redeemed in part only, the notice of redemption relating
to such Note shall state the portion thereof to be redeemed. A new Note equal
to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancelation of the original Note.
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Ranking
The Indebtedness evidenced by the Notes:
. will be unsecured Senior Subordinated Indebtedness of the Company;
. will be subordinated in right of payment, as set forth in the Indenture,
to all existing and future Senior Indebtedness of the Company;
. will rank pari passu in right of payment with all existing and future
Senior Subordinated Indebtedness of the Company, including the Discount
Notes;
. will be senior in right of payment to all existing and future
Subordinated Indebtedness of the Company; and
. will be effectively subordinated to any Secured Indebtedness of the
Company and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
The Notes will be guaranteed by TeleCorp Communications, Inc., one of the
Subsidiaries of the Company, and, in the future, by certain other Subsidiaries
of the Company that Incur Indebtedness. The Indebtedness evidenced by the
Subsidiary Guarantees:
. will be unsecured Senior Subordinated Indebtedness of each Subsidiary
Guarantor;
. will be subordinated in right of payment, as set forth in the Indenture,
to all existing and future Senior Indebtedness of each Subsidiary
Guarantor;
. will rank pari passu in right of payment with all existing and future
Senior Subordinated Indebtedness of each Subsidiary Guarantor, including
the guarantees of the Discount Notes;
. will be senior in right of payment to all existing and future
Subordinated Indebtedness of each Subsidiary Guarantor; and
. will be effectively subordinated to any Secured Indebtedness of each
Subsidiary Guarantor and its Subsidiaries to the extent of the value of
the assets securing such Indebtedness.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust described under "--Defeasance," however, is not
subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
Substantially all of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders, if any, of such Subsidiaries
generally will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including holders of
the Notes. The Notes, therefore, will be effectively subordinated to creditors,
including trade creditors, and preferred stockholders, if any, of Subsidiaries
of the Company. Although the Indenture will contain limitations on the
Incurrence of Indebtedness by, and the issuance of preferred stock of, certain
of the Company's Subsidiaries, such limitations are subject to a number of
significant qualifications.
As of June 30, 2000:
. with respect to the Company,
. the outstanding Senior Indebtedness of the Company was $309.3
million (exclusive of unused commitments under the Credit
Agreement), all of which was Secured Indebtedness;
. the Company had $575.0 million principal amount ($374.9 million
accreted value) outstanding Senior Subordinated Indebtedness; and
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. the outstanding Indebtedness of the Company that was subordinate or
junior in right of payment to the Notes was $45.4 million;
. with respect to the Subsidiary Guarantor,
. the outstanding senior debt guaranteed by the Subsidiary Guarantor
was $290.0 million (consisting entirely of a guarantee of
Indebtedness under the Credit Agreement);
. the Subsidiary Guarantor had $374.9 million Senior Subordinated
Indebtedness (consisting entirely of a guarantee of the Discount
Notes); and
. the Subsidiary Guarantor had no outstanding Indebtedness that was
subordinate or junior in right of payment to the Subsidiary
Guarantee; and
. with respect to the Subsidiaries of the Company that will not guarantee
the Notes,
. the Subsidiaries that will not guarantee the Notes had $19.3 million
of Senior Indebtedness, consisting entirely of FCC Debt, and
guaranteed $290.0 million of Senior Indebtedness under the Credit
Agreement.
As of June 30, 2000, after giving effect to the offering of the Notes, the
Company and its Restricted Subsidiaries would have been liable for $1,179.5
million of Indebtedness, including $19.3 million of FCC Debt owed by
Subsidiaries of the Company that will not guarantee the Notes.
Although the Indenture will contain limitations on the amount of additional
Indebtedness which the Company may Incur, under certain circumstances the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation
on Incurrence of Indebtedness."
"Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in
such proceedings) on, and fees and other amounts owing in respect of Bank
Indebtedness and all other Indebtedness of the Company, including FCC Debt,
whether outstanding on the date of the Indenture or thereafter Incurred, unless
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding it is provided that such obligations are not superior in right
of payment to the Notes; provided, however, that Senior Indebtedness shall not
include:
(1) any obligation of the Company to any Subsidiary of the Company;
(2) any liability for federal, state, local or other taxes owed or owing
by the Company;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of the Company, and any accrued and
unpaid interest in respect thereof, that by its terms is subordinate or
junior in any respect to any other Indebtedness or obligation of the
Company, including any Senior Subordinated Indebtedness of the Company and
any Subordinated Indebtedness of the Company;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture.
"Senior Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company, including the Discount Notes. The Company will
agree in the
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Indenture that it will not Incur, directly or indirectly, any Indebtedness
which is subordinate or junior in ranking in any respect to Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under "--
Defeasance" and may not otherwise repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes"), other than payments made with money or
U.S. Government Obligations previously deposited in the defeasance trust
described under "--Defeasance," if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on such Designated Senior Indebtedness occurs and
the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms
unless, in either case:
(x) the default has been cured or waived and any such acceleration has
been rescinded; or
(y) such Designated Senior Indebtedness has been paid in full.
The Company may pay the Notes without regard to the foregoing, however, if
the Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to
whichever of the events set forth in clause (1) or (2) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (1) or (2) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
upon the expiration of any applicable grace periods, the Company may not pay
the Notes for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated:
(1) by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice;
(2) by repayment in full of such Designated Senior Indebtedness; or
(3) because the default giving rise to such Blockage Notice is no longer
continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first two sentences of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period.
Not more than one Blockage Notice may be given in any period of 360
consecutive days, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which
any Payment Blockage Period or Payment Blockage Periods is or are in effect
exceed 179 days in the aggregate during any period of 360 consecutive days. For
purposes of this paragraph, no default or event of default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or be made, the basis of the commencement of a subsequent
Payment Blockage Period by the Representative of such Designated Senior
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Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period
of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash of such Senior Indebtedness before
Noteholders are entitled to receive any payment of principal of, or
interest on, the Notes; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of such
Senior Indebtedness as their interests may appear, except that Noteholders
may receive shares of stock and any debt securities that are subordinated
to such Senior Indebtedness and any securities exchanged for such Senior
Indebtedness to at least the same extent as the Notes.
If a distribution is made to Noteholders that, due to the subordination
provisions of the Indenture, should not have been made to them, such
Noteholders will be required to hold such distribution in trust for the holders
of Senior Indebtedness of the Company and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the
Notes until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of the subordination provisions that will be contained in the
Indenture, in the event of insolvency, creditors of the Company who are holders
of Senior Indebtedness of the Company may recover more, ratably, than the
Noteholders, and creditors of the Company who are not holders of Senior
Indebtedness of the Company or of Senior Subordinated Indebtedness of the
Company (including the Notes) may recover less, ratably, than holders of Senior
Indebtedness of the Company and may recover more, ratably, than the holders of
Subordinated Indebtedness of the Company.
The subordination provisions that will be contained in the Indenture will
not apply to payments made with money or U.S. Government Obligations previously
deposited in the defeasance trust described under "--Defeasance."
Subsidiary Guarantees
Subject to the release provisions in the Indenture and as set forth herein,
the Subsidiary Guarantor, and certain future subsidiaries of the Company (as
described below), as primary obligors and not merely as sureties, will jointly
and severally irrevocably and unconditionally guarantee on an unsecured senior
subordinated basis the performance and full and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations of
the Company under the Indenture and the Notes, whether for payment of principal
of, or interest on, or liquidated damages in respect of, the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by the Subsidiary
Guarantors being herein called the "Guaranteed Obligations") by executing a
Subsidiary Guarantee. The Subsidiary Guarantors will agree to pay, in addition
to the amount stated above, any and all costs and expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the holders of
Notes in enforcing any rights under the Subsidiary Guarantees. Each Subsidiary
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Subsidiary Guarantor without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
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transfer or similar laws affecting the rights of creditors generally. Following
the date of the Indenture, the Company will cause (1) each Domestic Restricted
Subsidiary that Incurs Indebtedness and (2) each Foreign Restricted Subsidiary
that Incurs Material Indebtedness to become a Subsidiary Guarantor; provided
that the Company shall not cause any Special Purpose Subsidiary to become a
Subsidiary Guarantor unless such Special Purpose Subsidiary Incurs Indebtedness
other than Indebtedness under the Credit Agreement (or any Refinancing
Indebtedness Incurred to Refinance any such Indebtedness) or FCC Debt; provided
further that in the event that a Subsidiary Guarantor no longer has
outstanding, other than the Subsidiary Guarantee, any Indebtedness (in the case
of a Domestic Restricted Subsidiary) or Material Indebtedness (in the case of a
Foreign Restricted Subsidiary), the Subsidiary Guarantee of that Subsidiary
Guarantor shall terminate. See "--Certain Covenants--Future Subsidiary
Guarantors."
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
will be senior subordinated obligations. As such, the rights of Noteholders to
receive payment from a Subsidiary Guarantor pursuant to its Subsidiary
Guarantee will be subordinated in right of payment to the rights of holders of
Senior Indebtedness of such Subsidiary Guarantor. The terms of the
subordination provisions described under "--Ranking" with respect to the
Company's obligations under the Notes apply equally to each Subsidiary
Guarantor and the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee.
Each Subsidiary Guarantee will be a continuing guarantee and shall:
(1) remain in full force and effect until payment in full of all the
Guaranteed Obligations unless prior terminated;
(2) be binding upon each Subsidiary Guarantor and its successors; and
(3) inure to the benefit of and be enforceable by the Trustee, the
holders of the Notes and their successors, transferees and assigns.
The Indenture will provide that upon the merger or consolidation of a
Subsidiary Guarantor with or into any Person, other than the Company, a
Subsidiary of the Company or an Affiliate of the Company, in a transaction in
which such Subsidiary Guarantor is not the surviving entity of such merger or
consolidation, such Subsidiary Guarantor shall be released and discharged from
its obligations under its Subsidiary Guarantee. The Indenture will also provide
that if a majority of the Capital Stock of a Subsidiary Guarantor is sold
(including by issuance or otherwise) by the Company or any Subsidiary of the
Company, other than to the Company, or a Subsidiary of the Company or an
Affiliate of the Company, in a transaction constituting an Asset Disposition
(or which, but for the provisions of clause (c) of such term, would constitute
an Asset Disposition) and:
(1) the Net Available Proceeds from such Asset Disposition are used in
accordance with the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions;" or
(2) the Company delivers to the Trustee an Officers' Certificate to the
effect that the Net Available Proceeds from such Asset Disposition will be
used in accordance with the covenant described under "--Certain Covenants--
Limitation on Certain Asset Dispositions" within the time limits specified
by such covenant,
then such Subsidiary Guarantor shall be released and discharged from its
obligations under its Subsidiary Guarantee upon such use, in the case of clause
(1), or upon such delivery, in the case of clause (2). In addition, any
Subsidiary Guarantor that becomes a Subsidiary Guarantor as a consequence of
its guarantee of certain Indebtedness permitted under the Indenture and that is
released and discharged from such guarantee will be released and discharged
from its Subsidiary Guarantee upon delivery of an Officers' Certificate
certifying such release and discharge from such guarantee to the Trustee.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of Notes will have the right to require the Company to
repurchase all or any part of such holder's Notes at a purchase
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price in cash equal to 101% of the principal amount on the Purchase Date, plus
accrued and unpaid interest, if any, to the Purchase Date (subject to the right
of holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(1) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than a Permitted Holder or Permitted
Holders or a person or group controlled by a Permitted Holder or Permitted
Holders, becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-
5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all such securities that such person has the
right to acquire within one year, upon the happening of an event or
otherwise) directly or indirectly (including, after the Merger, through
ownership of Holdings), of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding Voting
Stock;
(2) the following individuals cease for any reason to constitute more
than a majority of the number of directors then serving on the board of
directors of the Company: individuals who, on the date of the Indenture,
constitute the board of directors of the Company and any new director
(other than a director whose initial assumption of office is in connection
with an actual or threatened election contest, including, but not limited
to, a consent solicitation relating to the election of directors of the
Company) whose appointment or election by the board of directors of the
Company or nomination for election by the Company' stockholders was
approved by the vote of at least two-thirds of the directors then still in
office or whose appointment, election or nomination was previously so
approved or recommended or made in accordance with the terms of the
Stockholders' Agreement; or
(3) the stockholders of the Company shall approve any Plan of
Liquidation (whether or not otherwise in compliance with the provisions of
the Indenture).
Within 30 days following any Change of Control, the Company will be required
to mail a notice to each holder of Notes, with a copy to the Trustee (the
"Change of Control Offer"), stating that the Company is commencing an Offer to
Purchase all outstanding Notes at a purchase price in cash equal to 101% of the
principal amount on the Purchase Date, plus accrued and unpaid interest, if
any, to the Purchase Date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company. The Company's obligation to make a Change of Control Offer will be
reinstated unless such third party purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer in accordance with its terms.
The Company will be required to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will be
required to comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.
In the event that, at the time of a Change of Control, the terms of the Bank
Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then, prior to the mailing of the notice to holders of Notes as
provided in the immediately following paragraph, but in any event within 30
days following any Change of Control, the Company will be required to:
(1) repay in full all Bank Indebtedness; or
(2) obtain the requisite consent under the agreements governing such
Bank Indebtedness to permit the repurchase of the Notes as required by this
covenant.
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The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management of the Company has no
present intention to engage in a transaction involving a Change of Control,
although it is possible that management of the Company may decide to do so in
the future. Subject to the limitations described under "--Certain Covenants,"
the Company could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of Indebtedness outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. Restrictions on the ability of
the Company to Incur additional Indebtedness are contained in the covenant
described under "Certain Covenants--Limitation on Incurrence of Indebtedness."
Such restrictions may only be waived with the consent of the holders of a
majority in aggregate principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will
not contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may also contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by holders
of Notes of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to holders of Notes upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. The provisions of the Indenture
related to the Company's obligation to make a Change of Control Offer as a
result of a Change of Control may be waived or modified with the written
consent of the holders of a majority in aggregate principal amount of the
Notes.
Certain Covenants
The Indenture will contain certain covenants including, among others, the
following:
Limitation on Incurrence of Indebtedness. The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, Incur any Indebtedness (including Acquired
Indebtedness), except:
(1) Indebtedness of the Company or any Subsidiary Guarantor if,
immediately after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the net proceeds therefrom (including,
without limitation, the application or use of the net proceeds therefrom to
repay Indebtedness, consummate an Asset Acquisition or make any Restricted
Payment):
(a) the ratio of (x) Total Consolidated Indebtedness to (y)
Annualized Pro Forma Consolidated Operating Cash Flow would be less
than 7.0 to 1.0; or
(b) in the case of any Incurrence of Indebtedness prior to April 1,
2005 only, Total Consolidated Indebtedness would be equal to or less
than 75% of Total Invested Capital;
(2) Bank Indebtedness of the Company and its Restricted Subsidiaries in
an aggregate principal amount not to exceed $1.0 billion at any time
outstanding;
(3) Purchase Money Indebtedness;
(4) Indebtedness owed by the Company to any Restricted Subsidiary or
Indebtedness owed by a Restricted Subsidiary to the Company or another
Restricted Subsidiary; provided, however, that, upon either (a) the
transfer or other disposition by such Restricted Subsidiary or the Company
of any Indebtedness so permitted under this clause (4) to a Person other
than the Company or another Restricted Subsidiary or (b) the issuance
(other than of directors' qualifying shares), sale, transfer or other
disposition of shares of Capital Stock or other ownership interests
(including by consolidation or merger) of such
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Restricted Subsidiary to a Person other than the Company or another such
Restricted Subsidiary, the exception provided by this clause (4) shall no
longer be applicable to such Indebtedness and such Indebtedness shall be
deemed to have been Incurred at the time of any such issuance, sale,
transfer or other disposition, as the case may be;
(5) Indebtedness of the Company or any Restricted Subsidiary under any
Hedging Agreement to the extent entered into to protect the Company or such
Restricted Subsidiary from fluctuations in interest rates on any other
Indebtedness permitted under the Indenture (including the Notes), currency
exchange rates or commodity prices and not for speculative purposes;
(6) Refinancing Indebtedness Incurred to Refinance any Indebtedness
Incurred under the prior clause (1) or (3) above or (13) below, the
Discount Notes, guarantees of the Discount Notes, the Notes, the Subsidiary
Guarantees, Indebtedness existing on the date of the Indenture, or any
Refinancing Indebtedness in respect of Refinancing Indebtedness Incurred
pursuant to this clause (6);
(7) Indebtedness of the Company under the Notes and Indebtedness of the
Subsidiary Guarantors under the Subsidiary Guarantees, in each case
Incurred in accordance with the Indenture;
(8) Capital Lease Obligations of the Company or any Restricted
Subsidiary in an aggregate principal amount not in excess of the greater of
$50.0 million or 5.0% of Total Assets at any time outstanding;
(9) FCC Debt assumed in connection with any acquisition after the date
of the Indenture;
(10) Indebtedness incurred in connection with the Merger Agreement
(including the AT&T Wireless Services Contribution, the AT&T Wireless
Exchange and the acquisitions relating to Indus, Airadigm, Polycell, ABC
Wireless and Clinton Communications) not in excess of $135.0 million at any
time outstanding;
(11) Indebtedness of the Company or any Restricted Subsidiary consisting
of a guarantee of Indebtedness of the Company or a Restricted Subsidiary
that was permitted to be Incurred by another provision of this covenant;
(12) Indebtedness of the Company or any Restricted Subsidiary in respect
of statutory obligations, performance, surety or appeal bonds or other
obligations of a like nature Incurred in the ordinary course of business;
(13) Indebtedness of a Restricted Subsidiary existing at the time such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred in connection with, or in contemplation of, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
was acquired by the Company); provided, however, that on the date such
Restricted Subsidiary is acquired by the Company, the Company would have
been able to Incur $1.00 of additional Indebtedness pursuant to clause (1)
above after giving effect to the Incurrence of such Indebtedness pursuant
to this clause (13) and the acquisition of such Restricted Subsidiary; and
(14) Indebtedness of the Company not otherwise permitted to be Incurred
pursuant to clauses (1) through (13) above which, together with any other
outstanding Indebtedness Incurred pursuant to this clause (14), has an
aggregate principal amount not in excess of $75.0 million at any time
outstanding.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or which is secured by a Lien on an asset acquired by the
Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed
by the acquiring person) shall be deemed Incurred at the time the Person
becomes a Restricted Subsidiary or at the time of the asset acquisition, as the
case may be.
For purposes of determining compliance with this covenant:
(1) in the event that an item of Indebtedness meets the criteria of more
than one of the categories of Indebtedness permitted pursuant to clauses
(1) through (14) above, the Company shall, in its sole discretion, be
permitted to classify such item of Indebtedness in any manner that complies
with this
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covenant and may from time to time reclassify such items of Indebtedness in
any manner that would comply with this covenant at the time of such
reclassification;
(2) Indebtedness permitted by this covenant need not be permitted solely
by reference to one provision permitting such Indebtedness but may be
permitted in part by one such provision and in part by one or more other
provisions of this covenant permitting such Indebtedness;
(3) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in this covenant, the Company, in
its sole discretion, shall classify such Indebtedness and only be required
to include the amount of such Indebtedness in one of such clauses; and
(4) accrual of interest (including interest paid-in-kind) and the
accretion of accreted value will not be deemed to be an Incurrence of
Indebtedness for purposes of this covenant.
Notwithstanding any other provision of this covenant:
(1) the maximum amount of Indebtedness that the Company or any
Restricted Subsidiary may Incur pursuant to this covenant shall not be
deemed to be exceeded solely as a result of fluctuations in the exchange
rates of currencies; and
(2) Indebtedness Incurred pursuant to the Credit Agreement prior to or
on the date of the Indenture shall be treated as Incurred pursuant to
clause (2) of the first paragraph of this covenant.
Limitation on Layered Indebtedness. The Indenture will provide that the
Company will not:
(1) directly or indirectly Incur any Indebtedness that by its terms
would expressly rank senior in right of payment to the Notes and rank
subordinate in right of payment to any other Indebtedness of the Company;
or
(2) cause or permit any Subsidiary Guarantor to, and no Subsidiary
Guarantor will, directly or indirectly, Incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Subsidiary
Guarantee of such Subsidiary Guarantor and rank subordinate in right of
payment to any other Indebtedness of such Subsidiary Guarantor;
provided that no Indebtedness shall be deemed to be subordinated solely by
virtue of being unsecured.
Limitation on Restricted Payments. The Indenture will provide that the
Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, on or prior to June 30, 2003:
(1) declare or pay any dividend, or make any distribution of any kind or
character (whether in cash, property or securities), in respect of any
class of Capital Stock of the Company, excluding any dividends or
distributions payable solely in shares of Qualified Stock of the Company or
in options, warrants or other rights to acquire Qualified Stock of the
Company;
(2) purchase, redeem or otherwise acquire or retire for value any shares
of Capital Stock of the Company, any options, warrants or rights to
purchase or acquire such shares or any securities convertible or
exchangeable into such shares (other than any such shares of Capital Stock,
options, warrants, rights or securities that are owned by the Company or a
Restricted Subsidiary);
(3) make any Investment (other than a Permitted Investment) in any
Person other than the Company or a Restricted Subsidiary; or
(4) redeem, defease, repurchase, retire or otherwise acquire or retire
for value, prior to its scheduled maturity, repayment or any sinking fund
payment, Subordinated Indebtedness or make any payment of interest or
premium on, or distribution of any kind or character (whether in cash,
property or securities) in respect of, the Series A Notes, excluding
payments of interest or distributions payable solely in additional Series A
Notes,
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each of the transactions described in clauses (1) through (4) (other than any
exception to any such clause) being a "Restricted Payment;" and at any time
after June 30, 2003, the Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, make a Restricted Payment if,
at the time thereof:
(A) a Default or an Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment;
(B) immediately after giving effect to such Restricted Payment, the
Company could not Incur at least $1.00 of additional Indebtedness pursuant
to clause (1) of the covenant described under "--Limitation on Incurrence
of Indebtedness;" and
(C) immediately upon giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the date of the Indenture (including any Designation Amount) exceeds the
sum (without duplication) of:
(1) the amount of (x) the Consolidated Cash Flow of the Company
after June 30, 2003, through the end of the latest full fiscal quarter
for which consolidated financial statements of the Company are
available preceding the date of such Restricted Payment (treated as a
single accounting period), less (y) 150% of the cumulative Consolidated
Interest Expense of the Company after June 30, 2003, through the end of
the latest full fiscal quarter for which consolidated financial
statements of the Company are available preceding the date of such
Restricted Payment (treated as a single accounting period); plus
(2) the aggregate net cash proceeds received by the Company as a
capital contribution in respect of Qualified Stock or from the proceeds
of a sale of Qualified Stock made after the date of the Indenture
(excluding in each case (x) the proceeds from a sale of Qualified Stock
to a Restricted Subsidiary and (y) the proceeds from a sale of
Qualified Stock to an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries); plus
(3) the aggregate net cash proceeds received by the Company or any
Restricted Subsidiary from the sale, disposition or repayment (other
than to the Company or a Restricted Subsidiary) of any Investment made
after the date of the Indenture and constituting a Restricted Payment
in an amount equal to the lesser of (x) the return of capital with
respect to such Investment and (y) the initial amount of such
Investment, in either case, less the cost of disposition of such
Investment; plus
(4) an amount equal to the consolidated Net Investment on the date
of Revocation made by the Company and/or any Restricted Subsidiary in
any Subsidiary of the Company that has been designated as an
Unrestricted Subsidiary after the date of the Indenture upon its
redesignation as a Restricted Subsidiary in accordance with the
covenant described under "--Limitation on Designations of Unrestricted
Subsidiaries."
For purposes of:
(1) the preceding clause (C)(2), the value of the aggregate net cash
proceeds received by the Company from, or as a capital contribution in
connection with, the issuance of Qualified Stock either upon the conversion
of convertible Indebtedness of the Company or any of its Restricted
Subsidiaries or in exchange for outstanding Indebtedness of the Company or
any of its Restricted Subsidiaries or upon the exercise of options,
warrants or rights will be the net cash proceeds received by the Company or
any Restricted Subsidiary upon the issuance of such Indebtedness, options,
warrants or rights plus the incremental amount received by the Company or
any Restricted Subsidiary upon the conversion, exchange or exercise
thereof;
(2) the preceding clause (C)(4), the value of the consolidated Net
Investment on the date of Revocation shall be equal to the Fair Market
Value of the aggregate amount of the Company's and/or any Restricted
Subsidiary's Investments in such Subsidiary of the Company on the
applicable date of Designation; and
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(3) determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its Fair Market Value on the date such
Restricted Payment is made by the Company or a Restricted Subsidiary, as
the case may be.
The provisions of this covenant shall not prohibit:
(1) the payment of any dividend or distribution within 60 days after the
date of declaration thereof, if at such date of declaration such payment
would comply with the provisions of the Indenture;
(2) so long as no Default or Event of Default shall have occurred and be
continuing, the purchase, redemption, retirement or other acquisition of
any Capital Stock of the Company out of the net cash proceeds of the
substantially concurrent capital contribution to the Company in connection
with Qualified Stock or out of the net cash proceeds received by the
Company from the substantially concurrent issue or sale (other than to a
Restricted Subsidiary or to an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries) of Qualified Stock;
provided that (a) any such net cash proceeds shall be excluded from clause
(C)(2) of the second preceding paragraph;
(3) so long as no Default or Event of Default shall have occurred and be
continuing, the purchase, redemption, retirement, defeasance or other
acquisition of Subordinated Indebtedness of the Company made by exchange
for or conversion into, or out of the net cash proceeds received by the
Company, or out of a capital contribution to the Company in connection with
a substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, (a) Qualified Stock (provided that (x) any such net cash
proceeds are excluded from clause (C)(2) of the second preceding paragraph
and (y) such proceeds, if from a sale other than a Public Sale, are not
applied to optionally redeem Notes on or prior to June 30, 2003) or (b)
other Subordinated Indebtedness of the Company that has an Average Life
equal to or greater than the Average Life of the Subordinated Indebtedness
being purchased, redeemed, retired, defeased or otherwise acquired and that
is subordinated in right of payment to the Notes at least to the same
extent as the Subordinated Indebtedness being purchased, redeemed, retired,
defeased or otherwise acquired;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, the making of a direct or indirect Investment constituting a
Restricted Payment in an amount not to exceed the amount of the net cash
proceeds of capital contributions in respect of Qualified Stock or from the
issue or sale (other than to a Restricted Subsidiary) of Qualified Stock of
the Company, in each case made no more than one year prior to the date of
such investment; provided that (a) any such net cash proceeds are excluded
from clause (C)(2) of the second preceding paragraph and (b) such proceeds,
if from a sale other than a Public Sale, are not applied to optionally
redeem Notes on or prior to June 30, 2003;
(5) prior to the consummation of the Merger, so long as no Default or
Event of Default shall have occurred and be continuing and so long as,
immediately after giving effect to such Investment, the Company could Incur
at least $1.00 of additional Indebtedness pursuant to clause (1) of the
covenant described under "--Limitation on Incurrence of Indebtedness," the
making by the Company of a direct or indirect Investment constituting a
Restricted Payment in any Person incorporated, formed or created for the
purpose of acquiring one or more Qualified Licenses through participation
in any auction or reauction of Licenses conducted by the FCC, in an amount
not to exceed $150.0 million at any time outstanding; provided that (a)
such Person shall qualify as an "entrepreneur" under the Communications Act
in the case of any proposed acquisition of Qualified Licenses through
participation in any auction or reauction of C-Block Licenses or F-Block
Licenses conducted by the FCC, and (b) the Company shall have received,
prior to making such Investment, from one or more Strategic Equity
Investors, irrevocable, unconditional commitments to purchase Qualified
Stock of the Company, (i) at the earliest to occur of (A) the date that is
30 days after the date on which such Person acquires any such Qualified
Licenses, (B) the date that is 30 days after the date on which such Person
withdraws from such auction or reauction, (C) the date that is 30 days
after the date the FCC terminates such auction or reauction and (D) the
date that is 180 days after the date on which any amounts were deposited by
or on behalf of such Person in escrow with the FCC in connection with such
proposed acquisition of Qualified Licenses, and (ii) in an amount not less
than the amount of such Investment (plus the amount of all fees, expenses
and other costs incurred in connection
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with such participation); provided further that if at any time the
aggregate net cash proceeds paid to the Company by such Strategic Equity
Investors shall exceed the amount of such Investment plus all fees,
expenses and other costs incurred in connection with such participation (a)
such commitments may terminate in accordance with their terms to the
extent, but only to the extent, of such excess and (b) the Company may
rescind all or a portion of the payments made by the Strategic Equity
Investors for such Qualified Stock and redeem all or a portion of such
Qualified Stock in an amount not greater than such excess; provided further
that such proceeds are not applied to optionally redeem the Notes prior to
June 30, 2003;
(6) so long as no Default or Event of Default has occurred and is
continuing, the repurchase, redemption, acquisition or retirement for value
of any Capital Stock of the Company held by any member of management of the
Company or any of its Subsidiaries pursuant to any management equity
subscription agreement, stock option agreement, restricted stock agreement
or other similar agreement; provided that (a) the aggregate amount of such
dividends or distributions shall not exceed $10.0 million in any
twelve-month period, (b) any unused amount in any twelve-month period may
be carried forward to one or more future twelve-month periods and (c) the
aggregate of all unused amounts that may be carried forward to any future
twelve-month period shall not exceed $20.0 million;
(7) provided the Merger has occurred, payments to Holdings to reimburse
Holdings for its out-of-pocket operating and administrative expenses
attributable to the Company, provided this reimbursement shall not exceed
$10.0 million in any fiscal year;
(8) provided the Merger has occurred, payments to Holdings pursuant to a
tax sharing agreement so long as such payments in the aggregate do not
exceed the lesser of (A) the aggregate amount of taxes that would be
payable by the Company and its Subsidiaries if they were filing on a
separate return basis as a consolidated entity and (B) the aggregate amount
of taxes paid by Holdings and its consolidated subsidiaries;
(9) payments or distributions to dissenting stockholders pursuant to
applicable law in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company;
(10) the repurchase, redemption or other acquisition or retirement for
value of the Company's Capital Stock to the extent necessary in the good
faith judgment of the board of directors of the Company evidenced by a
board resolution delivered to the Trustee to prevent the loss or secure the
renewal or reinstatement of any material license or franchise held by the
Company or any Restricted Subsidiary from any government agency; provided
that no Capital Stock shall be repurchased, redeemed or otherwise acquired
from any Permitted Holder pursuant to this clause (10);
(11) the repurchase of Indebtedness subordinated to the Notes at a
purchase price not greater than 101% of the principal amount thereof (plus
accrued and unpaid interest) pursuant to a mandatory offer to repurchase
made upon the occurrence of a Change of Control; provided that the Company
first make an Offer to Purchase the Notes (and repurchase all tendered
notes) under the Indenture pursuant to the provisions of the Indenture
described under "--Change of Control"; or
(12) loans to the Management Stockholders to fund the purchase of up to
10,490 shares of Holdings' class E common stock.
Restricted Payments made pursuant to clauses (1), (5), (6), (7), (9) and
(11) of the immediately preceding paragraph shall be included in making the
determination of available amounts under clause (C) of the third preceding
paragraph, and Restricted Payments made pursuant to clauses (2), (3), (4), (8),
(10) and (12) of the immediately preceding paragraph shall not be included in
making the determination of available amounts under clause (C) of the third
preceding paragraph.
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Limitation on Restrictions Affecting Restricted Subsidiaries. The Indenture
will provide that the Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any consensual encumbrances or restrictions of any kind on the
ability of any Restricted Subsidiary to:
(1) pay, directly or indirectly, dividends, in cash or otherwise, or
make any other distributions in respect of its Capital Stock or pay any
Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary;
(2) make any Investment in the Company or any other Restricted
Subsidiary; or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of:
(A) any agreement in effect on the date of the Indenture as any such
agreement is in effect on such date;
(B) any agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary
was acquired by the Company and outstanding on such date and not Incurred
in anticipation or contemplation of becoming a Restricted Subsidiary;
provided, however, that such encumbrance or restriction shall not apply to
any property or assets of the Company or any Restricted Subsidiary other
than such Restricted Subsidiary;
(C) customary provisions contained in an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of a Restricted Subsidiary; provided, however, that
such encumbrance or restriction is applicable only to such Restricted
Subsidiary or its property and assets;
(D) any agreement effecting a Refinancing or amendment of Indebtedness
Incurred pursuant to any agreement referred to in clause (A) or (B) above;
provided, however, that the provisions contained in such Refinancing or
amendment agreement relating to such encumbrance or restriction are no more
restrictive in any material respect than the provisions contained in the
agreement that is the subject thereof in the reasonable judgment of the
board of directors of the Company;
(E) the Indenture;
(F) applicable law or any applicable rule, regulation or order;
(G) customary provisions restricting subletting or assignment of any
lease governing any leasehold interest of any Restricted Subsidiary;
(H) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the type referred to in
clause (3) of this covenant; and
(I) restrictions of the type referred to in clause (3) of this covenant
contained in security agreements securing Indebtedness of a Restricted
Subsidiary to the extent that such Liens restrict the transfer of property
subject to such agreements.
Limitation on Certain Asset Dispositions. The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, make any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration for such Asset Disposition at least equal to the
Fair Market Value of the assets sold or disposed of as determined by the
board of directors of the Company in good faith and evidenced by a
resolution of such board of directors filed with the Trustee;
(2) other than in the case of a Permitted Asset Swap, not less than 75%
of the consideration received by the Company or such Restricted Subsidiary
from the disposition consists of:
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(A) cash or Cash Equivalents;
(B) the assumption of Indebtedness (other than non-recourse
Indebtedness or any Subordinated Indebtedness) of the Company or such
Restricted Subsidiary or other obligations relating to such assets
(accompanied by an irrevocable and unconditional release of the Company
or such Restricted Subsidiary from all liability on the Indebtedness or
other obligations assumed); or
(C) notes, other obligations or common stock received by the Company
or such Restricted Subsidiary from such transferee that are converted
by the Company or such Restricted Subsidiary into cash or Cash
Equivalents concurrently with the receipt of such notes or other
obligations (to the extent of the cash actually received by the
Company); and
(3) all Net Available Proceeds, less any amounts invested within 365
days of such Asset Disposition to acquire all or substantially all of the
assets of, or a majority of the Voting Stock of, an entity primarily
engaged in a Permitted Business, to make a capital expenditure or to
acquire other long-term assets that are used or useful in a Permitted
Business, are applied, on or prior to the 365th day after such Asset
Disposition, unless and to the extent that the Company shall determine to
make an Offer to Purchase, to the permanent reduction and prepayment of any
Senior Indebtedness of the Company then outstanding (including a permanent
reduction of the commitments in respect thereof).
Any Net Available Proceeds from any Asset Disposition which is subject to
the immediately preceding sentence that are not applied as provided in the
immediately preceding sentence shall be used promptly after the expiration of
the 365th day after such Asset Disposition (or earlier if the Company so
elects) to make an Offer to Purchase outstanding Notes at a purchase price in
cash equal to 100% of the principal amount on the Purchase Date, plus accrued
and unpaid interest to the Purchase Date; provided, however, that if the
Company elects (or is required by the terms of any other Senior Subordinated
Indebtedness) an offer may be made ratably to purchase the Notes and such other
Senior Subordinated Indebtedness. Notwithstanding the foregoing, the Company
may defer making any Offer to Purchase outstanding Notes (and any offer to
purchase other Senior Subordinated Indebtedness ratably) until there are
aggregate unutilized Net Available Proceeds from Asset Dispositions otherwise
subject to the two immediately preceding sentences equal to or in excess of
$15.0 million (at which time the entire unutilized Net Available Proceeds from
Asset Dispositions otherwise subject to the two immediately preceding
sentences, and not just the amount in excess of $15.0 million, shall be applied
as required pursuant to this paragraph). Any remaining Net Available Proceeds
following the completion of the required Offer to Purchase (and any offer to
purchase other Senior Subordinated Indebtedness ratably) may be used by the
Company for any other purpose (subject to the other provisions of the
Indenture), and the amount of Net Available Proceeds then required to be
otherwise applied in accordance with this covenant shall be reset to zero.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under "--Merger, Consolidation and
Certain Sales of Assets."
Pending application as set forth above, the Net Available Proceeds of any
Asset Disposition may be invested in cash or Cash Equivalents or used to reduce
temporarily Indebtedness outstanding under any revolving credit agreement to
which the Company is a party and pursuant to which it has Incurred
Indebtedness.
The Company will be required to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will be
required to comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this covenant by virtue
thereof.
Limitation on Transactions with Affiliates. The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary
to, directly or indirectly, conduct any business or enter into, renew or extend
any transaction with any of their respective Affiliates, including, without
limitation, the
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purchase, sale, lease or exchange of property, the rendering of any service or
the making of any guarantee, loan, advance or Investment, either directly or
indirectly, unless the terms of such transaction are at least as favorable as
the terms that could be obtained at such time by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arms'-
length basis with a Person that is not such an Affiliate; provided, however,
that:
(1) in any transaction involving aggregate consideration in excess of
$10.0 million, the Company shall deliver an Officers' Certificate to the
Trustee stating that a majority of the disinterested directors of the board
of directors of the Company or such Restricted Subsidiary, as the case may
be, have determined, in their good faith judgment, that the terms of such
transaction are at least as favorable as the terms that could be obtained
by the Company or such Restricted Subsidiary, as the case may be, in a
comparable transaction made on an arms'-length basis between unaffiliated
parties; and
(2) if the aggregate consideration is in excess of $25.0 million, the
Company shall also deliver to the Trustee, prior to the consummation of the
transaction, the favorable written opinion of a nationally recognized
accounting, appraisal or investment banking firm as to the fairness of the
transaction to the holders of the Notes, from a financial point of view;
provided, however, that the requirements set forth in this clause (2) shall
not apply in the case of exchanges of licenses and related assets between
the Company or any of its Subsidiaries and AT&T Corp. and any of its
Subsidiaries so long as the Fair Market Value of licenses and related
assets exchanged by the Company or any of its Subsidiaries shall not exceed
$50.0 million.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to:
(1) transactions between or among the Company and/or any Restricted
Subsidiaries;
(2) any Restricted Payment or Permitted Investment permitted by the
covenant described under "--Limitation on Restricted Payments;"
(3) directors' fees, indemnification and similar arrangements, officers'
indemnification, employment agreements, employee stock option or employee
benefit plans and employee salaries and bonuses paid or created in the
ordinary course of business;
(4) any transactions pursuant to agreements existing on the date of the
Indenture and described in this prospectus on terms substantially
consistent with those set forth in the prospectus;
(5) transactions with AT&T or any of its Affiliates relating to the
marketing or provision of telecommunication services or related hardware,
software or equipment on terms that are no less favorable (when taken as a
whole) to the Company or such Restricted Subsidiary, as applicable, than
those available from unaffiliated third parties;
(6) transactions involving the leasing or sharing or other use by the
Company or any Restricted Subsidiary of communications network facilities
(including, without limitation, cable or fiber lines, equipment or
transmission capacity) of any Affiliate of the Company (such Affiliate
being a "Related Party") on terms that are no less favorable (when taken as
a whole) to the Company or such Restricted Subsidiary, as applicable, than
those available from such Related Party to unaffiliated third parties;
(7) transactions involving the provision of telecommunication services
by a Related Party in the ordinary course of its business to the Company or
any Restricted Subsidiary, or by the Company or any Restricted Subsidiary
to a Related Party, on terms that are no less favorable (when taken as a
whole) to the Company or such Restricted Subsidiary, as applicable, than
those available from such Related Party to unaffiliated third parties;
(8) any sales agency agreements pursuant to which an Affiliate has the
right to market any or all of the products or services of the Company or
any of the Restricted Subsidiaries;
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(9) transactions involving the sale, transfer or other disposition of
any shares of Capital Stock of any Marketing Affiliate; provided that such
Marketing Affiliate is not engaged in any activity other than the
registration, holding, maintenance or protection of trademarks and the
licensing thereof; and
(10) customary commercial banking, investment banking, underwriting,
placement agent or financial advisory fees paid in connection with services
rendered to the Company and its subsidiaries in the ordinary course.
Limitation on Activities of the Company and the Restricted Subsidiaries. The
Indenture will provide that the Company will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Permitted
Business, except to such extent as is not material to the Company and its
Restricted Subsidiaries, taken as a whole.
Provision of Financial Information. The Indenture will provide that, whether
or not required by the rules and regulations of the Commission, so long as any
Notes are outstanding, the Company will furnish to the holders of Notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such forms, including a section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries and, with
respect to annual information only, a report thereon by the Company's
certified independent accountants;
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports,
in each case within the time period specified in the Commission's rules and
regulations; and
(3) all quarterly and annual balance sheet, income statement and cash
flow financial information required to be furnished pursuant to clauses (1)
and (2) of this paragraph, adjusted to exclude the operations of Tritel,
Inc. and its subsidiaries and all adjustments related to the Merger other
than the AT&T Wireless Services Contribution and the AT&T Wireless Exchange
(in each case allocable to the Company).
In addition, following the consummation of the Exchange Offer contemplated
by the Exchange and Registration Rights Agreement, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of
all such information and reports specified in clauses (1) and (2) above with
the Commission for public availability within the time periods specified in the
Commission's rules and regulations (unless the Commission will not accept such
a filing) and make such information available to prospective investors upon
request. In addition, the Company will, for so long as any Notes remain
outstanding, furnish to the holders of Notes, upon request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The Company will also comply with Section 314(a) of the TIA.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture will
provide that the Company may designate any Subsidiary of the Company (other
than an Ineligible Subsidiary) as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(2) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the aggregate amount of its Investments in such Subsidiary
on such date; and
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(3) except in the case of a Subsidiary of the Company in which an
Investment is being made pursuant to, and as permitted by, the penultimate
paragraph of the covenant described under "--Limitation on Restricted
Payments," the Company would be permitted to Incur $1.00 of additional
Indebtedness pursuant to clause (1) of the covenant described under "--
Limitation on Incurrence of Indebtedness" at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount.
The Indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if no
Default shall have occurred and be continuing at the time of and after giving
effect to such Revocation. In the event of any such Revocation, the Company
shall be deemed to continue to have a permanent Investment in an Unrestricted
Subsidiary constituting a Restricted Payment pursuant to the covenant described
under "--Limitation on Restricted Payments" for all purposes under the
Indenture in an amount (if positive) equal to:
(1) the Fair Market Value of the aggregate amount of the Company's
Investments in such Subsidiary at the time of such Revocation; less
(2) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such Subsidiary
at the time of such Revocation.
All Designations and Revocations must be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.
Future Subsidiary Guarantors. The Company will cause (1) each Domestic
Restricted Subsidiary that Incurs Indebtedness and (2) each Foreign Restricted
Subsidiary that Incurs Material Indebtedness to become a Subsidiary Guarantor,
and, if applicable, execute and deliver to the Trustee a supplemental indenture
in the form set forth in the Indenture pursuant to which such Restricted
Subsidiary will guarantee payment of the Notes; provided that the Company shall
not cause any Special Purpose Subsidiary to become a Subsidiary Guarantor
unless such Special Purpose Subsidiary Incurs Indebtedness other than
Indebtedness in respect of the Credit Agreement (or any Refinancing
Indebtedness Incurred to Refinance such Indebtedness) or FCC Debt; provided
further that in the event that a Subsidiary Guarantor no longer has
outstanding, other than the Subsidiary Guarantee, any Indebtedness (in the case
of a Domestic Restricted Subsidiary) or Material Indebtedness (in the case of a
Foreign Restricted Subsidiary), the Subsidiary Guarantee of that Subsidiary
Guarantor shall terminate. Each Subsidiary Guarantee will be limited to an
amount not to exceed the maximum amount that can be guaranteed by that
Restricted Subsidiary without rendering the Subsidiary Guarantee, as it relates
to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Merger, Consolidation and Certain Sales of Assets
The Company will not consolidate or merge with or into any Person, or sell,
assign, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to consolidate or merge with or into any Person, or to
sell, assign, lease, convey or otherwise dispose of) all or substantially all
of the Company's assets (determined on a consolidated basis for the Company and
the Restricted Subsidiaries), whether as an entirety or substantially an
entirety in one transaction or a series of related transactions, including by
way of liquidation or dissolution, to any Person unless, in each such case:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Company or such Restricted Subsidiary, as the case may
be), or to which such sale, assignment, lease, conveyance or
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other disposition shall have been made (the "Surviving Entity"), is a
corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia;
(2) the Surviving Entity assumes by supplemental indenture all of the
obligations of the Company on the Notes and under the Indenture;
(3) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, the Company or the
Surviving Entity, as the case may be, could Incur at least $1.00 of
Indebtedness pursuant to clause (1) of the covenant described under "--
Certain Covenants--Limitation on Incurrence of Indebtedness"; provided,
however that this clause (3) shall not apply in the case of a merger
between Tritel PCS, Inc. (or any successor entity) and the Company;
(4) immediately after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of the Company or any of its
Restricted Subsidiaries as a result of such transactions as having been
Incurred by the Company or such Restricted Subsidiary, as the case may be,
at the time of the transaction, no Default or Event of Default shall have
occurred and be continuing; and
(5) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such merger, consolidation or sale of
assets and such supplemental indenture, if any, comply with the Indenture.
The Indenture will provide that the Company will not permit any Subsidiary
Guarantor to consolidate or merge with or into any Person, or sell, assign,
lease, convey or otherwise dispose of all or substantially all of such
Subsidiary Guarantor's assets, whether as an entirety or substantially an
entirety in one transaction or a series of related transactions, including by
way of liquidation or dissolution, to any Person unless, in each such case:
(1) the entity formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor), or to which such sale,
assignment, lease, conveyance or other disposition shall have been made, is
a corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia;
(2) such corporation assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor, if any, under its Subsidiary
Guarantee;
(3) immediately after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of such Subsidiary Guarantor as a
result of such transactions as having been Incurred by such Subsidiary
Guarantor at the time of the transaction, no Default or Event of Default
shall have occurred and be continuing; and
(4) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such merger, consolidation or sale of
assets and such supplemental indenture, if any, comply with the Indenture.
The provisions of the foregoing two paragraphs shall not apply to any merger of
a Restricted Subsidiary with or into the Company or a Wholly Owned Subsidiary,
the release of any Subsidiary Guarantor in accordance with the terms of its
Subsidiary Guarantee and the Indenture in connection with any transaction
complying with the provisions of covenant described under "--Certain
Covenants--Limitation on Certain Asset Dispositions" or the Merger.
Defaults
Each of the following events will be an Event of Default under the
Indenture:
(1) a default in any payment of interest on any Note when due and
payable, whether or not prohibited by the provisions described under "--
Ranking," continued for 30 days;
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(2) a default in the payment of the principal of any Note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "--Ranking;"
(3) the failure by the Company to comply with its obligations under the
covenant described under""--Merger, Consolidation and Certain Sales of
Assets;"
(4) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "--Change of
Control" or "--Certain Covenants" (in each case, other than a failure to
purchase Notes);
(5) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture or the Notes;
(6) the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated
exceeds $15.0 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 10 days after
receipt of the notice specified in the Indenture;
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions");
(8) the rendering of any final judgment or decree (not subject to
appeal) for the payment of money in excess of $15.0 million or its foreign
currency equivalent at the time it is entered against the Company or a
Significant Subsidiary and is not discharged, waived or stayed if:
(A) an enforcement proceeding thereon is commenced by any creditor;
or
(B) such judgment or decree remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed
(the "judgment default provision");
(9) any Subsidiary Guarantee ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Subsidiary Guarantor
or Person acting by or on behalf of such Subsidiary Guarantor denies or
disaffirms such Subsidiary Guarantor's obligations under the Indenture or
any Subsidiary Guarantee and such Default continues for 10 days after
receipt of the notice specified in the Indenture;
(10) the failure by the Company and its Restricted Subsidiaries,
collectively, in any material respect to obtain or acquire any Capital
Stock or assets being obtained or acquired pursuant to or in connection
with the transactions contemplated by the Merger Agreement, including
licenses or any rights thereunder, of Airadigm Communications, Inc. or
Indus, Inc., to the extent that Holdings or any of its Subsidiaries obtains
or acquires any such Capital Stock or assets, and such failure continues
for 30 days after receipt of the notice specified in the Indenture;
(11) any action taken or failed to be taken by Holdings or the Company
after the consummation of the Merger and the execution of the New Network
Membership License Agreement, the New Intercarrier Roamer Service Agreement
or the New Roaming Administration Service Agreement, by Holdings or the
Company, if the result of such action or failure to take action shall be
that the Company and its Restricted Subsidiaries, collectively, in any
material respect, fail to obtain and enjoy rights and benefits in
accordance with the terms of such agreements substantially similar to those
they would have enjoyed were they a party to (a) the New Network Membership
License Agreement with regard to their covered license areas on the date of
the Indenture, after giving effect to the AT&T Wireless Services
Contribution and AT&T Wireless Exchange, until July 17, 2005 and (b) the
New Intercarrier Roamer Service Agreement or the New Roaming Administration
Service Agreement; provided that such rights and benefits shall include,
without limitation, their pro rata share of consideration received from a
total or partial disposition of such rights and benefits under the New
Network Membership License Agreement, the New Intercarrier Roamer
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Service Agreement or the New Roaming Administration Service Agreement, as
applicable, and such action or failure to take action continues for 30 days
after receipt of the notice specified in the Indenture; or
(12) the making by the Company and its Restricted Subsidiaries,
collectively, of payments, directly or indirectly, to third parties with
respect to the New Network Membership License Agreement, the New
Intercarrier Roamer Service Agreement or the New Roaming Administration
Service Agreement, in excess of their pro rata share of any payments
required to be made by Holdings.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5), (6), (10), (11) or (12) will not
constitute an Event of Default until the Trustee or the holders of at least 25%
in aggregate principal amount of the outstanding Notes notify the Company of
the default and the Company does not cure such default within the time
specified in clauses (4), (5), (6), (10), (11) or (12) after receipt of such
notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and
is continuing, the Trustee or the holders of at least 25% in aggregate
principal amount of the outstanding Notes by notice to the Company may
accelerate the maturity of all the Notes. Upon such an acceleration, the
outstanding Notes will become immediately due and payable. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs, the principal of and interest on all the Notes will
become immediately due and payable without any declaration or other act on the
part of the Trustee or the holders of the Notes. Under certain circumstances,
the holders of a majority in aggregate principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of Notes
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the
outstanding Notes have requested the Trustee in writing to pursue the
remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in aggregate principal amount of the
outstanding Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in aggregate
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of Notes or that would involve the Trustee in
personal liability. Prior to taking any action under the Indenture, the Trustee
will be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.
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The Indenture will provide that, if a Default occurs and is continuing and
is known to the Trustee, the Trustee must mail to each holder of Notes notice
of the Default within the earlier of 90 days after it occurs or 30 days after
it is known to a Trust Officer or written notice of it is received by the
Trustee. Except in the case of a Default in the payment of principal of,
premium (if any) or interest on any Note (including payments pursuant to the
redemption provisions of such Note), the Trustee may withhold notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding notice is in the interests of the Noteholders. In addition, the
Company will be required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company will
also be required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Events of
Default, the status of any such event and the action the Company is taking or
proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the holders of a majority in aggregate principal
amount of the Notes then outstanding, and any past default or compliance with
any provisions may be waived with the consent of the holders of a majority in
aggregate principal amount of the Notes then outstanding. However, (a) without
the consent of each holder of an outstanding Note affected, no amendment may,
among other things:
(1) reduce the amount of Notes whose holders must consent to an
amendment;
(2) reduce the rate of, or extend the time for payment of, interest or
any liquidated damages on any Note;
(3) reduce the principal of, or extend the Stated Maturity of, any Note;
(4) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption;"
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of Notes to receive payment of
principal of and interest or any liquidated damages on such holder's Notes
on or after the due dates therefor or to institute suit for the enforcement
of any payment on or with respect to such holder's Notes; or
(7) make any change in the amendment provisions which require the
consent of each holder of Notes or in the waiver provisions; and
(b) without the consent of the holders of 75% in aggregate principal amount of
the Notes then outstanding, no amendment may:
(1) make any change to the subordination provisions of the Indenture
that adversely affects the rights of any holder of Notes; or
(2) modify the Subsidiary Guarantee in any manner adverse to the holders
of Notes.
Without the consent of any holder of Notes, the Company and the Trustee may
amend the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture;
(3) provide for uncertificated Notes in addition to, or in place of,
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
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(4) make any change in the subordination provisions of the Indenture
that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company (or any Representative thereof) under
such subordination provisions;
(5) add additional guarantees with respect to the Notes;
(6) secure the Notes;
(7) add to the covenants of the Company for the benefit of the
Noteholders;
(8) surrender any right or power conferred upon the Company;
(9) make any change that does not adversely affect the rights of any
holder of Notes;
(10) provide for the issuance of the Exchange Notes or Private Exchange
Notes subject to the provisions of the indenture; or
(11) comply with any requirement of the Commission in connection with the
qualification of the Indenture under the TIA.
No amendment may be made to the subordination provisions of the Indenture,
however, that adversely affects the rights of any holder of Senior Indebtedness
of the Company then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent
to such change.
The consent of the Noteholders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company will
be required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
Transfer and Exchange
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents, and the Company may require a Noteholder to pay any
taxes required by law or permitted by the Indenture. The Company will not be
required to transfer or exchange any Note selected for redemption or to
transfer or exchange any Note for a period of 15 days prior to a selection of
Notes to be redeemed. The Notes will be issued in registered form, and the
registered holder of a Note will be treated as the owner of such Note for all
purposes.
Defeasance
The Company at any time may terminate all its obligations under the
Indenture and the Notes ("legal defeasance"), except for certain obligations,
including obligations:
. relating to the defeasance trust;
. to register the transfer or exchange of the Notes;
. to replace mutilated, destroyed, lost or stolen Notes; and
. to maintain a registrar and paying agent in respect of the Notes.
The Company at any time may terminate its obligations under:
. the covenants described under "--Certain Covenants;"
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. the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment
default provision and clauses (10), (11) and (12) described under "--
Defaults;"
. clauses (3), (4) and (5) set forth in the first paragraph under "--
Merger, Consolidation and Certain Sales of Assets" ("covenant
defeasance").
In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Subsidiary Guarantor will be released from all
of its obligations with respect to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), (7) (with respect only to
Significant Subsidiaries), (8) (with respect only to Significant Subsidiaries)
(9), (10), (11) and (12) under "--Defaults" or because of the failure of the
Company to comply with clause (3), (4) and (5) set forth in the first paragraph
under "--Merger, Consolidation and Certain Sales of Assets."
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance and will be subject to federal income tax on the same
amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal income tax law).
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture, as to all outstanding Notes
under the Indenture when
(a) either
. all Notes authenticated and delivered, except lost, stolen or
destroyed Notes which have been replaced or paid, have been
delivered to the Trustee for cancellation, or
. all Notes not delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable at their
Stated Maturity within one year, or (z) are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company; and the Company or any
Subsidiary Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in
United States dollars or direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed
by, the United States of America (or by any agency thereof to the
extent such obligations are backed by the full faith and credit of
the United States of America), in each case maturing prior to the
date the Notes have become due and payable, the Stated Maturity of
the Notes or the relevant redemption date for the Notes, as the case
may be, sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation,
including principal of, any premium and accrued interest at
maturity, Stated Maturity or redemption date,
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(b) the Company or any Subsidiary Guarantor has paid or caused to be paid
all other sums payable under the Indenture by the Company and any
Subsidiary Guarantor, and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that
. all conditions precedent under the Indenture relating to the
satisfaction and discharge of such Indenture have been complied with
and
. such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company, any
Subsidiary Guarantor or any Subsidiary is a party or by which the
Company, any Subsidiary Guarantor or any Subsidiary is bound.
Concerning the Trustee
Bankers Trust Company will be the Trustee under the Indenture, and Bankers
Trust Company has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture, a copy of the form of which is available upon request to the
Company.
"Acquired Indebtedness" means, with respect to any Person, Indebtedness of
such Person:
(1) existing at the time such Person becomes a Restricted Subsidiary; or
(2) assumed in connection with the acquisition of assets from another
Person, including Indebtedness Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such
acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Cash Flow for the latest two full fiscal quarters for which consolidated
financial statements of the Company are available multiplied by two. For
purposes of calculating "Consolidated Cash Flow" for any period for purposes of
this definition only:
(1) any Subsidiary of the Company that is a Restricted Subsidiary on the
date of the transaction giving rise to the need to calculate "Annualized
Pro Forma Consolidated Operating Cash Flow" (the "Transaction Date") shall
be deemed to have been a Restricted Subsidiary at all times during such
period; and
(2) any Subsidiary of the Company that is not a Restricted Subsidiary on
the Transaction Date shall be deemed not to have been a Restricted
Subsidiary at any time during such period.
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In addition to and without limitation of the foregoing, for purposes of this
definition only, "Consolidated Cash Flow" shall be calculated after giving
effect on a pro forma basis for the applicable period to, without duplication,
any Asset Dispositions or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of the Company or one of the Restricted Subsidiaries (including any
Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) Incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the period commencing on the first day of such
two-fiscal-quarter period to and including the Transaction Date (the "Reference
Period"), as if such Asset Sale or Asset Acquisition occurred on the first day
of the Reference Period.
"Asset Acquisition" means:
(1) any purchase or other acquisition (by means of transfer of cash,
Indebtedness or other property to others or payment for property or
services for the account or use of others or otherwise) of Capital Stock of
any Person by the Company or any Restricted Subsidiary, in either case,
pursuant to which such Person shall become a Restricted Subsidiary or shall
be merged with or into the Company or any Restricted Subsidiary; or
(2) any acquisition by the Company or any Restricted Subsidiary of the
property or assets of any Person which constitute all or substantially all
of an operating unit or line of business of such Person.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or Sale/Leaseback
Transaction) of:
(1) shares of Capital Stock of a Subsidiary of the Company (other than
directors' qualifying shares);
(2) any License for the provision of wireless telecommunications
services held by the Company or any Restricted Subsidiary (whether by sale
of Capital Stock or otherwise); or
(3) any other property or assets of the Company or any Subsidiary of the
Company other than in the ordinary course of business;
provided, however, that an Asset Disposition shall not include:
(A) any sale, transfer or other disposition of shares of Capital Stock,
property or assets by a Restricted Subsidiary to the Company or to any
other Restricted Subsidiary or by the Company to any Restricted Subsidiary;
(B) any sale, transfer or other disposition of defaulted receivables for
collection;
(C) the sale, lease, conveyance or disposition or other transfer of all
or substantially all of the assets of the Company as permitted under "--
Covenants--Merger, Consolidation and Certain Sales of Assets;"
(D) any disposition that constitutes a Change of Control; or
(E) any sale, transfer or other disposition of shares of Capital Stock
of any Marketing Affiliate; provided that such Marketing Affiliate is not
engaged in any activity other than the registration, holding, maintenance
or protection of trademarks and the licensing thereof; or
(F) any sale, transfer or other disposition that does not (together with
all related sales, transfers or dispositions) involve aggregate
consideration in excess of $15.0 million.
"AT&T Wireless" means AT&T Wireless PCS Inc., a Delaware corporation.
"AT&T Wireless Exchange" means the transactions contemplated by the Asset
Exchange Agreement dated as of February 28, 2000, as amended, waived or
otherwise modified from time to time, among the Company, AT&T Wireless PCS,
LLC, TeleCorp PCS, LLC, TeleCorp Holding Corp, Inc., TeleCorp Communications,
Inc., TeleCorp Equipment Leasing, L.P. and TeleCorp Realty, LLC.
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"AT&T Wireless Services Contribution" means the Contribution, as such term
is defined in the Merger Agreement.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing:
(1) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value
payments by
(2) the sum of all such principal or liquidation value payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Credit Agreement and any Refinancing Indebtedness with respect thereto, as
amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"board of directors" of any Person means the board of directors, management
committee or other governing body of such Person.
"BTA" means a Basic Trading Area, as defined in 47 C.F.R. (S)24.202.
"Business Day" means any date which is not a Legal Holiday.
"C-Block License" means any License in the C block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.
"Capital Lease Obligations" of any Person means the obligations to pay rent
or other amounts under a lease of (or other Indebtedness arrangements conveying
the right to use) real or personal property of such Person which are required
to be classified and accounted for as a capital lease or liability on the face
of a balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP,
and the Stated Maturity thereof shall be the date of the last payment of rent
or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants options, participations or other equivalents of or interests
in (however designated) of corporate stock or other equity participations,
including partnership interests, whether general or limited, of such Person.
"Cash Equity Investors" means CB Capital Investors, L.P., Equity-Linked
Investors-II, Private Equity Investors III, L.P., Hoak Communications Partners,
L.P., HCP Capital Fund, L.P., Whitney Equity Partners, L.P., J. H. Whitney III,
L.P., Whitney Strategic Partners III, L.P., Media/Communications Partners III
Limited Partnership, Media/Communications Investors Limited Partnership, One
Liberty Fund III, L.P., One Liberty Fund IV, L.P., Toronto Dominion
Investments, Inc., Northwood Ventures LLC, Northwood Capital Partners LLC,
Gerald Vento, Thomas Sullivan, Gilde International B.V., CIHC, Incorporated and
Dresdner Kleinwort Benson Private Equity LLC.
"Cash Equivalents" means:
(1) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America
(or by any agency thereof to the extent such obligations are backed by the
full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
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(2) investments in commercial paper maturing within 365 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from Standard & Poor's Corporation or from
Moody's Investors Service;
(3) investments in certificates of deposit, banker's acceptance and time
deposits maturing within 365 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$500 million;
(4) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (1) above and entered into
with a financial institution satisfying the criteria described in clause
(3) above; and
(5) money market funds substantially all of whose assets comprise
securities of the type described in clauses (1) through (3) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Commission" means the Securities and Exchange Commission.
"Communications Act" means the Communications Act of 1934, and any similar
or successor Federal statute, and the rules and regulations and published
policies of the FCC thereunder, all as amended and as the same may be in effect
from time to time.
"Consolidated Cash Flow" of any Person means, for any period, the
Consolidated Net Income of such Person for such period:
(1) increased (to the extent Consolidated Net Income for such period has
been reduced thereby) by the sum of (without duplication):
(A) Consolidated Interest Expense of such Person for such period;
plus
(B) Consolidated Income Tax Expense of such Person for such period;
plus
(C) the consolidated depreciation and amortization expense of such
Person and its Restricted Subsidiaries for such period; plus
(D) any other non-cash charges of such Person and its Restricted
Subsidiaries for such period except for any non-cash charges that
represent accruals of, or reserves for, cash disbursements to be made
in any future accounting period; and
(2) decreased (to the extent Consolidated Net Income for such period has
been increased thereby) by any non-cash gains from Asset Dispositions.
"Consolidated Income Tax Expense" of any Person means, for any period, the
consolidated provision for income taxes of such Person and its Restricted
Subsidiaries for such period calculated on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" for any Person means, for any period,
without duplication:
(1) the consolidated interest expense included in a consolidated income
statement (without deduction of interest or finance charge income) of such
Person and its Restricted Subsidiaries for such period calculated on a
consolidated basis in accordance with GAAP (including, without limitation,
(a) any
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amortization of debt discount, (b) the net costs under Hedging Agreements,
(c) all capitalized interest, (d) the interest portion of any deferred
payment obligation and (e) all amortization of any premiums, fees and
expenses payable in connection with the Incurrence of any Indebtedness);
plus
(2) the interest component of Capital Lease Obligations paid, accrued
and/or scheduled to be paid or accrued, by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there shall be excluded therefrom:
(1) the net income (or loss) of any Person acquired by such Person or a
Restricted Subsidiary of such Person in a pooling-of-interests transaction
for any period prior to the date of such transaction;
(2) the net income (but not loss) of any Restricted Subsidiary of such
Person which is subject to restrictions which prevent or limit the payment
of dividends or the making of distributions to such Person to the extent of
such restrictions (regardless of any waiver thereof);
(3) the net income of any Person that is not a Restricted Subsidiary of
such Person, except to the extent of the amount of dividends or other
distributions representing such Person's proportionate share of such other
Person's net income for such period actually paid in cash to such Person by
such other Person during such period;
(4) gains or losses (other than for purposes of calculating Consolidated
Net Income under clause (C) of the first paragraph under "--Certain
Covenants--Limitation on Restricted Payments") on Asset Dispositions by
such Person or its Restricted Subsidiaries;
(5) all extraordinary gains (but not, other than for purposes of
calculating Consolidated Net Income under clause (C) of the first paragraph
under "--Certain Covenants--Limitation on Restricted Payments," losses)
determined in accordance with GAAP; and
(6) in the case of a successor to such Person by consolidation or merger
or as a transferee of such Person's assets, any earnings (or losses) of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Credit Agreement" means the Credit Agreement dated as of July 17, 1998, as
amended, waived or otherwise modified from time to time, among the Company, the
financial institutions named therein as lenders, The Chase Manhattan Bank, as
Administrative Agent and Issuing Bank, TD Securities (USA) Inc., as Syndication
Agent, and Bankers Trust Company, as Documentation Agent (except to the extent
that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the Indenture, unless otherwise agreed to by the
holders of at least a majority in aggregate principal amount of the Notes at
the time outstanding).
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Designated Senior Indebtedness" of the Company means:
(1) so long as outstanding, Bank Indebtedness; and
(2) so long as outstanding, any other Senior Indebtedness which has at
the time of initial issuance an aggregate outstanding principal amount in
excess of $25.0 million and which has been so designated as Designated
Senior Indebtedness by the board of directors of the Company at the time of
its initial issuance in a resolution delivered to the Trustee. "Designated
Senior Indebtedness" of a Subsidiary Guarantor has a correlative meaning.
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"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Discount Notes" means the 11 5/8% Senior Subordinated Discount Notes due
2009 of the Company.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the first anniversary of the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior
to the first anniversary of the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions of the covenant described
under "Change of Control."
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"Equipment Subsidiary" means TeleCorp Equipment Leasing L.P. and/or any
other Wholly Owned Subsidiary of the Company designated as an Equipment
Subsidiary under the Credit Agreement.
"Equity Offering" means any public or private sale of Qualified Stock made
on a primary basis by the Company after the date of the Indenture, including
through the issuance or sale of Qualified Stock to one or more Strategic Equity
Investors; provided, however, that a sale to Holdings will constitute an Equity
Offering only if funded by a substantially concurrent Equity Offering by
Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, to be dated the date of the Indenture, among the
Company, the Subsidiary Guarantor and the Initial Purchasers.
"Exchange Notes" means, collectively, debt securities of the Company that
are identical in all material respects to the Notes, except for transfer
restrictions relating to the Notes, issued in a like aggregate principal amount
of the Notes originally issued pursuant to the Exchange and Registration Rights
Agreement.
"Exchange Offer" means a registered exchange offer for the Notes undertaken
by the Company pursuant to the Exchange and Registration Rights Agreement.
"F-Block License" means any License in the F block as set forth in parts 1
and 24 of Title 47 of the Code of Federal Regulations.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the board of
directors of the Company acting in good faith.
"FCC" means the Federal Communications Commission, or any other similar or
successor agency of the Federal government administering the Communications
Act.
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"FCC Debt" means Indebtedness owed to the United States Treasury Department
or the FCC that is incurred in connection with the acquisition of a License.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles, consistently applied,
as in effect from time to time in the United States of America, as set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as is approved by a significant segment of the
accounting profession in the United States; provided, however, that for the
calculation of the quarterly and annual balance sheet, income statements and
cash flow financial information, the operation of Tritel, Inc. and its
Subsidiaries and all adjustments related to the Merger other than the AT&T
Wireless Services Contribution and the AT&T Wireless Exchange (in each case
allocable to the Company) shall be excluded.
"Hedging Agreement" means any interest rate, currency or commodity swap
agreement, interest rate, currency or commodity future agreement, interest rate
cap or collar agreement, interest rate, currency or commodity hedge agreement
and any put, call or other agreement designed to protect against fluctuations
in interest rates, currency exchange rates or commodity prices.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the registrar's books.
"Holdings" means TeleCorp-Tritel Holding Company, Inc., a Delaware
corporation, and parent of the Company after the Merger, until a successor
replaces it and thereafter, means the successor.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Person or any of
its Restricted Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary (or is merged into, or consolidates with, the Company or
any Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary (or being merged into, or consolidated with, the Company or any
Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into, or consolidates with, the
Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business
which are not overdue or which are being contested in good faith);
(5) every Capital Lease Obligation of such Person;
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(6) every net obligation under Hedging Agreements or similar agreements
of such Person; and
(7) every obligation of the type referred to in clauses (1) through (6)
of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise.
Indebtedness shall:
(1) include the liquidation preference and any mandatory redemption
payment obligations in respect of any Disqualified Stock of the Company and
any Restricted Subsidiary and any Preferred Stock of a Subsidiary of the
Company;
(2) never be calculated taking into account any cash and Cash
Equivalents held by such Persons;
(3) not include obligations arising from agreements of the Company or a
Restricted Subsidiary to provide for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
Incurred or assumed in connection with the disposition of any business or
assets of a Restricted Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount;
(2) the principal amount thereof, in the case of any Indebtedness other
than Indebtedness issued with original issue discount; and
(3) the greater of the maximum repurchase or redemption price or
liquidation preference thereof, in the case of any Disqualified Stock or
Preferred Stock.
"Ineligible Subsidiary" means:
(1) any Special Purpose Subsidiary;
(2) any Subsidiary Guarantor;
(3) any Subsidiary of the Company that, directly or indirectly, owns any
Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; and
(4) any Subsidiary of the Company that, directly or indirectly, owns any
Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, any other Subsidiary of the Company that is not eligible to be
designated as an Unrestricted Subsidiary.
"Initial Purchasers" means Chase Securities Inc., Lehman Brothers Inc. and
Deutsche Bank Securities Inc.
"Investment" in any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or required by law to
close.
"License" means any broadband Personal Communications Services license
issued by the FCC in connection with the operation of a System.
"License Subsidiary" means TeleCorp PCS, L.L.C. and THC and/or any other
Wholly Owned Restricted Subsidiary of the Company designated as a License
Subsidiary under the Credit Agreement.
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"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Lucent" means Lucent Technologies Inc., a Delaware corporation.
"Lucent Note Purchase Agreement" means the Note Purchase Agreement dated as
of May 11, 1998, between the Company and Lucent, as amended as of the date of
the Indenture.
"Management Stockholders" means Gerald Vento and Thomas Sullivan.
"Marketing Affiliate" means any Person which engages in no activity other
than the registration, holding, maintenance or protection of trademarks and the
licensing thereof.
"Material Indebtedness" means Indebtedness having an aggregate principal
amount (or accreted value) of $50 million or more at the time outstanding.
"Merger" has the meaning given to such term in the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Reorganization and
Contribution dated as of February 28, 2000, as amended, waived or otherwise
modified from time to time, among the Company, Tritel, Inc. and AT&T Wireless
Services, Inc.
"MTA" means a Major Trading Area, as defined in 47 C.F.R. (S)24.202.
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or readily marketable Cash Equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Indebtedness or other obligations relating to such properties or
assets or received in any other non-cash form) therefrom by such Person,
including any cash received by way of deferred payment or upon the monetization
or other disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred and all federal, state, foreign and local taxes
accrued as a liability as a consequence of such Asset Disposition;
(2) all payments made by such Person or any of its Restricted
Subsidiaries on any Indebtedness which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets
or which must by the terms of such Lien, or in order to obtain a necessary
consent to such Asset Disposition or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all payments made with respect to liabilities associated with the
assets which are the subject of the Asset Disposition, including, without
limitation, trade payables and other accrued liabilities;
(4) appropriate amounts to be provided by such Person or any Restricted
Subsidiary thereof, as the case may be, as a reserve in accordance with
GAAP against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary thereof, as the case may be, after
such Asset Disposition, including, without limitation, liabilities under
any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, until such time
as such amounts are no longer reserved or such reserve is no longer
necessary (at which time any remaining amounts will become Net Available
Proceeds to be allocated in accordance with the provisions of clause (3) of
the covenant described under "--Certain Covenants--Limitation on Certain
Asset Dispositions"); and
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(5) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition.
"Net Investment" means the excess of:
(1) the aggregate amount of all Investments made in any Unrestricted
Subsidiary or joint venture by the Company or any Restricted Subsidiary on
or after the date of the Indenture (in the case of an Investment made other
than in cash, the amount shall be the Fair Market Value of such Investment
as determined in good faith by the Board of the Company or such Restricted
Subsidiary); over
(2) the aggregate amount returned in cash on or with respect to such
Investments whether through interest payments, principal payments,
dividends or other distributions or payments; provided, however, that such
payments or distributions shall not be (and have not been) included in
clause (C) of the first paragraph described under "--Certain Covenants--
Limitation on Restricted Payments"; provided further that, with respect to
all Investments made in any Unrestricted Subsidiary or joint venture, the
amounts referred to in clause (1) above with respect to such Investments
shall not exceed the aggregate amount of all such Investments made in such
Unrestricted Subsidiary or joint venture.
"New Intercarrier Roamer Service Agreement" means the Intercarrier Roamer
Service Agreement by and between AT&T Wireless Services, Inc. and the Company
dated as of July 17, 1998, as amended from time to time or superceded by an
agreement substantially in the form of the Intercarrier Roamer Service
Agreement attached as Exhibit 10.19 to Holding's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on June 20, 2000, as
such agreement is amended from time to time.
"New Network Membership License Agreement" means the Network Membership
License Agreement by and among AT&T Corp., including AT&T Wireless Services,
Inc., and the Company dated as of July 17, 1998, as amended by the License
Extension Agreement (as defined in the Merger Agreement), as amended from time
to time or superceded by an agreement substantially in the form of the Network
Membership License Agreement attached as Exhibit 10.16 to Holding's
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on June 20, 2000, as such agreement is amended from time to time.
"New Roaming Administration Service Agreement" means the Roaming
Administration Service Agreement by and between AT&T Wireless Services, Inc.
and the Company dated as of July 17, 1998, as amended from time to time or
superceded by an agreement substantially in the form of the Roaming
Administration Service Agreement attached as Exhibit 10.21 to Holding's
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on June 20, 2000, as such agreement is amended from time to time.
"Note" or "Notes" means any Note or Note issued under the Indenture,
including any Exchange Note or Exchange Notes, or any Private Exchange Note or
Private Exchange Notes, issued in exchange therefor in connection with an
Exchange Offer undertaken pursuant to the Exchange and Registration Rights
Agreement.
"Noteholder" or "Holder" means the Person in whose name a Note is registered
on the registrar's books.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each holder of Notes at such holder's
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of the Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be not less than 30 days nor more than 60 days after the date of
such Offer and a settlement date (the "Purchase Date") for purchase of Notes
within five Business Days after the Expiration Date. The Company shall notify
the Trustee at least 15 Business Days (or such shorter period as is acceptable
to the Trustee) prior to the mailing of the Offer of the Company's obligation
to make an Offer to Purchase, and the Offer shall be mailed by the Company or,
at the Company's request, by the Trustee in the name and at the expense of the
Company.
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The Offer shall contain all the information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable holders of Notes to tender their Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the provision of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to a specified provision of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that such holder may tender all or any portion of the Notes
registered in the name of such holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the holder thereof or such holder's attorney duly
authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its paying agent) receives, not later
than the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note the
holder tendered, the certificate number of the Note the holder tendered and
a statement that such holder is withdrawing all or a portion of such
holder's tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose Note is purchased only in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
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"Officer" means the Chief Executive Officer, the Executive Vice President,
the Chief Financial Officer, the Chief Operating Officer, the President, any
Vice President, the Treasurer or any Secretary of the Company or a Subsidiary
of the Company, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Asset Swap" means any exchange of assets by the Company or a
Restricted Subsidiary where the Company and/or its Restricted Subsidiaries
receive consideration at least 75% of which consists of (1) cash, (2) assets
that are used or useful in a Permitted Business or (3) any combination thereof.
"Permitted Business" means:
(1) the delivery or distribution of telecommunications, voice, data or
video services;
(2) any business or activity reasonably related or ancillary thereto,
including, without limitation, any business conducted by the Company or any
Restricted Subsidiary on the date of the Indenture and the acquisition,
holding or exploitation of any license relating to the delivery of the
services described in clause (1) above; or
(3) any other business or activity in which the Company (and the
Restricted Subsidiaries) are expressly contemplated to be engaged pursuant
to the provisions of the certificate of incorporation and by-laws of the
Company as in effect on the date of the Indenture.
"Permitted Holder" means:
(1) each of AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders, Digital PCS, L.L.C., Wireless 2000, Inc. and any
of their respective Affiliates and the respective successors (by merger,
consolidation, transfer or otherwise) to all or substantially all of the
respective businesses and assets of any of the foregoing; provided that
Triton PCS, Inc. shall be deemed an Affiliate of AT&T Wireless so long as
AT&T Wireless owns at least 10% of the equity interests of Triton PCS,
Inc.; and
(2) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) controlled by one or more persons identified
in clause (1) above.
"Permitted Investments" means:
(1) Investments in Cash Equivalents;
(2) Investments representing Capital Stock or obligations issued to the
Company or any Restricted Subsidiary in the course of the good faith
settlement of claims against any other Person or by reason of a composition
or readjustment of debt or a reorganization of any debtor of the Company or
any Restricted Subsidiary;
(3) deposits including interest-bearing deposits, maintained in the
ordinary course of business in banks;
(4) any Investment in any Person; provided, however, that, after giving
effect to such Investment, such Person is or becomes a Restricted
Subsidiary or such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary;
(5) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided, however, that such receivables and
prepaid expenses would be recorded as assets of such Person in accordance
with GAAP;
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(6) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments
of such other Person received as payment for ordinary course of business
trade receivables;
(7) any interest rate agreements with an unaffiliated Person otherwise
permitted by clause (5) or (6) under "--Certain Covenants--Limitation on
Incurrence of Indebtedness";
(8) Investments received as consideration for an Asset Disposition in
compliance with the provisions of the Indenture described under "--Certain
Covenants--Limitation on Certain Asset Dispositions";
(9) loans or advances to employees of the Company or any Restricted
Subsidiary in the ordinary course of business in an aggregate amount not to
exceed $5.0 million in the aggregate at any one time outstanding;
(10) any Investment acquired by the Company or any of its Restricted
Subsidiaries as a result of a foreclosure by the Company or any of its
Restricted Subsidiaries or in connection with the settlement of any
outstanding Indebtedness or trade payable;
(11) loans and advances to officers, directors and employees for
business-related travel expense, moving expense and other similar expenses,
each incurred in the ordinary course of business; and
(12) any Investment for which the sole consideration is Qualified Stock;
and
(13) other Investments (with each such Investment being valued as of the
date made and without giving effect to subsequent changes in value) in an
aggregate amount not to exceed $15.0 million at any one time outstanding.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan (including
by operation of law) that provides for, contemplates, or the effectuation of
which is preceded or accompanied by (whether or not substantially
contemporaneously):
(1) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person; and
(2) the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or substantially all
of the remaining assets of such Person to holders of Capital Stock of such
Person.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Private Exchange Notes" means, collectively, debt securities of the Company
that are identical in all material respects to the Exchange Notes, except for
transfer restrictions relating to such Private Exchange Notes, issued by the
Company (under the same indenture as the Exchange Notes) simultaneously with
the delivery of the Exchange Notes in the Exchange Offer to any Noteholder that
holds any Notes acquired by it that have, or that are reasonably likely to be
determined to have, the status of an unsold allotment in an initial
distribution, or to any Noteholder that is not entitled to participate in the
Exchange Offer, upon the request of any such holder, in exchange for a like
aggregate principal amount of Notes held by such holder.
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"Public Sale" means any underwritten public offering, made on a primary
basis pursuant to a registration statement filed with, and declared effective
by, the Commission in accordance with the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness (including, without
limitation, Capital Lease Obligations); provided that the net proceeds of such
Indebtedness are utilized solely for the purpose of financing the cost
(including, without limitation, the cost of design, development, site
acquisition, construction, integration, handset manufacture or acquisition or
microwave relocation) of assets used or usable in a Permitted Business
(including, without limitation, through the acquisition of Capital Stock of an
entity engaged in a Permitted Business).
"Qualified License" means, as of the date of determination, any License
covering or adjacent to any geographical area in respect of which the Company
or any Restricted Subsidiary owns, as of the Business Day immediately prior to
such date of determination, at least one other License covering a substantial
portion of such area.
"Qualified Stock" means any Capital Stock of the Company other than
Disqualified Stock.
"Real Property Subsidiary" means TeleCorp Realty L.L.C., Puerto Rico
Acquisition Corp. and/or any other Wholly Owned Subsidiary of the Company
designated by the Company as a Real Property Subsidiary under the Credit
Agreement.
"Refinance" means refinance, renew, extend, replace or refund; and
"Refinancing" and "Refinanced" have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) any Indebtedness of the Company or any
Restricted Subsidiary existing on the date of the Indenture or Incurred in
compliance with the Indenture (including Indebtedness of the Company that
Refinances Refinancing Indebtedness); provided, however, that:
(1) the Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced;
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being Refinanced plus the amount of any
premium required to be paid in connection with such Refinancing pursuant to
the terms of the Indebtedness being Refinanced or the amount of any premium
reasonably determined by the issuer of such Indebtedness as necessary to
accomplish such Refinancing by means of a tender offer, exchange offer or
privately negotiated repurchase, plus the expenses of such issuer
reasonably incurred in connection therewith; and
(4) if the Indebtedness being Refinanced is pari passu with the Notes,
such Refinancing Indebtedness is made pari passu with, or subordinate in
right of payment to, the Notes, and, if the Indebtedness being Refinanced
is subordinate in right of payment to the Notes, such Refinancing
Indebtedness is subordinate in right of payment to the Notes on terms no
less favorable to the holders of Notes than those contained in the
Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include
(A) Indebtedness of a Restricted Subsidiary that Refinances Indebtedness
of the Company; or
(B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
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"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Sale/Leaseback Transaction" means an arrangement relating to property owned
on the date of the Indenture or thereafter acquired by the Company or a
Restricted Subsidiary whereby the Company or a Restricted Subsidiary transfers
such property to a Person and the Company or such Restricted Subsidiary leases
it from such Person, other than leases between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Indebtedness" of the Company means the Notes, the
Discount Notes and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank pari passu with the Notes in right
of payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness. "Senior Subordinated Indebtedness" of a Subsidiary Guarantor has
a correlative meaning.
"Series A Notes" means the Series A Notes of the Company purchased by Lucent
pursuant to the Lucent Note Purchase Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Special Purpose Subsidiary" means any Equipment Subsidiary, License
Subsidiary or Real Property Subsidiary.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholders' Agreement" means the Stockholders' Agreement dated as of July
17, 1998, among AT&T Wireless, TWR Cellular, the Cash Equity Investors, the
Management Stockholders and the Company, as such agreement may be amended from
time to time in accordance with the provisions of such agreement, so long as
the terms of any such amendment are no less favorable to the Noteholders than
the terms of the Stockholders' Agreement in effect on the date of the
Indenture.
"Strategic Equity Investor" means any of the Cash Equity Investors, any
Affiliate thereof, any other Person engaged in a Permitted Business whose Total
Equity Market Capitalization exceeds $500 million or any other Person who has
at least $100 million total funds under management and who has issued an
irrevocable, unconditional commitment to purchase Qualified Stock of the
Company for an aggregate purchase price that does not exceed 20% of the value
of the funds under management by such Person.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the date of the Indenture or
thereafter Incurred) which is by its terms expressly subordinate or junior in
right of payment to the Notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be.
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person or by such Person and one or more other
Subsidiaries thereof; or
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(2) any other Person (other than a corporation) in which such Person, or
one or more other Subsidiaries of such Person or such Person and one or
more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and voting power relating to the policies, management
and affairs thereof.
"Subsidiary Guarantee" means each guarantee of the obligations with respect
to the Notes issued by a Subsidiary of the Company pursuant to the terms of the
Indenture, each such Subsidiary Guarantee having subordination provisions
equivalent to those contained in the Indenture with respect to the Notes and
being substantially in the form prescribed in the Indenture.
"Subsidiary Guarantor" means any Subsidiary of the Company that has issued a
Subsidiary Guarantee.
"System" means, as to any Person, assets constituting a radio communications
system authorized under the rules for wireless communications services
(including any license and the network, marketing, distribution, sales,
customer interface and operations and functions relating thereof) owned and
operated by such Person.
"THC" means TeleCorp Holding Corp., Inc., a Delaware corporation and a
Wholly Owned Subsidiary.
"Total Assets" means the total assets of the Company, as shown on the most
recent quarterly balance sheet of the Company.
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to:
(1) the accreted value of all Indebtedness, in the case of any
Indebtedness issued with original issue discount; plus
(2) the principal amount of all Indebtedness, in the case of any other
Indebtedness,
of the Company and its Restricted Subsidiaries outstanding as of the date of
determination; provided, however, that no amount owing by the Company or any of
its Restricted Subsidiaries in respect of any Series A Notes outstanding as of
the date of determination shall be included in the determination of Total
Consolidated Indebtedness.
"Total Equity Market Capitalization" of any Person means, as of any day of
determination, the sum of (a) the product of (1) the aggregate number of
outstanding primary shares of common stock of such Person on such day (which
shall not include any options or warrants on, or securities convertible or
exchangeable into, shares of common stock of such Person) multiplied by (2) the
average closing price of such common stock listed on a national securities
exchange or the Nasdaq National Market System over the 20 consecutive Business
Days immediately preceding such day plus (b) the liquidation value of any
outstanding shares of preferred stock of such Person on such day.
"Total Invested Capital" means, as of any date of determination, the sum of,
without duplication:
(1) the total amount of equity contributed to the Company as of March
31, 2000, as set forth on the March 31, 2000 consolidated balance sheet of
the Company; plus
(2) irrevocable, unconditional commitments from any Strategic Equity
Investor to purchase Capital Stock of the Company (other than Disqualified
Stock) within 36 months of the date of issuance of such commitment, but in
any event not later than the Stated Maturity of the Notes; provided,
however, that such commitments shall exclude commitments related to any
Investment in any Person incorporated, formed or created for the purpose of
acquiring one or more Qualified Licenses unless such Person shall become a
Restricted Subsidiary; plus
(3) the aggregate net cash proceeds received by the Company from capital
contributions or the issuance or sale of Capital Stock of the Company
(other than Disqualified Stock, but including Qualified Stock issued upon
the conversion of convertible Indebtedness or upon the exercise of options,
warrants or
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rights to purchase Qualified Stock) subsequent to the date of the
Indenture, other than issuances or sales of Capital Stock to a Restricted
Subsidiary and other than capital contributions from, or issuances or sales
of Capital Stock to, any Strategic Equity Investor in connection with (a)
any Investment in any Person incorporated, formed or created for the
purpose of acquiring one or more Qualified Licenses and (b) any Investment
in any Person engaged in a Permitted Business, unless, in either case, such
Person shall become a Restricted Subsidiary; provided, however, such
aggregate net cash proceeds shall exclude any amounts included as
commitments to purchase Capital Stock in the preceding clause (2); plus
(4) the Fair Market Value of assets that are used or useful in a
Permitted Business or of the Capital Stock of a Person engaged in a
Permitted Business received by the Company as a capital contribution or in
exchange for Capital Stock of the Company (other than Disqualified Stock)
subsequent to March 31, 2000, other than (x) capital contributions from a
Restricted Subsidiary or issuance or sales of Capital Stock of the Company
to a Restricted Subsidiary or (y) the proceeds from the sale of Qualified
Stock to an employee stock ownership plan or other trust established by the
Company or any of its subsidiaries; plus
(5) the aggregate net cash proceeds received by the Company or any
Restricted Subsidiary from the sale, disposition or repayment of any
Investment made after the date of the Indenture and constituting a
Restricted Payment in an amount equal to the lesser of (a) the return of
capital with respect to such Investment and (b) the initial amount of such
Investment, in either case, less the cost of the disposition of such
Investment; plus
(6) an amount equal to the consolidated Net Investment of the Company
and/or any of its Restricted Subsidiaries in any Subsidiary that has been
designated as an Unrestricted Subsidiary after the date of the Indenture
upon its redesignation as a Restricted Subsidiary in accordance with the
covenant described under "--Certain Covenants--Limitation on Designations
of Unrestricted Subsidiaries;" plus
(7) cash proceeds from the sale to Lucent of the Series A Notes (less
payments made by the Company or any of its Subsidiaries with respect to
Series A Notes (other than payments of additional Series A Notes)); plus
(8) Total Consolidated Indebtedness; minus
(9) the aggregate amount of all Restricted Payments (including any
Designation Amount, but other than a Restricted Payment of the type
referred to in clause (3)(b) of the third paragraph of the covenant
described under "--Certain Covenants--Limitations on Restricted Payments")
declared or made on or after the date of the Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board of Directors, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"TWR Cellular" means TWR Cellular, Inc., a Delaware corporation, and an
Affiliate of AT&T Wireless.
"Unrestricted Subsidiary" means (1) until Holdings ceases to be a subsidiary
of the Company, Holdings and its Subsidiaries, (2) any Subsidiary of the
Company (other than an Ineligible Subsidiary) designated after the date of the
Indenture as such pursuant to, and in compliance with, the covenant described
under "--Certain Covenants--Limitation on Designations of Unrestricted
Subsidiaries" and (3) any Marketing Affiliate. Any such designation of any
Subsidiary of the Company may be revoked by a resolution of the board of
directors of the Company delivered to the Trustee certifying compliance with
the such covenant, subject to the provisions of such covenant.
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"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or Persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all of the
outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by the Company and/or
by one or more Wholly Owned Subsidiaries.
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CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences resulting from the beneficial ownership of the unregistered notes
by certain persons and from the exchange of the unregistered notes for exchange
notes. This summary does not purport to consider all the possible U.S. federal
tax consequences of the purchase, ownership or disposition of the unregistered
notes and exchange notes and is not intended to reflect the particular tax
position of any beneficial owner. It addresses only initial purchasers who hold
the unregistered notes and exchange notes as capital assets and does not
address beneficial owners that may be subject to special tax rules, such as
banks, insurance companies, dealers in securities or currencies, purchasers
that hold unregistered notes or exchange notes as a hedge against currency
risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprised of an unregistered note or exchange note and one or
more investments, or purchasers that have a "functional currency" other than
the U.S. dollar. Except to the extent discussed below under "Non-U.S. Holders"
and "Information Reporting and Backup Withholding," this summary only pertains
to a holder that is (i) a citizen or resident of the U.S. for U.S. federal
income tax purposes, (ii) an estate subject to U.S. federal income taxation
without regard to the source of its income, (iii) a corporation created or
organized in or under the laws of the U.S. or any political subdivision thereof
or (iv) a trust which is subject to the supervision of a court within the U.S.
and the control of a U.S. fiduciary (each, a "U.S. Holder"). This summary is
based upon the U.S. federal tax laws and regulations as now in effect and as
currently interpreted and does not take into account possible changes in such
tax laws or such interpretations, any of which may be applied retroactively. It
does not include any description of the tax laws of any state, local or foreign
government that may be applicable to the unregistered notes and exchange notes
or holders thereof. PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF THE U.S. FEDERAL TAX LAWS
TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES TO THEM UNDER THE
LAWS OF ANY OTHER TAXING JURISDICTION.
Characterization of the Notes.
We will treat the unregistered notes and the exchange notes as indebtedness
for U.S. federal income tax purposes, and the following discussion assumes that
such treatment will be respected. Accordingly, a holder also will generally be
required to treat the unregistered notes and the exchange notes as
indebtedness. A holder taking an inconsistent position must expressly disclose
such fact in the holder's return.
U.S. Holders
Payments of Interest.
In general, interest on an unregistered note or exchange note will be
taxable to a holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
Sale, Exchange or Other Disposition.
Except as provided below under "Exchange Offer," if a note is sold or
otherwise disposed of, a U.S. Holder generally will recognize gain or loss
equal to the difference between the amount realized on the disposition (except
to the extent attributable to accrued but unpaid interest, which will be
taxable as ordinary income) and such holder's adjusted tax basis in the note.
Such gain or loss will be capital gain or loss and will be long-term if the
holder has held the note for more than one year at the time of the disposition.
Exchange Offer.
An exchange of unregistered notes for the exchange notes, described under
"Exchange Offer," will not be treated as an "exchange" for U.S. federal income
tax purposes. As a result of exchanging the unregistered notes for the exchange
notes, a U.S. Holder will not recognize taxable gain or loss upon the exchange
and such
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holder will have the same tax basis and holding period in the exchange note as
the holder did for the unregistered note so exchanged. We are obligated to pay
additional interest to the holders of the notes under certain circumstances.
Such additional interest generally will be taxable to a holder as ordinary
income in accordance with the holder's method of tax accounting. It is
possible, however, that the Internal Revenue Service (the "IRS") may take a
different position, in which case a holder might be required to include such
additional interest in income as it accrues or becomes fixed (regardless of
such holder's regular method of accounting).
Non-U.S. Holders
Payments of Interest.
Under present U.S. federal income tax law and subject to the discussion of
information reporting and backup withholding below, payments of interest on the
unregistered notes or exchange notes by us or our agent to or on behalf of any
beneficial owner who is not a U.S. Holder (a "Non-U.S. Holder") and who is not
engaged in a trade or business within the U.S. with respect to which interest
on the unregistered notes or exchange notes is effectively connected will not
be subject to U.S. federal income or withholding tax, provided that (i) such
beneficial owner does not actually or constructively own ten percent or more of
the total combined voting power of all of our classes of stock entitled to
vote, (ii) such beneficial owner is not a controlled foreign corporation for
U.S. federal income tax purposes (generally, a foreign corporation controlled
by U.S. shareholders) that is related to us actually or constructively through
stock ownership, and (iii) the Non-U.S. Holder provides an appropriate
statement on IRS Form W-8, Form W-8BEN or the substitute Form provided by the
beneficial owner ("Substitute Form W-8BEN"), together with all appropriate
attachments, signed under penalties of perjury, identifying the Non-U.S. Holder
and stating, among other things, that the Non-U.S. Holder is not a U.S. person
for U.S. federal income tax purposes.
If an unregistered note or exchange note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement, to eliminate withholding tax,
accompanied by a copy of the IRS Form W-8, Form W-8BEN or Substitute Form W-
8BEN provided by the beneficial owner to the organization or institution. For
interest paid with respect to an unregistered note or exchange note a Non-U.S.
Holder that is treated as a partnership for U.S. federal income tax purposes
generally will be required to provide an IRS Form W-8IMY and to attach an
appropriate certification by each beneficial owner of the Non-U.S. Holder
(including in certain cases, such beneficial owner's beneficial owners).
To the extent these conditions are not met, a 30% withholding tax will apply
to interest income on the unregistered note or exchange note, unless an income
tax treaty reduces or eliminates such tax or unless the interest is effectively
connected with the conduct of a trade or business within the U.S. by such Non-
U.S. Holder and the Non-U.S. Holder provides an appropriate statement to that
effect (generally on IRS Form 1001 or Form W-8BEN, or IRS Form 4224 or Form W-
8ECI, as applicable). In the latter case, such Non-U.S. Holder generally will
be subject to U.S. federal income tax with respect to all income from the
unregistered note or exchange note at regular rates applicable to U.S.
taxpayers. Additionally, in such event, Non-U.S. Holders that are corporations
could be subject to a branch profits tax on such income.
Sale, Exchange or Other Disposition.
In general, a Non-U.S. Holder will not be subject to U.S. federal income tax
on any capital gain realized upon a sale, exchange or retirement of an
unregistered note or exchange note unless (i) such gain is effectively
connected with a U.S. trade or business of the holder, (ii) the Non-U.S. Holder
is subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates or (iii) in the case of an individual, such beneficial
owner is present in the U.S. for 183 days or more during the taxable year of
the sale, exchange or retirement and certain other requirements are met. In the
latter event, Non-U.S. Holders generally will be subject to U.S. federal income
tax with respect to such gain at regular rates applicable to U.S. taxpayers.
Additionally, in such event, Non-U.S. Holders that are corporations could be
subject to a branch profits tax on such gain.
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Treatment of Notes for US. Federal Estate Tax Purposes.
An individual Non-U.S. Holder (who is not domiciled in the U.S. for U.S.
federal estate tax purposes at the time of death) will not be subject to U.S.
federal estate tax in respect of an unregistered note or exchange note,
provided the Non-U.S. Holder does not at the time of such Non-U.S. Holder's
death actually or constructively own 10% or more of the combined voting power
of all of our classes of stock entitled to vote, and payments of interest on
such unregistered note or exchange note would not have been considered U.S.
trade or business income at the time of such Non-U.S. Holder's death.
Information Reporting and Backup Withholding
For each calendar year in which the unregistered notes or exchange notes are
outstanding, we are required to provide the IRS with certain information,
including the holder's name, address and taxpayer identification number, the
aggregate amount of principal and interest (and premium, if any) paid to that
holder during the calendar year and the amount of tax withheld, if any. This
obligation, however, does not apply with respect to certain holders including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, we,
our agents or paying agents or a broker may be required to "backup" withhold a
tax equal to 31% of each payment of interest and principal (and premium, if
any) on the unregistered or exchange notes.
A Non-U.S. Holder that provides an IRS Form W-8, Form W-8BEN or Substitute
Form W8-BEN, together with all appropriate attachments, signed under penalties
of perjury, identifying the Non-U.S. Holder and stating that the Non-U.S.
Holder is not a U.S. person, will not be subject to IRS reporting requirements
and U.S. backup withholding provided we do not have actual knowledge that such
holder is a U.S. person. In addition, IRS Form W-8BEN will be required from the
beneficial owners of interests in a Non-U.S. Holder that is treated as a
partnership for U.S. federal income tax purposes.
The payment of the proceeds on the disposition of an unregistered note or
exchange note to or through the U.S. office of a broker generally will be
subject to information reporting and backup withholding at a rate of 31% unless
the Non-U.S. Holder either certifies its status as a Non-U.S. Holder under
penalties of perjury on IRS Form W-8, Form W-8BEN or Substitute Form W-8BEN (as
described above) or otherwise establishes an exemption. If any payments of
principal or interest (and premium, if any) are made to the beneficial owner of
an unregistered note or exchange note by or through the foreign office of a
foreign custodian, foreign nominee or other foreign agent of such beneficial
owner, or if the foreign office of a foreign broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of an unregistered note or
exchange note to the seller thereof, backup withholding and information
reporting will not apply. Information reporting requirements (but not backup
withholding) will apply, however, to a payment by (i) a foreign office of (a) a
custodian, nominee, other agent or broker that is a U.S. person for U.S.
federal income tax purposes, (b) a foreign custodian, nominee, other agent or
broker that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the U.S., (c) a foreign custodian,
nominee, other agent or broker that is a controlled foreign corporation for
U.S. federal income tax purposes, or (ii) a foreign partnership if at any time
during its tax year one or more of its partners are U.S. persons who, in the
aggregate, hold more than 50% of the income or capital interest of the
partnership or if, at any time during its taxable year, the partnership is
engaged in a U.S. trade or business, unless the custodian, nominee, other
agent, broker or foreign partnership has documentary evidence in its records
that the holder is not a U.S. person and certain other conditions are met or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax; any amounts so withheld may be
credited against the U.S. federal income tax liability of the holder or
refunded if the amounts withheld exceed such liability, provided that the
required information is furnished to the IRS. The information reporting
requirements may apply regardless of whether withholding is required. Copies of
the information returns reporting such interest and
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withholding also may be made available to the tax authorities in the country in
which a Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF HIS, HER OR ITS
PARTICULAR CIRCUMSTANCES AND TAX SITUATION. EACH HOLDER SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE UNREGISTERED NOTES AND EXCHANGE NOTES,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX
LAWS OR SUBSEQUENT VERSIONS THEREOF.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes are represented by a permanent global certificate in
definitive, fully registered form. The global note is registered in the name of
a nominee of the Depository Trust Company.
Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of the Depository Trust
Company, Euroclear and Cedel described below are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems, and are subject to change by them from time
to time. Neither we nor any of the initial purchasers of the unregistered notes
takes any responsibility for these operations or procedures, and investors are
urged to contact the relevant system or its participants directly to discuss
these matters.
The Depository Trust Company has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization' within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation' within the meaning of the Uniform Commercial
Code; and
. a "clearing agency' registered under the Exchange Act.
The Depository Trust Company was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants, eliminating the need for physical transfer and
delivery of certificates. The Depository Trust Company's participants include
securities brokers and dealers, including the initial purchasers, banks and
trust companies, clearing corporations and other organizations. Indirect access
to the Depository Trust Company's system is also available to indirect
participants such as banks, brokers, dealers and trust companies that clear
through, or maintain a custodial relationship with a participant, either
directly or indirectly. Investors who are not participants may beneficially own
securities held by, or on behalf of the Depository Trust Company only through
participants or indirect participants.
We expect that under procedures established by the Depository Trust Company:
(1) upon deposit of each global note, the Depository Trust Company will
credit the accounts of participants designated by the initial purchasers of
the unregistered notes with an interest in the global note; and
(2) ownership of the notes will be shown on, and the transfer of
ownership of the notes will be effected only through, records maintained by
the Depository Trust Company, with respect to the interests of participants
and the records of participants and the indirect participants, with respect
to the interests of persons other than participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of the securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to
these persons may be limited. In addition, because the Depository Trust Company
can act only on behalf of its participants, who in turn act on behalf of
persons who hold interests through participants, the ability of a person having
an interest in the notes represented by a global note to pledge or transfer the
interest to persons or entities that do not participate in the Depository Trust
Company's system, or to otherwise take actions in respect of the interest, may
be affected by the lack of a physical definitive security in respect of the
interest.
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So long as the Depository Trust Company or its nominee is the registered
owner of a global note, the Depository Trust Company or the nominee, will be
considered the sole owner or holder of the notes represented by the global note
for all purposes under the indenture. Except as provided below, owners of
beneficial interests in a global note will not be entitled to have the notes
represented by the global note registered in their names, will not receive or
be entitled to receive physical delivery of certificated notes and will not be
considered the owners or holders under the indenture for any purpose, including
with respect to the giving of any direction, instruction or approval to the
trustee. Accordingly, each holder owning a beneficial interest in a global note
must rely on the procedures of the Depository Trust Company and, if the holder
is not a participant or an indirect participant, on the procedures of the
participant through which the holder owns its interest, to exercise any rights
of a holder of the notes under the indenture or the global note. We understand
that, under existing industry practice, if we request any action of holders of
the notes, or a holder that is an owner of a beneficial interest in a global
note desires to take any action that the Depository Trust Company, as the
holder of the global note, is entitled to take, the Depository Trust Company
would authorize the participants to take the action and the participants would
authorize holders owning through the participants to take the action or would
otherwise act upon the instruction of the holders. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, the notes by the Depository Trust
Company, or for maintaining, supervising or reviewing any records of the
Depository Trust Company relating to these notes.
Payments with respect to the principal and interest, and premium, if any,
and liquidated damages, if any, on any notes represented by a global note
registered in the name of the Depository Trust Company or its nominee on the
applicable record date will be payable by the trustee to, or at the direction
of, the Depository Trust Company or its nominee in its capacity as the
registered holder of the global note representing the notes under the
indenture. Under the terms of the indenture, we and the trustee will be
permitted to treat the persons in whose names the notes, including the global
notes, are registered as the owners of the notes for the purpose of receiving
payment and for any and all other purposes whatsoever. Accordingly, neither we
nor the trustee have or will have any responsibility or liability for the
payment of the amounts to owners of beneficial interests in a global note,
including principal, premium, if any, liquidated damages, if any, and interest.
Payments by the participants and the indirect participants to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice, and will be the responsibility of the
participants or the indirect participants and the Depository Trust Company.
Transfers between participants in the Depository Trust Company will be
effected in accordance with the Depository Trust Company's procedures and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in the Depository Trust
Company, on the one hand, and Euroclear or Cedel participants on the other
hand, will be effected through the Depository Trust Company in accordance with
the Depository Trust Company's rules on behalf of Euroclear or Cedel, as the
case may be. These cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
the system in accordance with the rules and procedures, and within the
established Brussels time deadlines, of the system. Euroclear or Cedel, as the
case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
settlement on its behalf, by delivering or receiving interests in the relevant
global notes in the Depository Trust Company and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
the Depository Trust Company. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a participant in
the Depository Trust Company will be credited, and any crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day,
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which must be a business day for Euroclear or Cedel, as the case may be,
immediately following the settlement date of the Depository Trust Company. Cash
received by Euroclear or Cedel as a result of sales of interests in a global
note by or through a Euroclear or Cedel participant to a participant in the
Depository Trust Company will be received with value on the settlement date of
the Depository Trust Company, but will be available in the relevant Euroclear
or Cedel cash account only as of the business day for Euroclear or Cedel, as
the case may be, following the Depository Trust Company's settlement date.
Although the Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the global
notes among participants in the Depository Trust Company, Euroclear and Cedel,
they are under no obligation to perform or to continue to perform these
procedures, and these procedures may be discontinued at any time. Neither we
nor the trustee will have any responsibility for the performance by the
Depository Trust Company, Euroclear or Cedel, or their respective participants
or indirect participants, of their respective obligations under the rules and
procedures governing their operations.
Certificated Notes
If:
. we notify the trustee in writing that the Depository Trust Company is no
longer willing or able to act as a depositary, or the Depository Trust
Company ceases to be registered as a clearing agency under the Exchange
Act and a successor depositary is not appointed within 90 days of the
notice or cessation;
. we, at our option, notify the trustee in writing that we elect to cause
the issuance of the notes in definitive form under the indenture; or
. upon the occurrence of other events as provided in the indenture,
then, upon surrender by the Depository Trust Company of the global notes,
certificated notes will be issued to each person that the Depository Trust
Company identifies as the beneficial owner of the notes represented by the
global notes. Upon any the issuance, the trustee is required to register the
certificated notes in the name of the person or persons, or the nominee of any
the person, and cause the same to be delivered to the person.
Neither we nor the trustee shall be liable for any delay by the Depository
Trust Company or any participant or indirect participant in identifying the
beneficial owners of the related notes, and each person may conclusively rely
on, and shall be protected in relying on, instructions from the Depository
Trust Company for all purposes, including with respect to the registration and
delivery, and the respective principal amounts, of the notes to be issued.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of exchange notes. A broker-dealer may use this prospectus, as
it may be amended or supplemented from time to time, in connection with resales
of exchange notes received in exchange for unregistered notes where the broker-
dealer acquired the unregistered notes as a result of market-making activities
or other trading activities. For a period of 180 days after the expiration date
of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer that requests these documents in
the letter of transmittal, for use in connection with any resale.
Each holder of unregistered notes participating in the exchange offer will,
by execution of a letter of transmittal, represent to us that it is not engaged
in nor does it intend to engage in a distribution of exchange notes.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account in the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on exchange notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to the
prevailing market prices or at negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
or the purchasers of any exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account in the exchange
offer and any broker or dealer that participates in a distribution of exchange
notes may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any resale of exchange notes and any commission or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the notes, other than commissions or concessions of any brokers or
dealers. We will indemnify the holders of the notes, including any broker-
dealers, against liabilities, including liabilities under the Securities Act.
The exchange notes are new securities with no established trading market. We
do not intend to list the exchange notes on any securities exchange, but the
unregistered notes have been designated for trading in the PORTAL market. The
initial purchasers have advised us that they intend to make a market in the
exchange notes, but they have no obligation to do so. The initial purchasers
may discontinue market-making at any time. A liquid market may not develop for
the exchange notes, you may not be able to sell your exchange notes at a
particular time and the prices that you receive when you sell may not be
favorable. Future trading prices of the exchange notes will depend on many
factors, including our operating performance and financial condition,
prevailing interest rates and the market for similar securities.
LEGAL MATTERS
Certain legal matters with regard to the validity of the notes will be
passed upon for us by Cadwalader, Wickersham & Taft, New York, New York.
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EXPERTS
The consolidated financial statements of TeleCorp PCS, Inc. as of December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999 included in this prospectus, have been included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting.
The consolidated balance sheets of Tritel, Inc. and subsidiaries as of
December 31, 1998 and 1999, and the consolidated statements of operations,
members' and stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999, included in this prospectus have
been audited by KPMG LLP, independent certified public accountants, as
indicated in their report with respect thereto, and are included in this
prospectus in reliance upon the authority of that firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
We are filing, with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act of 1933 with respect to the
exchange notes to be issued in exchange for the unregistered notes. As
permitted by the rules and regulations of the Securities and Exchange
Commission, this prospectus omits some information, exhibits and undertakings
contained in the registration statement. For further information with respect
to us and the notes, you should review the registration statement, including
the exhibits and the financial statements to the registration statement and the
notes and schedules filed as a part of the registration statement. The
registration statement of which this prospectus is a part incorporates
important business and financial information about the Company that is not
included or delivered with this prospectus. The registration statement and the
exhibits and schedules to the registration statement, as well as the periodic
reports, proxy statements and other information filed with the Securities and
Exchange Commission by us, as well as Tritel, may be inspected and copied at
the Public Reference Section of the Securities and Exchange Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549 and at the
regional offices of the Securities and Exchange Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of these materials
may be obtained from the Public Reference Section of the Securities and
Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549, and its public reference facilities in New York, New York
at the prescribed rates. You may obtain information as to the operation of the
Public Reference Room by calling the Securities and Exchange Commission at
1-800-SEC-0330. The Securities and Exchange Commission maintains a website at
http://www.sec.gov that contains periodic reports, proxy and information
statements and other information regarding registrants that file documents
electronically with the Securities and Exchange Commission. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of contract or document filed as an exhibit to the registration
statement, each statement being qualified in all respects by reference. Under
the indenture, we have agreed to file with the Securities and Exchange
Commission and provide to the holders of the notes annual reports and the
information, documents and other reports which are specified in the disclosure
and reporting provisions of the Exchange Act. In addition, under the indenture,
we have agreed to file with the Securities and Exchange Commission and provide
to the holders of the notes each of the documents and reports specified in the
previous sentence, adjusted to exclude the operations of Tritel, Inc. and its
subsidiaries and all adjustments related to the merger between TeleCorp and
Tritel, Inc. other than the AT&T Wireless Services Contributions and the AT&T
Wireless Exchange (in each case allocable to the TeleCorp).
The information with respect to Tritel included in this prospectus has not
been independently verified and we make no representation or warranty as to the
accuracy or completeness of this information.
185
<PAGE>
GLOSSARY OF SELECTED TERMS
<TABLE>
<C> <S>
ANALOG........................... A method of transmission where the wave
form of the output signal is analogous to
the wave form of the input signal.
BANDWIDTH........................ The number of bits of information which can
move through a communications medium in a
given amount of time; the capacity of a
telecommunications network to carry voice,
data and video information.
BASE STATION..................... A fixed site with network equipment that is
used for radio frequency communications
with mobile stations, and is part of a
cell, or sector within a cell.
BLOCK............................ The distinct radio frequency block in which
one-way radio applications, such as paging
or beeper services, and two-way radio
applications such as wireless
communications, cellular telephone and ESMR
networks, are licensed and operate. Blocks
are categorized as A-, B-, C-, D-, E- or F-
Blocks.
A- and B- Blocks are each PCS 30 MHz
licenses covering an MTA. C-Block is a PCS
30 MHz license covering a BTA. D-, E- and
F- Block are each PCS 10 MHz licenses
covering a BTA.
BTA.............................. One of the 493 basic trading areas, which
are smaller than MTAs, into which the
licensing for broadband PCS has been
divided based on the geographic divisions
in the 1992 Rand McNally Commercial Atlas &
Marketing Guide, as modified by the Federal
Communications Commission.
CALLER ID........................ Caller identification. A service to
telephone customers that allows each such
customer to know the identity of incoming
callers.
CDMA............................. Code division multiple access. A digital
spread-spectrum wireless technology which
allows a large number of users to access a
single frequency band that assigns a code
to all speech bits, sends a scrambled
transmission of the encoded speech over the
air, and reassembles the speech to its
original format.
CELL SITE........................ The location of a transmitting/receiving
station serving a given geographic area in
a cellular communications system.
CELLULAR......................... Domestic public cellular radio
communications service authorized by the
Federal Communications Commission in the
824-893 MHz band, in which each of two
licensees per market employs 25 MHz of
spectrum to provide wireless services.
CMRS............................. Commercial mobile radio service.
COVERED POPS..................... The number of Pops in a defined area for
whom a cellular or PCS signal is
accessible.
</TABLE>
186
<PAGE>
<TABLE>
<C> <S>
DIGITAL.......................... A method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1.
Digital transmission and switching
technologies employ a sequence of discrete,
distinct pulses to represent information,
as opposed to the continuously variable
analog signal. Digital wireless networks
use digital transmission.
DUAL-MODE........................ A wireless phone which is capable of
operating on both digital and analog
technologies.
ESMR............................. Enhanced specialized mobile radio. A radio
communications system that employs digital
technology with multi-site configuration
that permits frequency reuse, offering
enhanced dispatch services to traditional
analog SMR users.
FREQUENCY........................ The number of cycles per second, measured
in hertz, of a periodic oscillation or wave
in radio propagation.
GSM.............................. Global system for mobile communications.
The standard digital cellular telephone
service in Europe and Japan, guided by a
set of standards specifying the
infrastructure for digital cellular
service, including the radio interface (900
MHz), switching, signaling and intelligent
network.
HAND-OFF......................... The act of transferring communication with
a mobile unit from one base station to
another. A hand-off transfers a call from
the current base station to the new base
station. A "soft" hand-off establishes
communications with a new cell before
terminating communications with the old
cell, which prevents call cut-off.
INTERCONNECTION.................. Any variety of arrangements that permit the
connection of communications equipment to a
common carrier network such as a public
switched telephone network, and which
defines the terms of revenue-sharing. Terms
of interconnection are either negotiated
between the network operators or imposed by
regulatory authorities.
LICENSED POPS.................... The number of Pops in the area covered by a
license (cellular or PCS).
MHZ.............................. Megahertz. A unit of measurement of
bandwidth in the radiowave spectrum.
MICROWAVE RELOCATION............. The transferal of the business and public
safety agencies which currently utilize
radio spectrum within or adjacent to the
spectrum allocated to PCS licensees by the
Federal Communications Commission.
MTA.............................. One of the major trading areas into which
the licensing for the A- and B-Blocks of
broadband PCS spectrum has been divided
based on the geographic divisions in the
Rand McNally 1992 Commercial Atlas & Guide,
as modified by the Federal Communications
Commission.
NOC.............................. A network operations center from which a
wireless communications network is
monitored and maintained.
</TABLE>
187
<PAGE>
<TABLE>
<C> <S>
PBX.................. Private branch exchange.
POPS................. A shorthand abbreviation for the population covered by a
license or group of licenses.
RESELLER............. A provider of PCS services that does not hold a Federal
Communications Commission PCS license or own PCS
facilities. The reseller purchases blocks of PCS numbers
and capacity from a licensed carrier and resells service
through its own distribution network to the public.
Consequently, a reseller is both a customer of PCS
licensee's services and a competitor of that licensee.
ROAMING.............. A service offered by mobile communications network
operators which allows a subscriber to use his or her
handset while in the service area of another carrier.
Roaming requires an agreement between operators of
different individual markets to permit customers of
either operator to access the other's system.
SMR.................. Specialized mobile radio. A two-way analog mobile radio
telephone system typically used for dispatch services
such as truck and taxi fleets.
SPECTRUM............. The range of electromagnetic frequencies available for
use for telecommunications services.
SWITCH............... A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of
information. Switching is the process of interconnecting
circuits to form a transmission path between users.
TDMA................. Time division multiple access. A digital spread-spectrum
technology which allocates a discrete amount of
frequency bandwidth to each user to permit more than one
simultaneous conversation on a single radio frequency
channel.
TRI-MODE............. A wireless phone which is capable of operating on either
different digital protocols or both digital and analog
technologies.
WIRELESS LOCAL LOOP.. A system that eliminates the need for a wire (loop)
connecting users to the public switched telephone
network, which is used in conventional wired telephone
systems, by transmitting voice messages over radio waves
for the "last mile" connection between the location of
the customer's telephone and a base station connected to
the network equipment.
</TABLE>
188
<PAGE>
FINANCIAL STATEMENTS INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
TELECORP PCS, INC.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)..... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-8
TRITEL, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................. F-54
Consolidated Balance Sheets.............................................. F-55
Consolidated Statements of Operations.................................... F-56
Consolidated Statements of Members' and Stockholders' Equity............. F-57
Consolidated Statements of Cash Flows.................................... F-58
Notes to Consolidated Financial Statements............................... F-59
TELECORP PCS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Description of Unaudited Pro forma Condensed Combined Financial
Statements.............................................................. F-91
Unaudited Pro forma Condensed Combined Balance Sheet as of June 30,
2000.................................................................... F-92
Unaudited Pro forma Condensed Combined Statement of Operations for the
six months ended June 30, 2000.......................................... F-93
Unaudited Pro forma Condensed Combined Statement of Operations for the
year ended December 31, 1999............................................ F-94
Notes to Unaudited Pro forma Condensed Combined Financial Statements..... F-95
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
TeleCorp PCS, Inc.:
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. (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.
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1998 1999 2000
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $111,733 $ 182,330 $ 28,223
Accounts receivable, net.................. -- 23,581 36,514
Inventory................................. 778 15,802 20,604
Prepaid expenses and other current
assets................................... 3,404 3,828 6,344
-------- --------- ---------
Total current assets...................... 115,915 225,541 91,685
Property and equipment, net................ 197,469 400,450 531,034
PCS licenses and microwave relocation
costs, net................................ 118,107 267,682 277,275
Intangible assets--AT&T agreements, net.... 26,285 37,908 34,330
Deferred financing costs, net.............. 8,585 19,577 18,647
Other assets............................... 283 1,044 13,626
-------- --------- ---------
Total assets.............................. $466,644 $ 952,202 $ 966,597
======== ========= =========
LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable.......................... $ 14,592 $ 38,903 $ 6,654
Accrued expenses.......................... 94,872 51,977 110,876
Microwave relocation obligation, current
portion.................................. 6,636 36,122 21,973
Long-term debt, current portion........... -- 1,361 1,415
Accrued interest.......................... 4,491 1,387 1,555
Deferred revenue.......................... -- 1,709 2,617
-------- --------- ---------
Total current liabilities................. 120,591 131,459 145,090
Long-term debt............................. 243,385 639,210 728,129
Microwave relocation obligation............ 2,481 2,365 8,128
Accrued expenses and other................. 196 6,541 9,538
-------- --------- ---------
Total liabilities......................... 366,653 779,575 890,885
-------- --------- ---------
Mandatorily redeemable preferred stock,
issued 255,999, 382,539 and 383,339
shares, respectively; and outstanding,
255,215, 382,539 and 383,173 shares,
respectively, (liquidation preference
$404,779 as of June 30, 2000, unaudited).. 240,409 360,182 376,129
Deferred compensation...................... (4) -- --
Preferred stock subscriptions receivable... (75,914) (97,001) (97,001)
-------- --------- ---------
Total mandatorily redeemable preferred
stock, net............................... 164,491 263,181 279,128
-------- --------- ---------
Commitments and contingencies
Stockholders' equity (deficit):
Series F preferred stock, par value $.01
per share, 10,308,676, 14,912,778 and
14,912,778 shares issued and outstanding,
respectively (liquidation preference
$1 as of June 30, 2000, unaudited)....... 103 149 149
Common stock, par value $.01 per share
issued 49,357,658, 85,592,221 and
89,047,531, shares, respectively; and
outstanding 48,805,184, 85,592,221 and
88,942,943 shares, respectively.......... 493 856 890
Additional paid-in capital................ -- 267,442 313,107
Deferred compensation..................... (7) (42,811) (32,999)
Common stock subscriptions receivable..... (86) (191) (191)
Accumulated deficit....................... (65,003) (315,999) (484,372)
-------- --------- ---------
Total stockholders' equity (deficit)...... (64,500) (90,554) (203,416)
-------- --------- ---------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' equity
(deficit)................................ $466,644 $ 952,202 $ 966,597
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the six months
For the year ended December 31, ended June 30,
---------------------------------- -------------------------
1997 1998 1999 1999 2000
-------- ----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Service................ $ -- $ -- $ 41,319 $ 6,232 $ 88,056
Roaming................ -- 29 29,010 9,487 26,151
Equipment.............. -- -- 17,353 5,649 13,250
-------- ----------- ----------- ----------- ------------
Total revenue.......... -- 29 87,682 21,368 127,457
-------- ----------- ----------- ----------- ------------
Operating expenses:
Cost of revenue........ -- -- 39,259 10,107 40,433
Operations and
development .......... -- 9,772 35,979 15,498 25,535
Selling and marketing.. 304 6,325 71,180 20,925 74,766
General and
administrative........ 2,637 26,239 92,585 22,441 74,347
Depreciation and
amortization.......... 11 1,584 55,110 16,491 50,383
-------- ----------- ----------- ----------- ------------
Total operating
expenses.............. 2,952 43,920 294,113 85,462 265,464
-------- ----------- ----------- ----------- ------------
Operating loss......... (2,952) (43,891) (206,431) (64,094) (138,007)
Other (income) expense:
Interest expense....... 396 11,934 51,313 17,107 34,263
Interest income and
other................. (13) (4,670) (6,748) (2,918) (3,897)
-------- ----------- ----------- ----------- ------------
Net loss............... (3,335) (51,155) (250,996) (78,283) (168,373)
Accretion of mandatorily
redeemable preferred
stock.................. (726) (8,567) (24,124) (9,896) (15,889)
-------- ----------- ----------- ----------- ------------
Net loss attributable
to common equity...... $ (4,061) $ (59,722) $ (275,120) $ (88,179) $ (184,262)
======== =========== =========== =========== ============
Net loss attributable to
common equity per
share--basic and
diluted................ $(111.74) $ (2.19) $ (3.58) $ (1.39) $ (1.84)
======== =========== =========== =========== ============
Weighted average common
equity shares
outstanding--basic and
diluted................ 36,340 27,233,786 76,895,391 63,293,065 100,414,647
======== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
($ in thousands)
<TABLE>
<CAPTION>
Common
Series F Addi- Stock
Preferred Stock Common Stock tional Deferred Subscrip- Treasury Stock
----------------- ------------------ Paid-in Compen- tions ----------------
Shares Amount Shares Amount Capital sation Receivable Shares Amount
---------- ------ ---------- ------ -------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <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 -- -- (86) -- --
Accretion of
mandatorily
redeemable
preferred
stock.......... -- -- -- -- -- -- -- -- --
Noncash issuance
of restricted
stock to
employees...... -- -- 3,095,473 31 -- (10) -- -- --
Repurchase of
common stock
for cash....... -- -- -- -- -- 2 -- (552,474) --
Compensation
expense related
to restricted
stock awards... -- -- -- -- -- 1 -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- -------- ----- -------- ----
Balance,
December 31,
1998........... 10,308,676 103 49,357,658 493 -- (7) (86) (552,474) --
Issuance of
preferred stock
and common
stock for cash
and licenses... 4,604,102 46 23,231,331 233 21,550 -- (105) -- --
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 (73,049) -- -- --
Compensation
expense related
to stock option
grants and
restricted
stock awards... -- -- -- -- -- 31,817 -- -- --
Non-cash
issuance of
restricted
stock.......... -- -- 2,423,232 24 1,558 (1,573) -- 959,259 --
Repurchase of
common stock
for cash....... -- -- -- -- (1) 1 -- (406,785) --
Accretion of
mandatorily
redeemable
preferred
stock.......... -- -- -- -- (24,124) -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- -------- ----- -------- ----
Balance,
December 31,
1999........... 14,912,778 149 85,592,221 856 267,442 (42,811) (191) -- --
Issuance of
common stock
for PCS
licenses....... -- -- 1,201,772 12 2,694 -- -- -- --
Deferred
compensation in
connection with
Viper Wireless
closing........ -- -- -- -- 15,239 (15,239) -- -- --
Issuance of
common stock
for cash....... -- -- 2,245,000 22 41,847 -- -- -- --
Deferred
compensation
expense related
to stock option
grants and
restricted
stock awards... -- -- -- -- 4,455 (4,455) -- -- --
Compensation
expense related
to stock option
grants and
restricted
stock awards... -- -- -- -- -- 26,825 -- -- --
Forfeitures of
stock options.. -- -- -- -- (2,117) 2,117 -- -- --
Cancellation of
common stock
for cash....... -- -- -- -- (564) 564 -- -- --
Accretion of
mandatorily
redeemable
preferred
stock.......... -- -- -- -- (15,889) -- -- -- --
Repurchase of
stock for
cash........... -- -- (104,588) -- -- -- -- 104,588 --
Issuance of
common stock
related to
exercise of
options........ -- -- 8,538 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- -------- ----- -------- ----
Balance, June 30, 2000 (unaudited).. 14,912,778 $149 88,942,943 $890 $313,107 $(32,999) $(191) 104,588 $--
========== ==== ========== ==== ======== ======== ===== ======== ====
<CAPTION>
Accumu-
lated
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
mandatorily
redeemable
preferred
stock.......... -- (24,124)
Net loss........ (250,996) (250,996)
---------- ----------
Balance,
December 31,
1999........... (315,999) (90,554)
Issuance of
common stock
for PCS
licenses....... -- 2,706
Deferred
compensation in
connection with
Viper Wireless
closing........ -- --
Issuance of
common stock
for cash....... -- 41,869
Deferred
compensation
expense related
to stock option
grants and
restricted
stock awards... -- --
Compensation
expense related
to stock option
grants and
restricted
stock awards... -- 26,825
Forfeitures of
stock options.. -- --
Cancellation of
common stock
for cash....... -- --
Accretion of
mandatorily
redeemable
preferred
stock.......... -- (15,889)
Repurchase of
stock for
cash........... -- --
Issuance of
common stock
related to
exercise of
options........ -- --
Net loss........ (168,373) (168,373)
---------- ----------
Balance, June 30, 2000 (unaudited).. $(484,372) $(203,416)
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the year ended For the six months
December 31, ended June 30,
---------------------------- ----------------------
1997 1998 1999 1999 2000
------- -------- --------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................ $(3,335) $(51,155) $(250,996) $(78,283) $(168,373)
Adjustment to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization........... 11 1,584 55,110 16,491 50,383
Noncash compensation
expense related to
stock option grants and
restricted stock
awards................. -- 2 31,817 365 26,883
Noncash interest
expense................ 134 1,182 32,718 9,126 23,349
Bad debt expense........ -- -- 2,962 159 5,639
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) (12,337) (12,933)
Inventory............... -- (778) (15,024) (6,955) (4,802)
Prepaid expenses and
other current assets... (52) (3,331) (424) 994 (2,516)
Other assets............ 144 (1,184) (1,123) (1,155) (4,173)
Accounts payable........ 619 11,586 24,808 18,559 (32,249)
Accrued expenses........ -- 9,145 17,831 2,131 (5,817)
Accrued interest........ 258 2,046 (3,104) (411) 168
Deferred revenue........ -- -- 1,709 705 908
------- -------- --------- -------- ---------
Net cash used in
operating activities.. (2,221) (30,706) (127,297) (50,611) (123,533)
------- -------- --------- -------- ---------
Cash flows from investing
activities:
Expenditures for network
under development,
wireless network and
property and
equipment.............. (1,134) (107,542) (298,506) (203,235) (109,117)
Capitalized interest on
network under
development and
wireless network and
PCS licenses........... -- (227) (5,317) (4,153) (1,798)
Expenditures for
microwave relocation... -- (3,340) (5,654) (5,137) (4,279)
Purchase of PCS
licenses............... -- (21,000) (114,238) (72,188) (733)
Deposit on PCS
licenses............... -- -- -- (28,878) (12,368)
Partial refund of
deposit on PCS
licenses............... 1,561 -- -- 11,361 --
Purchase of
intangibles--AT&T
agreements............. -- -- (17,310) (16,145) --
Capitalized Tritel
acquisition costs...... -- -- -- -- (8,409)
------- -------- --------- -------- ---------
Net cash provided by
(used in) investing
activities............ 427 (132,109) (441,025) (318,375) (136,704)
------- -------- --------- -------- ---------
Cash flows from financing
activities:
Proceeds from sale of
mandatorily redeemable
preferred stock........ 1,500 26,661 70,323 60,411 --
Receipt of preferred
stock subscription
receivable............. -- -- 9,414 3,740 --
Direct issuance costs
from sale of
mandatorily redeemable
preferred stock........ -- (1,027) (2,500) (2,500) --
Proceeds from sale of
common stock and series
F preferred stock...... -- 38 21,724 5 41,869
Proceeds from long-term
debt................... 2,809 257,492 407,635 397,635 65,000
Proceeds associated with
initial public
offering............... -- -- 197,317 -- --
Direct issuance cost
from the initial public
offering............... -- -- (1,801) -- --
Payments on long term
debt................... -- (2,073) (50,451) (40,000) (675)
Payments of deferred
financing costs........ -- (9,110) (12,742) (10,600) (64)
------- -------- --------- -------- ---------
Net cash provided by
financing activities.. 4,309 271,981 638,919 408,691 106,130
------- -------- --------- -------- ---------
Net increase (decrease)
in cash and cash
equivalents........... 2,515 109,166 70,597 39,705 (154,107)
Cash and cash equivalents
at the beginning of
period.................. 52 2,567 111,733 111,733 182,330
------- -------- --------- -------- ---------
Cash and cash equivalents
at the end of period.... $ 2,567 $111,733 $ 182,330 $151,438 $ 28,223
======= ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TELECORP PCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
($ in thousands)
<TABLE>
<CAPTION>
For the year ended For the six months
December 31, ended June 30,
----------------------- ----------------------
1997 1998 1999 1999 2000
------ -------- ------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash
flow Information:
Cash paid for interest........ $ -- $ 9,786 $24,342 $10,541 $12,880
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 9,141 55,957
Issuance of mandatorily
redeemable preferred stock
and preferred stock in
exchange for PCS licenses and
AT&T agreements.............. -- 100,900 2,674 2,706 --
Issuance of mandatorily
redeemable preferred stock
and common stock in exchange
for stock subscriptions
receivable................... -- 76,000 27,191 30,931 --
U.S. Government financing of
PCS licenses................. 9,193 -- 11,551 11,551 2,433
Discount on U.S. Government
financing.................... 1,600 -- 1,631 2,396 401
Conversion of notes payable to
stockholders into preferred
stock........................ 499 25,300 -- -- --
Accretion of preferred stock
dividends.................... 726 8,567 24,124 9,896 15,889
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 $ 4,601 $ 1,798
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except 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. 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 strategic alliance with AT&T Wireless and certain of
its affiliates (collectively AT&T), the Company is AT&T's exclusive provider of
wireless mobility services in its licensed 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 and AT&T Wireless' roaming partners provides coast-to-coast
coverage to its customers.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The unaudited consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for the six months ended June 30,
1999 and 2000, the unaudited consolidated balance sheet as of June 30, 2000,
and related footnotes, have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. In the opinion of management, the interim data includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair statement of the results for the interim period.
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
F-8
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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.
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 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, THC and TeleCorp-Tritel Holding Company. 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.
F-9
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Concentration of Credit Risk
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, 1999 and the six months ended
June 30, 2000 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 15 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
F-10
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
licenses are issued conditionally for ten years. Historically, the FCC has
granted license renewals providing the licensees have complied with applicable
rules, policies and the Communications Act of 1934, as amended. The Company
believes it has complied with and intends to continue to comply with these
rules and policies.
As a condition of each PCS license, the FCC requires each license-holder to
relocate existing microwave users (Incumbents) within the awarded spectrum to
microwave frequencies of equal capacity. Microwave relocation costs include the
actual and estimated costs incurred to relocate the Incumbent's microwave links
affecting the Company's licensed frequencies.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except 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.
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
F-12
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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, 1998, and 1999 consolidated financial
statements have been reclassified to conform with the presentations of the
consolidated financial statements as of and for the six months ended June 30,
2000.
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 30, 2000. The Company
is in the process of determining the effect of adopting this standard.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) Number 101, "Revenue Recognition in Financial
Statements." This bulletin will become effective for the Company no later than
the quarter ending December 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.
In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and,
among other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a non-compensatory plan; the accounting consequence of
various modifications to the terms of previously fixed stock options or awards;
and the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN
44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to have
a material impact on its financial position or results of operations.
F-13
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
3. Accounts Receivable
Accounts receivables consists of the following:
<TABLE>
<CAPTION>
December 31,
------------ June 30,
1998 1999 2000
---- ------- -----------
(unaudited)
<S> <C> <C> <C>
Accounts receivable................................ $-- $26,203 $38,795
Allowance for doubtful accounts.................... -- (2,622) (2,281)
---- ------- -------
$-- $23,581 $36,514
==== ======= =======
</TABLE>
Bad debt expense for the year ended December 31, 1999 and the six months
ended June 30, 2000 was $2,962 and $5,639 (unaudited), respectively.
4. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
------------ June 30,
1998 1999 2000
---- ------- -----------
(unaudited)
<S> <C> <C> <C>
Handsets............................................ $778 $15,090 $18,907
Accessories......................................... -- 712 1,697
---- ------- -------
$778 $15,802 $20,604
==== ======= =======
</TABLE>
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Wireless network........................... $ -- $364,491 $509,816
Network under development.................. 170,886 21,758 33,076
Computer equipment......................... 10,115 16,888 23,636
Internal use software...................... 11,161 21,648 24,953
Leasehold improvements..................... 3,205 12,011 15,847
Furniture, fixtures, office equipment and
other..................................... 2,924 10,904 15,032
-------- -------- --------
198,291 447,700 622,360
Accumulated depreciation................... (822) (47,250) (91,326)
-------- -------- --------
$197,469 $400,450 $531,034
======== ======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998, 1999 and
the six months ended June 30, 2000 was $11, $811, $46,428 and $44,076
(unaudited), respectively.
F-14
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except 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,
----------------- June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
PCS licenses.................................. $104,737 $221,650 $239,478
Microwave relocation costs.................... 12,457 47,835 41,797
Capitalized interest.......................... 913 1,005 1,522
-------- -------- --------
118,107 270,490 282,797
Accumulated amortization...................... -- (2,808) (5,522)
-------- -------- --------
$118,107 $267,682 $277,275
======== ======== ========
Amortization expense related to PCS licenses and microwave relocation costs
for the years ended December 31, 1997, 1998, 1999 and the six months ended June
30, 2000 was $0, $0, $2,808 and $2,714 (unaudited), respectively.
7. Accrued Expenses and Other
Accrued expenses and other consist of the following:
<CAPTION>
December 31,
----------------- June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Property and equipment........................ $ 85,635 $ 32,725 $ 55,957
Sales taxes................................... -- 8,263 22,744
Bonuses and vacation.......................... 2,386 6,079 3,596
Selling and marketing......................... 347 3,496 8,166
Other accrued expenses........................ 6,700 7,955 29,951
-------- -------- --------
95,068 58,518 120,414
Less: non-current portion..................... 196 6,541 9,538
-------- -------- --------
$ 94,872 $ 51,977 $110,876
======== ======== ========
</TABLE>
8. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Senior subordinated discount notes............. $ -- $354,291 $374,877
Senior credit facilities....................... 225,000 225,000 290,000
Lucent notes payable........................... 10,460 43,504 45,353
U.S. Government financing...................... 7,925 17,776 19,314
-------- -------- --------
243,385 640,571 729,544
Less: current portion.......................... -- 1,361 1,415
-------- -------- --------
$243,385 $639,210 $728,129
======== ======== ========
</TABLE>
F-15
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Senior Subordinated Discount Notes
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes (the Notes) with an aggregate principal
amount at maturity of $575,000. 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 were recorded as deferred financing
costs. 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). In October 1999,
the Company registered the Notes with the Securities and Exchange Commission to
become publicly traded securities. Offering expenses related to this
registration totaled $917 and were accounted for as deferred financing 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, 1999 and June 30, 2000. Additionally, a
total of $0, $0 and $65,000 (unaudited) of indebtedness from the Tranche A Term
Loan was outstanding as of December 31, 1998, 1999 and June 30, 2000,
respectively. The Senior Credit Facility also provides for an uncommitted
$40,000 senior term loan (the Expansion Facility).
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 $50,000 the amount of the
Tranche A Term Loan will be automatically reduced by such excess.
The interest rate applicable to the Senior Credit Facility is based on, at
the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable Margin,
as defined, or (ii) the higher of the administrative agent's prime rate or the
Federal Funds Effective Rate (ABR Loans), plus the Applicable Margin, as
defined. The Applicable Margin for Eurodollar Loans will range from 125 to 325
basis points based upon certain events by the Company, as specified. The
Applicable Margin for ABR Loans will range from 25 to 225 basis points based
F-16
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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. At December 31, 1999,
the interest rate applicable to the Tranche B Term Loan was 9.12%, and for the
year ended December 31, 1999 interest incurred on the Tranche B Term Loan was
$19,110. At June 30, 2000, the interest rate applicable to the Tranche B Term
Loan was 9.12%, and for the six months ended June 30, 2000 interest incurred on
the Tranche B Term Loan was $9,174 (unaudited). At June 30, 2000, the interest
rate applicable to the Tranche A Term Loan was 8.62%, and for the six months
ended June 30, 2000 interest incurred on the Tranche A Term Loan was $405
(unaudited).
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, $3,817 and $1,850 (unaudited) for the years ended December 31,
1998, 1999 and the six months ended June 30, 2000, 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, 1999
and June 30, 2000, the Company hedged 100% of its Tranche B 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, 1999, and
June 30, 2000 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, 1999 and June 30, 2000 the Company
had $10,460, $43,504 and $45,353 (unaudited), 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, 1999 and the
six months ended June 30, 2000 was $460, $3,044, and $1,849 (unaudited),
respectively.
F-17
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
The Series A and Series B Notes will not amortize and will have a maturity
date six months after the final maturity of the Company's high yield debt
offering, but in no event later than May 1, 2012. The Series A Notes will have
a mandatory redemption at par plus accrued interest from the proceeds of a
subsequent equity offering to the extent the net proceeds exceed an amount
identified in the Lucent Note Agreement. If the Series A Notes and Series B
Notes are not redeemed in full by January 2001 and January 2000, respectively,
the interest rate on each note will increase by 1.5% per annum on January 1.
However, the interest rate applicable to the Subordinated Notes shall not
exceed 12.125%. Interest payable on the Series A Notes and the Series B Notes
on or prior to May 11, 2004 shall be payable in additional Series A and Series
B Notes. Thereafter, interest shall be paid in arrears in cash on each six
month and yearly anniversary of the Series A and Series B closing date or, if
cash interest payments are prohibited under the Senior Credit Facility and/or
the Senior Subordinated Discount Notes, in additional Series A and Series B
Notes. As of December 31, 1998, 1999 and June 30, 2000 interest accrued under
the Series A Notes of $460, $3,504 and $5,353 (unaudited), 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, 1999 and June
30, 2000, 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 $50,000 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 $50,000 million of availability is subject
to a reduction up to $20,000 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, 1999 and June 30, 2000 the Company owes the U.S.
Government $9,192, $20,247 and $21,983 (unaudited) less a discount of $1,267,
$2,471 and $2,669 (unaudited) respectively, for the acquisition of PCS
licenses.
F-18
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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 nine 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.
The notes were discounted using management's best estimate of the prevailing
market interest rate at the time of issuance of 10.25%.
During the six months ended June 30, 2000, the Company completed the
acquisition of PCS licenses from Gulf Telecom. As part of this acquisition, the
Company assumed additional U.S. Government financing with the FCC amounting to
$2,433, less a discount of $401 (unaudited). The terms of the note include an
interest rate of 7.0%, quarterly interest payments through 2002, and then
quarterly principal and interest payments for the remaining four years. This
note was discounted using management's best estimate of the prevailing market
interest rate at the time of issuance of 11.8%.
Deferred Financing Costs
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, $12,742, and $64
(unaudited) during the years ended December 31, 1998, 1999 and the six months
ended June 30, 2000, 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, 1999 and the six months ended June 30, 2000, the
Company recorded interest expense related to the amortization of the deferred
financing costs of $525, $1,750 and $1,066 (unaudited), respectively.
Capitalized Interest
Interest is capitalized on all construction in progress which includes
network under development, wireless network, and PCS licenses using the
weighted average interest rate of all outstanding debt. The Company capitalized
interest amounting to $2,055, $5,409 and $1,798 during the years ended December
31, 1998, 1999 and the six months ended June 30, 2000.
F-19
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Required Annual Undiscounted Principal Repayment
As of June 30, 2000, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were as
follows (unaudited):
<TABLE>
<S> <C>
July-December 2000................................................. $ 696
For the year ending December 31,
2001............................................................. 1,459
2002............................................................. 5,363
2003............................................................. 12,600
2004............................................................. 22,616
2005............................................................. 26,147
Thereafter....................................................... 890,819
--------
Total.......................................................... $959,700
========
</TABLE>
As of December 31, 1999, minimum required annual principal repayment
(undiscounted) under all of the Company's outstanding debt obligations were as
follows:
<TABLE>
<S> <C>
For the year ending December 31,
2000............................................................. $ 1,372
2001............................................................. 1,459
2002............................................................. 2,113
2003............................................................. 5,572
2004............................................................. 5,796
Thereafter....................................................... 876,701
--------
Total.......................................................... $893,013
========
</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), 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 initial
investors other than AT&T Wireless of $128,000 to be paid over a three year
term plus an additional $5,000 upon the closing of the Digital PCS, Inc.
transaction (see Note 10).
The general terms of the operating agreements with AT&T are summarized
below:
AT&T Exclusivity: The Company will be AT&T's exclusive facilities-based
provider of mobile wireless telecommunications services within the
Company's BTAs for an initial ten year period. This
F-20
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
agreement will automatically renew for a one-year term and then operate on
a year-to-year basis unless one party terminates at least ninety (90) days
prior to the end of any one-year term.
The Company has determined the fair value of this agreement to be
$11,870 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.
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.
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 $325 in royalty payments to
reimburse Triton for the contributed SunCom marks.
10. Acquisitions
On April 20, 1999, the Company completed the acquisition of 10 MHz PCS
licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana
BTA's from Digital PCS, LLC. The total purchase price
F-21
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
of $6,114 was 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 March 31, 2000 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 $650
in cash as reimbursement of microwave relocation costs and reimbursement of FCC
interest and legal costs. The entire purchase price has been allocated to the
PCS licenses acquired.
F-22
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
In February 1999, Viper Wireless, Inc. (Viper), was formed to participate in
the C-Block PCS license reauction for additional spectrum in most of the
Company's markets. Viper was initially capitalized for $100 and was equally-
owned by the Company's Chief Executive Officer and Executive Vice President-
Chief Financial Officer. In order to participate in the reauction, the Company
paid the FCC an initial deposit of $17,819, 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 Class A
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 $14,770 to the FCC on
September 13, 1999 with respect to these licenses and received the remaining
funding commitments from AT&T and the certain Cash Equity Investors on
September 29, 1999.
11. Mandatorily Redeemable Preferred Stock and Stockholders' Equity
Holding
Holding's authorized capital stock consisted of 6,000 shares of no par value
mandatorily redeemable Series A preferred stock, 125,000 shares of no par value
Class A common stock, 175,000 shares of no par value Class B common stock and
175,000 shares of no par value Class C common stock. This capital stock was in
existence during 1996, 1997, and through July 1998, the closing of the AT&T
Transaction, at which time Holding became a wholly-owned subsidiary of the
Company. Subsequent to the AT&T Transaction, the authorized and outstanding
shares of Holding were cancelled and replaced with 1,000 authorized shares of
common stock of which 100 shares were issued to the Company.
F-23
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except 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 preferred and common
stock, consisting of the following:
<TABLE>
<CAPTION>
Shares
Preferred Stock Par Value Authorized
--------------- --------- -----------
<S> <C> <C>
Mandatorily redeemable Series A........................ $0.01 100,000
Mandatorily redeemable Series B........................ $0.01 200,000
Mandatorily redeemable Series C........................ $0.01 215,000
Mandatorily redeemable Series D........................ $0.01 50,000
Mandatorily redeemable Series E........................ $0.01 30,000
Series F............................................... $0.01 15,450,000
-----------
Total................................................ 16,045,000
===========
<CAPTION>
Shares
Common Stock Par Value Authorized
------------ --------- -----------
<S> <C> <C>
Class A................................................ $0.01 608,550,000
Class B................................................ $0.01 308,550,000
Class C tracked........................................ $0.01 309,000
Class D tracked........................................ $0.01 927,000
Voting Preference...................................... $0.01 3,090
-----------
Total................................................ 918,339,090
===========
</TABLE>
F-24
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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
Accretion of preferred stock dividends..................... -- 224
Recapitalization of Holding................................ (367) (4,368)
---- ------
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>
The following schedule represents the transactions that took place with
respect to TeleCorp's mandatorily redeemable preferred stock, Series F
preferred stock and common stock for the period July 1998 to June 30, 2000.
<TABLE>
<CAPTION>
Series A Series C Series D Series E
Preferred stock Preferred stock Preferred stock Preferred stock
--------------- ---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Total
------ -------- ------- -------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mandatorily redeemable
preferred stock
Issuance of preferred
stock to AT&T PCS for
licenses and AT&T
agreements............. 66,723 $ 66,723 -- $ -- 34,267 $ 34,143 -- $ -- $100,866
Issuance of preferred
stock to initial
investors other than
AT&T Wireless, net of
issuance costs of
$1,028................. -- -- 128,000 126,848 -- -- -- -- 126,848
Accretion of preferred
stock dividends........ -- 3,040 -- 3,819 -- 946 -- 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...... -- -- 7,348 4,334 -- -- 14,156 10 4,344
------ -------- ------- -------- ------- -------- ------- ------- --------
Balance, December 31,
1998................... 66,723 69,763 135,348 135,001 34,267 35,089 18,877 556 240,409
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 -- -- 92,623
Issuance of preferred
stock for PCS licenses
and operating
agreements............. -- -- 2,878 2,674 -- -- -- -- 2,674
Accretion of preferred
stock dividends........ -- 9,124 -- 10,939 -- 2,646 -- 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................... 97,473 109,341 210,608 199,703 49,417 48,815 25,041 2,323 360,182
Accretion of preferred
stock dividends ....... -- 5,603 -- 7,725 -- 1,738 -- 823 15,889
Repurchase of shares for
cash................... -- -- -- -- -- -- (166) -- --
Issuance of shares for
property............... -- -- -- -- -- -- 800 58 58
------ -------- ------- -------- ------- -------- ------- ------- --------
Balance, June 30, 2000
(unaudited)............ 97,473 $114,944 210,608 $207,428 49,417 $ 50,553 25,675 $3,204 $376,129
====== ======== ======= ======== ======= ======== ======= ======= ========
</TABLE>
F-25
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Class C Class D Voting
Series F Class A tracked tracked Preference
Preferred stock Common stock Common stock Common 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 initial investors
other than AT&T
Wireless 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
Issuance of common stock
for PCS licenses....... -- -- 1,201,772 12 -- -- -- -- -- -- 12
Issuance of common stock
for cash............... -- -- 2,245,000 22 -- -- -- -- -- -- 22
Repurchase of stock for
cash................... -- -- (104,588) -- -- -- -- -- -- -- --
Issuance of common stock
related to exercise of
options................ -- -- 8,538 -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ------- --- ------- --- ----- ---- ------
Balance, June 30, 2000,
(unaudited)............ 14,912,778 $149 87,804,611 $879 283,813 $ 3 851,429 $ 8 3,090 $-- $1,039
========== ==== ========== ==== ======= === ======= === ===== ==== ======
</TABLE>
Stock Split
On August 27, 1999 and on November 5, 1999, the Company filed amendments to
its certificate of incorporation with the Delaware Secretary of State to effect
a 100 for 1 stock split and 3.09 for 1 stock split respectively, of its
outstanding and authorized Series F preferred stock and all classes of its
common stock. The stock splits have been retroactively reflected in the
financial statements for all periods presented. In addition, the amendment to
the Company's certificate of incorporation increased the authorized number of
shares of each
F-26
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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's initial public offering,
including a 300 million increase in the number of authorized shares of the
Company's class A common stock.
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 $14,283. 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 or June 30,
2000.
The conversion features and conversion prices of the Company's issued stock
are summarized below:
<TABLE>
<CAPTION>
Convertible Security Convertible Into Conversion Price
-------------------- ---------------------------- ----------------------------
<C> <S> <C>
Series A preferred Stock After July 2006, at The Series A conversion rate
the holders' option, into is equal to the liquidation
Class A 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
at the IPO price of A or B of the Series C preferred
common stock stock divided by the IPO
price of $20.00 per share.
Series D preferred Stock If Series C preferred stock The liquidation preference
is Converted then divided by the IPO price of
automatically at the IPO $20.00 per share.
date into Senior common
stock
Series E preferred Stock At the option of the Company The liquidation preference
at the IPO date into either of the Series E preferred
Class A or Class B common stock divided by the IPO
stock price of $20.00 per share.
Series F preferred stock and At the holders' option, into One share of Series F
Senior common stock Class A, Class B or Class D preferred stock or Senior
common stock, depending upon common stock for one share
the occurrence of certain of either Class A, Class B
defined events or Class D common stock.
Class A common Stock At the holders' option into One share of Class B common
Class B common stock stock for one share of Class
A Common stock.
</TABLE>
F-27
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Convertible Security Convertible Into Conversion Price
-------------------- ---------------------------- ----------------------------
<S> <C> <C>
Class C tracked Common stock Subject to FCC constraints One share of Class A or
and Board approval, at the Class B common stock for one
holders' option and by share of Class C tracked
affirmative vote of at least common stock.
66 2/3% of Class A common
stock into Class A or Class
B common stock
Class D tracked Common stock Subject to FCC constraints One share of Class A or
and Class B common stock for one
Board approval, at the share of Class D tracked
holders' common stock.
option and by affirmative
vote
of at least 66 2/3% of Class
A
common stock into Class A or
Class B common stock
</TABLE>
The conversion features and conversion prices of the Company's issued stock
are summarized below:
Liquidation rights
In the event of any liquidation, dissolution or winding up of the Company,
as defined, the stockholders of the Company are entitled to liquidation
preferences as follows:
<TABLE>
<CAPTION>
Order of
Distribution Stock Classification Distribution Preference
------------ ------------------------- --------------------------------------
<C> <C> <S>
First Series A and Series B $1,000 per share plus accrued and
preferred stock unpaid dividends.
Second Series C and Series D Series C: actual paid-in capital per
preferred stock share plus accrued and unpaid
dividends plus interest of 6% per
annum on the actual paid-in capital,
compounded quarterly, less amount of
dividends declared and paid.
Series D: $1,000 per share plus
accrued and unpaid dividends plus an
amount equal to interest on $1,000 per
share at a rate of 6% per annum,
compounded quarterly, less amount of
dividends declared and paid.
Third Series E preferred stock Accrued and unpaid dividends, plus an
amount equal to interest on $1,000 per
share at 6% per annum, compounded
quarterly, less dividends declared and
paid.
Fourth Series F preferred stock Series F preferred: $0.000032 per
and Senior common stock share plus accrued and unpaid
dividends.
</TABLE>
Dividends and voting rights
The holders of the Series A and Series B preferred stock are entitled to
cumulative quarterly cash dividends at an annual rate of 10% of the liquidation
preference of the then outstanding shares. The holders of the remaining shares
of preferred and common stock are entitled to dividends if and when declared.
The Class A common stock has 4,990,000 voting rights and the Voting
Preference common stock has 5,010,000 voting rights. The remaining shares of
preferred and common stock shall have no voting rights, except as provided by
law or in certain limited circumstances.
F-28
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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 TeleCorp
Management Company 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.
Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss
per share:
<TABLE>
<CAPTION>
For the six months
For the year ended December 31, ended June 30,
---------------------------------- -------------------------
1997 1998 1999 1999 2000
-------- ----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.............. $ (3,335) $ (51,155) $ (250,996) $ (78,283) $ (168,373)
Less: accretion of
mandatorily redeemable
Preferred stock....... (726) (8,567) (24,124) (9,896) (15,889)
-------- ----------- ----------- ----------- ------------
Net loss attributable
to common equity..... $ (4,061) $ (59,722) $ (275,120) $ (88,179) $ (184,262)
======== =========== =========== =========== ============
Denominator:
Basic and diluted net
loss per share--
Weighted average
shares................. 36,340 27,233,786 76,895,391 63,293,065 100,414,647
======== =========== =========== =========== ============
Net loss attributable to
common equity per
Share--basic and
diluted................ $(111.74) $ (2.19) $ (3.58) $ (1.39) $ (1.84)
======== =========== =========== =========== ============
</TABLE>
F-29
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
The following equity instruments were not included in the diluted net loss
per share calculation because their effect would be anti-dilutive:
<TABLE>
<CAPTION>
For the year For the
ended December six months
31, ended June 30,
----------------- ----------------------
1997 1998 1999 1999 2000
---- ---- ------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Mandatorily redeemable preferred
stock
series A........................ -- -- 97,473 97,473 97,473
Stock options.................... -- -- 545,497 -- 735,636
Contingently returnable Class A
common stock.................... -- -- -- -- 2,748,958
</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 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>
Estimated
Series E fair Estimated
preferred value per Class A fair value
stock share common stock per share
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares awarded............... 5,505 $ 1.00 3,095,473 $ .003
Repurchases.................. (784) -- (552,474) --
----- ---------
Balance, December 31, 1998... 4,721 1.00 2,542,999 .003
Shares awarded............... 2,677 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
Repurchases.................. (166) 72.98 (104,588) .003
----- ---------
Balance, June 30, 2000
(unaudited)................. 6,655 $1.00-$72.98 3,780,233 $.003-$20.00
===== =========
</TABLE>
F-30
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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 and the six months ended June 30,
2000, the Company recorded compensation expense related to those restricted
stock awards of $30,115 and $8,491 (unaudited), respectively. The remaining
deferred compensation balance related to the restricted stock awards of $32,670
and $24,179 (unaudited) at December 31, 1999 and June 30, 2000, respectively,
will be recognized as compensation expense over the remaining vesting period.
Outstanding fixed awards and variable awards as of December 31, 1998, 1999 and
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1998 1999 2000
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Series E preferred stock:
Fixed awards............................ 3,664 6,821 6,655
Variable awards......................... 1,057 -- --
--------- --------- ---------
Total Series E awards................. 4,721 6,821 6,655
========= ========= =========
Class A common stock:
Fixed awards............................ 1,152,605 3,884,821 3,780,233
Variable awards......................... 1,390,394 -- --
--------- --------- ---------
Total Class A awards.................. 2,542,999 3,884,821 3,780,233
========= ========= =========
</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 $28,823 as deferred compensation related to these awards and will
recognize that as compensation expense over the related vesting periods, of
which $14,809 and $2,402 (unaudited) was recorded as compensation expense for
the year ended December 31, 1999 and the six months ended June 30, 2000,
respectively.
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 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 $20,000, (ii) the
sale of all or substantially all of the assets of the Company or (iii) the sale
of all or substantially all of the outstanding capital stock of the Company.
The Company has reserved 1,814,321 shares of Class A common stock for issuance
under this plan.
The 581,967 stock options awarded during the period from July 22, 1999 to
November 23, 1999 represented variable awards since their exercisability was
restricted until the completion of the initial public offering, sale of assets
or sale of the Company. Therefore, the measurement date occurred when the
F-31
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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 $1,709 and $1,893 (unaudited) was recorded as compensation
expense for the year ended December 31, 1999 and the six months ended June 30,
2000, respectively.
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 9.6 1.28
Exercised.................... -- -- -- --
Forfeited.................... (66,470) 0.0065 9.6 0.0065
-------
Outstanding at December 31,
1999.......................... 545,497 0.0065--$37.88 9.6 1.43
Granted...................... 247,500 20.00 9.8 20.00
Exercised.................... (8,538) 0.0065 9.1 0.0065
Forfeited.................... (48,823) 0.0065 9.1 0.0065
-------
Outstanding at June 30, 2000
(unaudited)................... 735,636 0.0065--$37.88 9.3 7.34
=======
Options vested at June 30, 2000
(unaudited)................... 68,251 $ 0.0065 9.1 $0.0065
</TABLE>
No options were exercisable as of December 31, 1999 and 68,251 options were
exercisable as of June 30, 2000.
Options Outstanding at December 31, 1999
<TABLE>
<CAPTION>
Weighted Average
Remaining
Weighted Average Contractual Life
Exercise Price Number of Shares (Years)
---------------- ---------------- ----------------
<S> <C> <C>
$0.0065 515,497 9.6
20.00 20,000 10.0
37.88 10,000 10.0
-------
$ 1.43 545,497 9.6
=======
</TABLE>
Options Outstanding at June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Weighted Average
Remaining
Weighted Average Contractual Life
Exercise Price Number of Shares (Years)
---------------- ---------------- ----------------
<S> <C> <C>
$0.0065 474,939 9.1
20.00 20,000 9.5
37.88 10,000 9.6
20.00 230,697 9.6
-------
$ 7.34 735,636 9.3
=======
</TABLE>
F-32
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except 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.
During the six months ended June 30, 2000 the Company granted options to
purchase 247,500 shares of common stock, of which all was granted at an
exercise price below fair market value.
Options Granted for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Market Price of Weighted Average
Weighted Average Stock on Fair Value Remaining
Shares Exercise Price Grant Date of Options Life (year)
------ ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
581,967 $0.0065 $20.00 $20.00 9.1
10,000 20.00 20.00 18.34 9.5
10,000 20.00 36.97 34.82 9.5
10,000 37.88 39.25 36.09 9.6
-------
611,967 $ 1.28 $20.00--$39.25 $18.34--$36.09 9.1
=======
</TABLE>
Options Granted for the six months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Market Price Weighted Average
Weighted Average of Stock on Fair Value Remaining
Shares Exercise Price Grant Date of Options Life (year)
------ ---------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C>
247,500 $20.00 $37.87 $35.70 9.8
-------
247,500 $20.00 $37.87 $35.70 9.8
=======
</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
net loss per share basic and diluted would have been $184,902 and $1.84,
respectively, for the six months ended June 30, 2000. If compensation expense
had been recorded based on the fair value at the grant dates for awards under
the Plan for the years ended December 31, 1997, 1998 and 1999 and for the six
months ended June 30, 2000, 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 for such periods.
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 and the six months ended
June 30, 2000: 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 and the six months ended June 30, 2000 was $20.52 and $35.70
(unaudited), respectively.
F-33
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
14. Mandatorily Redeemable 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. The Company has recorded a
preferred stock subscription receivable of $75,914, $97,001 and $97,001
(unaudited) as of December 31, 1998, 1999 and June 30, 2000, respectively, as a
reduction to the mandatorily redeemable preferred stock and a common stock
subscription receivable of $86, $191 and $191 (unaudited) as of December 31,
1998, 1999 and June 30, 2000, respectively, as a reduction to stockholders'
equity (deficit) for the unpaid commitment.
As of December 31, 1999, the agreements require the initial investors other
than AT&T Wireless 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................................................................ 48,542
2002................................................................ 11,000
-------
Total............................................................. $97,192
=======
</TABLE>
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, 1999 and June 30, 2000, respectively, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1998 1999 2000
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Capitalized start-up costs................... $17,599 $ 13,517 $ 11,828
Net operating losses......................... 3,635 92,579 147,887
Depreciation and amortization................ 289 (14,180) (19,098)
Original Issue Discount...................... 175 11,461 23,839
Other........................................ (843) 1,402 (252)
------- --------- ---------
20,855 104,779 164,204
Less valuation allowance..................... (20,855) (104,779) (164,204)
------- --------- ---------
$ -- $ -- $ --
======= ========= =========
</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 June 30, 2000, the Company had approximately $295,000 (unaudited) of net
operating losses. The net operating losses will begin to expire in 2012. There
may be a limitation on the annual utilization of net operating losses and
capitalized start-up costs as a result of certain ownership changes that have
occurred since the Company's inception. A valuation allowance is recognized if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Based on the
Company's financial results, management has concluded that a full valuation
allowance for all of the Company's deferred tax assets is appropriate.
F-34
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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, June 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
Federal tax at statutory rates...................... 34.0% 34.0%
State tax expense................................... 3.5% 3.5%
Stock based compensation............................ (4.1%) (4.1)%
Change in valuation allowance....................... (33.4%) (33.4)%
------ -----
0.0% 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 radio, switching and related equipment and services for the
development of the Company's wireless communications network. At December 31,
1998, 1999, and June 30, 2000, the Company has purchased approximately $90,900,
$294,500, and $309,100 (unaudited), 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 expense on a straight-line
basis over the life of the lease, which establishes deferred rent on the
balance sheet.
As of June 30, 2000, the aggregate minimum rental commitments under non-
cancelable operating leases are as follows (unaudited):
<TABLE>
<S> <C>
For the Period July 1--December 31, 2000........................... $ 11,921
For the Year Ended December 31;
2001............................................................. 23,758
2002............................................................. 23,398
2003............................................................. 20,833
2004............................................................. 15,490
2005............................................................. 8,964
Thereafter....................................................... 26,869
--------
Total.......................................................... $131,233
========
As of December 31, 1999, the aggregate minimum rental commitments under non-
cancelable operating leases are as follows:
For the Year Ended December 31;
2000............................................................. $ 21,605
2001............................................................. 21,375
2002............................................................. 21,057
2003............................................................. 18,374
2004............................................................. 10,330
Thereafter....................................................... 27,999
--------
Total.......................................................... $120,740
========
</TABLE>
F-35
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Rental expense was approximately $157, $3,193, $13,792 and $11,809
(unaudited) for the years ended December 31, 1997, 1998, 1999, and the six
months ended June 30, 2000, 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, $1,576 and $2,176
(unaudited) at December 31, 1998, 1999 and June 30, 2000, 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, 1999 or the six months ended June 30, 2000.
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 its coverage area. The Company believes
it 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 it to
retain preferred pricing rates. The Company believes it will be able to meet
these minimum requirements.
17. Related Parties
The Company receives site acquisition, construction management, program
management, microwave relocation, and engineering services pursuant to a Master
Services Agreement with WFI (Wireless Facilities, Inc). The Chief Executive
Officer and Executive Vice President and Chief Financial Officer 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, 1999 and the six months
ended June 30, 2000. the Company paid $1,940, $30,720, $75,975 and $31,000
(unaudited), respectively, to WFI for these services. As of December 31, 1997,
1998, 1999 and June 30, 2000, the Company owed WFI $171, $21,178, $15,053 and
$589 (unaudited), respectively. Subsequent to December 31, 1997, the Chief
Executive Officer and Executive Vice President sold 100% of their interests in
WFI.
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 $2,725, of notes payable to those newly-formed THC entities.
As a result of this transfer, Holding no longer retains any ownership
interest in the THC entities. Because this transaction was non-monetary in
nature and occurred between entities with the same stockholder group, the
transaction was recorded at historical cost. Subsequent to the transfer, the
Company reduced the notes payable
F-36
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
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,
1999 and June 30, 2000, the combined amounts owed by the Company to THC
Houston, Inc., THC Tampa, Inc., THC Melbourne, Inc., and THC Orlando, Inc. were
$547, $0 and $0 (unaudited), respectively.
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 and $951 (unaudited) during the year ended December 31, 1999 and
the six months ended June 30, 2000, respectively, for related services
performed by the Firm and the Company owed the Firm $50 and $0 (unaudited) at
December 31, 1999 and June 30, 2000, 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, 1999 and the six months ended June 30, 2000, the
Company paid approximately $533, $1,665 and $552 (unaudited), 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, $77 and $421 (unaudited) expense for
the years ended December 31, 1998, 1999 and the six months ended June 30, 2000,
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, $888 and $904 (unaudited) for the years ended December 31,
1998, 1999 and the six months ended June 30, 2000, respectively.
F-37
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
19. Subsidiary Guarantee
On April 23, 1999, the Company completed the issuance and sale of 11 5/8%
Senior Subordinated Discount Notes. The Notes are fully and unconditionally
guaranteed on a joint and several basis by TeleCorp Communications, Inc., one
of the Company's wholly-owned subsidiaries. Consolidating financial statements
of TeleCorp, TeleCorp Communications, Inc., the guarantor, the non-guarantor
subsidiaries of TeleCorp Communications, Inc. and the non-guarantor
subsidiaries of TeleCorp as of December 31, 1998, 1999 and June 30, 2000 and
for the years ended December 31, 1998, 1999 and for the six months ended June
30, 2000 have been included on the following pages.
Certain amounts in the 1998 and 1999 consolidating financial statements have
been reclassified to conform with the presentations of the consolidating
financial statements as of and for the six months ended June 30, 2000. These
reclassifications are eliminated upon consolidation and do not impact the
Company's consolidated financial statements.
F-38
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents....... $111,733 $ -- $ -- $ -- $ -- $ -- $ -- $111,733
Accounts
receivable, net... -- -- -- -- -- -- -- --
Inventory......... -- 778 -- -- 778 -- -- 778
Prepaid expenses
and other current
assets............ -- 2,035 1,369 -- 3,404 -- -- 3,404
-------- -------- -------- ------- -------- -------- --------- --------
Total current
assets............ 111,733 2,813 1,369 -- 4,182 -- -- 115,915
Property and
equipment, net..... -- 91,556 105,913 -- 197,469 -- -- 197,469
PCS licenses and
microwave
relocation costs,
net................ -- -- -- -- -- 118,107 -- 118,107
Intangible assets--
AT&T agreements,
net................ 26,285 -- -- -- -- -- -- 26,285
Deferred financing
costs, net......... 8,585 -- -- -- -- -- -- 8,585
Other assets....... -- -- 283 -- 283 -- -- 283
Intercompany
receivables........ 243,995 -- 3,432 (3,432) -- 927 (244,922) --
-------- -------- -------- ------- -------- -------- --------- --------
Total assets...... $390,598 $ 94,369 $110,997 $(3,432) $201,934 $119,034 $(244,922) $466,644
======== ======== ======== ======= ======== ======== ========= ========
LIABILITIES,
MANDATORILY
REDEEMABLE
PREFERRED STOCK AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current
liabilities:
Accounts payable.. $ -- $ 8,331 $ 6,261 $ -- $ 14,592 $ -- $ -- $ 14,592
Accrued expenses.. -- 19,074 75,798 -- 94,872 -- -- 94,872
Microwave
relocation
obligation,
current portion... -- -- -- -- -- 6,636 -- 6,636
Long-term debt,
current portion... -- -- -- -- -- -- -- --
Accrued interest.. 3,992 -- -- -- -- 499 -- 4,491
Deferred revenue.. -- -- -- -- -- -- -- --
-------- -------- -------- ------- -------- -------- --------- --------
Total current
liabilities....... 3,992 27,405 82,059 -- 109,464 7,135 -- 120,591
Long-term debt..... 235,460 -- -- -- -- 7,925 -- 243,385
Microwave
relocation
obligation......... -- -- -- -- -- 2,481 -- 2,481
Accrued expenses
and other.......... -- -- 196 -- 196 -- -- 196
Intercompany
payables........... -- 118,119 28,742 (3,432) 143,429 101,493 (244,922) --
-------- -------- -------- ------- -------- -------- --------- --------
Total
liabilities....... 239,452 145,524 110,997 (3,432) 253,089 119,034 (244,922) 366,653
-------- -------- -------- ------- -------- -------- --------- --------
Mandatorily
redeemable
preferred stock.... 240,409 -- -- -- -- -- -- 240,409
Preferred stock
subscriptions
receivable......... (75,918) -- -- -- -- -- -- (75,918)
-------- -------- -------- ------- -------- -------- --------- --------
Total mandatorily
redeemable
preferred stock,
net............... 164,491 -- -- -- -- -- -- 164,491
-------- -------- -------- ------- -------- -------- --------- --------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F preferred
stock............. 103 -- -- -- -- -- -- 103
Common stock...... 493 -- -- -- -- -- -- 493
Additional paid-in
capital........... -- -- -- -- -- -- -- --
Deferred
compensation...... (7) -- -- -- -- -- -- (7)
Common stock
subscriptions
receivable........ (86) -- -- -- -- -- -- (86)
Accumulated
deficit........... (13,848) (51,155) -- -- (51,155) -- -- (65,003)
-------- -------- -------- ------- -------- -------- --------- --------
Total
stockholders'
equity (deficit).. (13,345) (51,155) -- -- (51,155) -- -- (64,500)
-------- -------- -------- ------- -------- -------- --------- --------
Total liabilities,
mandatorily
redeemable
preferred stock
and stockholders'
equity (deficit).. $390,598 $ 94,369 $110,997 $(3,432) $201,934 $119,034 $(244,922) $466,644
======== ======== ======== ======= ======== ======== ========= ========
</TABLE>
F-39
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
----------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 182,330 $ -- $ -- $ -- $ -- $ -- $ -- $ 182,330
Accounts
receivable,
net............. -- 23,581 -- -- 23,581 -- -- 23,581
Inventory....... -- 15,802 -- -- 15,802 -- -- 15,802
Prepaid expenses
and other
current assets.. -- 1,608 2,220 -- 3,828 -- -- 3,828
----------- --------- --------- -------- --------- -------- --------- ---------
Total current
assets.......... 182,330 40,991 2,220 -- 43,211 -- -- 225,541
Property and
equipment, net... -- 182,235 218,215 -- 400,450 -- -- 400,450
PCS licenses and
microwave
relocation costs,
net.............. -- -- -- -- -- 267,682 -- 267,682
Intangible
assets--AT&T
agreements, net.. 37,908 -- -- -- -- -- -- 37,908
Deferred
financing costs,
net.............. 19,577 -- -- -- -- -- -- 19,577
Other assets..... -- 1,044 -- -- 1,044 -- -- 1,044
Intercompany
receivables...... 858,279 -- 42,970 (42,970) -- 5,702 (863,981) --
----------- --------- --------- -------- --------- -------- --------- ---------
Total assets.... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 $273,384 $(863,981) $ 952,202
=========== ========= ========= ======== ========= ======== ========= =========
LIABILITIES,
MANDATORILY
REDEEMABLE
PREFERRED STOCK
AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current
liabilities:
Accounts
payable......... $ -- $ 12,318 $ 26,585 $ -- $ 38,903 $ -- $ -- $ 38,903
Accrued
expenses........ -- 48,960 3,017 -- 51,977 -- -- 51,977
Microwave
relocation
obligation,
current
portion......... -- -- -- -- -- 36,122 -- 36,122
Long-term debt,
current
portion......... -- -- -- -- -- 1,361 -- 1,361
Accrued
interest........ 521 -- -- -- -- 866 -- 1,387
Deferred
revenue......... -- 1,709 -- -- 1,709 -- -- 1,709
----------- --------- --------- -------- --------- -------- --------- ---------
Total current
liabilities..... 521 62,987 29,602 -- 92,589 38,349 -- 131,459
Long-term debt... 622,795 -- -- -- -- 16,415 -- 639,210
Microwave
relocation
obligation....... -- -- -- -- -- 2,365 -- 2,365
Accrued expenses
and other........ -- -- 6,541 -- 6,541 -- -- 6,541
Intercompany
payables......... -- 463,434 227,262 (42,970) 647,726 216,255 (863,981) --
----------- --------- --------- -------- --------- -------- --------- ---------
Total
liabilities..... 623,316 526,421 263,405 (42,970) 746,856 273,384 (863,981) 779,575
----------- --------- --------- -------- --------- -------- --------- ---------
Mandatorily
redeemable
preferred stock.. 360,182 -- -- -- -- -- -- 360,182
Preferred stock
subscriptions
receivable....... (97,001) -- -- -- -- -- -- (97,001)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
mandatorily
redeemable
preferred stock,
net............. 263,181 -- -- -- -- -- -- 263,181
----------- --------- --------- -------- --------- -------- --------- ---------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F
preferred
stock........... 149 -- -- -- -- -- -- 149
Common stock.... 856 -- -- -- -- -- -- 856
Additional paid-
in capital...... 267,442 -- -- -- -- -- -- 267,442
Deferred
compensation.... (42,811) -- -- -- -- -- -- (42,811)
Common stock
subscriptions
receivable...... (191) -- -- -- -- -- -- (191)
Accumulated
deficit......... (13,848) (302,151) -- -- (302,151) -- -- (315,999)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
stockholders'
equity
(deficit)....... 211,597 (302,151) -- -- (302,151) -- -- (90,554)
----------- --------- --------- -------- --------- -------- --------- ---------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 $273,384 $(863,981) $ 952,202
=========== ========= ========= ======== ========= ======== ========= =========
</TABLE>
F-40
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Balance Sheet as of June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ----------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
---------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents..... $ 28,223 $ -- $ -- $ -- $ -- $ -- $ -- $ 28,223
Accounts
receivable,
net............. -- 36,514 -- -- 36,514 -- -- 36,514
Inventory....... -- 20,604 -- -- 20,604 -- -- 20,604
Prepaid expenses
and other
current assets.. -- 4,759 1,585 -- 6,344 -- -- 6,344
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total current
assets.......... 28,223 61,877 1,585 -- 63,462 -- -- 91,685
Property and
equipment, net... -- 249,111 281,923 -- 531,034 -- -- 531,034
PCS licenses and
microwave
relocation costs,
net.............. -- -- -- -- -- 277,275 -- 277,275
Intangible
assets--AT&T
agreements, net.. 34,330 -- -- -- -- -- -- 34,330
Deferred
financing costs,
net.............. 18,647 -- -- -- -- -- -- 18,647
Other assets..... -- 5,217 -- -- 5,217 8,409 -- 13,626
Intercompany
receivables...... 1,176,496 -- 79,918 (79,918) -- 9,086 (1,185,582) --
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total assets.... $1,257,696 $ 316,205 $363,426 $(79,918) $ 599,713 $294,770 $(1,185,582) $ 966,597
========== ========= ======== ======== ========== ======== =========== =========
LIABILITIES, MANDATORILY
EDEEMABLERPREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current
liabilities:
Accounts
payable......... $ -- $ 6,654 $ -- $ -- $ 6,654 $ -- $ -- $ 6,654
Accrued
expenses........ -- 75,297 35,579 -- 110,876 -- -- 110,876
Microwave
relocation
obligation,
current
portion......... -- -- -- -- -- 21,973 -- 21,973
Long-term debt,
current
portion......... -- -- -- -- -- 1,415 -- 1,415
Accrued
interest........ 1,230 -- -- -- -- 325 -- 1,555
Deferred
revenue......... -- 2,617 -- -- 2,617 -- -- 2,617
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total current
liabilities..... 1,230 84,568 35,579 -- 120,147 23,713 -- 145,090
Long-term debt... 710,230 -- -- -- -- 17,899 -- 728,129
Microwave
relocation
obligation....... -- -- -- -- -- 8,128 -- 8,128
Accrued expenses
and other........ -- -- 9,538 -- 9,538 -- -- 9,538
Intercompany
payables......... -- 702,161 318,309 (79,918) 940,552 245,030 (1,185,582) --
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total
liabilities..... 711,460 786,729 363,426 (79,918) 1,070,237 294,770 (1,185,582) 890,885
---------- --------- -------- -------- ---------- -------- ----------- ---------
Mandatorily
redeemable
preferred stock.. 376,129 -- -- -- -- -- -- 376,129
Preferred stock
subscriptions
receivable....... (97,001) -- -- -- -- -- -- (97,001)
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total
mandatorily
redeemable
preferred stock,
net............. 279,128 -- -- -- -- -- -- 279,128
---------- --------- -------- -------- ---------- -------- ----------- ---------
Commitments and
contingencies
Stockholders'
equity (deficit):
Series F
preferred
stock........... 149 -- -- -- -- -- -- 149
Common stock.... 890 -- -- -- -- -- -- 890
Additional paid-
in capital...... 313,107 -- -- -- -- -- -- 313,107
Deferred
compensation.... (32,999) -- -- -- -- -- -- (32,999)
Common stock
subscriptions
receivable...... (191) -- -- -- -- -- -- (191)
Accumulated
deficit......... (13,848) (470,524) -- -- (470,524) -- -- (484,372)
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total
stockholders'
equity
(deficit)....... 267,108 (470,524) -- -- (470,524) -- -- (203,416)
---------- --------- -------- -------- ---------- -------- ----------- ---------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $1,257,696 $ 316,205 $363,426 $(79,918) $ 599,713 $294,770 $(1,185,582) $ 966,597
========== ========= ======== ======== ========== ======== =========== =========
</TABLE>
F-41
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the year ended December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ -- $ -- $ -- $ -- $-- $ -- $ --
Roaming........... -- 29 -- -- 29 -- -- 29
Equipment......... -- -- -- -- -- -- -- --
Intercompany...... 803 -- 3,432 (3,432) -- 927 (1,730) --
-------- -------- ------ ------- -------- ---- ------- --------
Total revenue... 803 29 3,432 (3,432) 29 927 (1,730) 29
-------- -------- ------ ------- -------- ---- ------- --------
Operating expenses:
Cost of revenue... -- 5,162 -- (3,432) 1,730 -- (1,730) --
Operations and
development...... -- 6,579 3,193 -- 9,772 -- -- 9,772
Selling and
marketing........ -- 6,325 -- -- 6,325 -- -- 6,325
General and
administrative... -- 26,239 -- -- 26,239 -- -- 26,239
Depreciation and
amortization..... 803 542 239 -- 781 -- -- 1,584
-------- -------- ------ ------- -------- ---- ------- --------
Total operating
expenses....... 803 44,847 3,432 (3,432) 44,847 -- (1,730) 43,920
-------- -------- ------ ------- -------- ---- ------- --------
Operating income
(loss)......... -- (44,818) -- -- (44,818) 927 -- (43,891)
Other (income)
expense:
Interest expense.. 11,007 6,337 -- -- 6,337 927 (6,337) 11,934
Interest income
and other........ (11,007) -- -- -- -- -- 6,337 (4,670)
-------- -------- ------ ------- -------- ---- ------- --------
Net loss........ -- (51,155) -- -- (51,155) -- -- (51,155)
Accretion of
mandatorily
redeemable
preferred stock.... (8,567) -- -- -- -- -- -- (8,567)
-------- -------- ------ ------- -------- ---- ------- --------
Net loss
attributable to
common equity...... $ (8,567) $(51,155) $ -- $ -- $(51,155) $-- $ -- $(59,722)
======== ======== ====== ======= ======== ==== ======= ========
</TABLE>
F-42
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the year ended December 31, 1999:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 41,319 $ -- $ -- $ 41,319 $ -- $ -- $ 41,319
Roaming........... -- 29,010 -- -- 29,010 -- -- 29,010
Equipment......... -- 17,353 -- -- 17,353 -- -- 17,353
Intercompany...... 37,475 -- 39,538 (39,538) -- 4,775 (42,250) --
-------- --------- ------- -------- --------- ----- -------- ---------
Total revenue... 37,475 87,682 39,538 (39,538) 87,682 4,775 (42,250) 87,682
-------- --------- ------- -------- --------- ----- -------- ---------
Operating expenses:
Cost of revenue... 1,472 89,230 -- (39,538) 49,692 -- (11,905) 39,259
Operations and
development...... 937 22,187 13,792 -- 35,979 -- (937) 35,979
Selling and
marketing........ 29,408 71,180 -- -- 71,180 -- (29,408) 71,180
General and
administrative... -- 92,585 -- -- 92,585 -- -- 92,585
Depreciation and
amortization..... 5,658 20,897 25,746 -- 46,643 2,809 -- 55,110
-------- --------- ------- -------- --------- ----- -------- ---------
Total operating
expenses....... 37,475 296,079 39,538 (39,538) 296,079 2,809 (42,250) 294,113
-------- --------- ------- -------- --------- ----- -------- ---------
Operating income
(loss)......... -- (208,397) -- -- (208,397) 1,966 -- (206,431)
Other (income)
expense:
Interest expense.. 49,347 42,599 -- -- 42,599 1,966 (42,599) 51,313
Interest income
and other........ (49,347) -- -- -- -- -- 42,599 (6,748)
-------- --------- ------- -------- --------- ----- -------- ---------
Net loss........ -- (250,996) -- -- (250,996) -- -- (250,996)
Accretion of
mandatorily
redeemable
preferred stock.... (24,124) -- -- -- -- -- -- (24,124)
-------- --------- ------- -------- --------- ----- -------- ---------
Net loss
attributable to
common equity...... $(24,124) $(250,996) $ -- $ -- $(250,996) $ -- $ -- $(275,120)
======== ========= ======= ======== ========= ===== ======== =========
</TABLE>
F-43
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 1999
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 6,232 $ -- $ -- $ 6,232 $ -- $ -- $ 6,232
Roaming........... -- 9,487 -- -- 9,487 -- -- 9,487
Equipment......... -- 5,649 -- -- 5,649 -- -- 5,649
Intercompany...... 2,446 -- 13,178 (13,178) -- 1,336 (3,782) --
-------- -------- ------- -------- -------- ------ -------- --------
Total revenue... 2,446 21,368 13,178 (13,178) 21,368 1,336 (3,782) 21,368
-------- -------- ------- -------- -------- ------ -------- --------
Operating expenses:
Cost of revenue... -- 27,067 -- (13,178) 13,889 -- (3,782) 10,107
Operations and
development...... -- 9,715 5,783 -- 15,498 -- -- 15,498
Selling and
marketing........ -- 20,925 -- -- 20,925 -- -- 20,925
General and
administrative... 365 22,076 -- -- 22,076 -- -- 22,441
Depreciation and
amortization..... 2,081 6,377 7,395 -- 13,772 638 -- 16,491
-------- -------- ------- -------- -------- ------ -------- --------
Total operating
expenses....... 2,446 86,160 13,178 (13,178) 86,160 638 (3,782) 85,462
-------- -------- ------- -------- -------- ------ -------- --------
Operating income
(loss)......... -- (64,792) -- -- (64,792) 698 -- (64,094)
Other (income)
expense:
Interest expense.. 16,409 13,491 -- -- 13,491 698 (13,491) 17,107
Interest income
and other........ (16,409) -- -- -- -- -- 13,491 (2,918)
-------- -------- ------- -------- -------- ------ -------- --------
Net loss........ -- (78,283) -- -- (78,283) -- -- (78,283)
Accretion of
mandatorily
redeemable
preferred stock.... (9,896) -- -- -- -- -- -- (9,896)
-------- -------- ------- -------- -------- ------ -------- --------
Net loss
attributable to
common equity...... $ (9,896) $(78,283) $ -- $ -- $(78,283) $ -- $ -- $(88,179)
======== ======== ======= ======== ======== ====== ======== ========
</TABLE>
F-44
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Operations for the six months ended June 30, 2000
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
--------------------------------------------------- ---------------------------------------
TeleCorp
PCS, Guarantor Non-Guarantor Non-Guarantor
Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
-------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service........... $ -- $ 88,056 $ -- $ -- $ 88,056 $ -- $ -- $ 88,056
Roaming........... -- 26,151 -- -- 26,151 -- -- 26,151
Equipment......... -- 13,250 -- -- 13,250 -- -- 13,250
Intercompany...... 30,460 -- 36,948 (36,948) -- 3,384 (33,844) --
-------- --------- ------ -------- --------- ------ -------- ---------
Total revenue... 30,460 127,457 36,948 (36,948) 127,457 3,384 (33,844) 127,457
-------- --------- ------ -------- --------- ------ -------- ---------
Operating expenses:
Cost of revenue... -- 84,342 -- (36,948) 47,394 -- (6,961) 40,433
Operations and
development...... 771 13,726 11,809 -- 25,535 -- (771) 25,535
Selling and
marketing........ 559 74,766 -- -- 74,766 -- (559) 74,766
General and
administrative... 25,553 74,347 -- -- 74,347 -- (25,553) 74,347
Depreciation and
amortization..... 3,577 19,526 25,139 -- 44,665 2,141 -- 50,383
-------- --------- ------ -------- --------- ------ -------- ---------
Total operating
expenses....... 30,460 266,707 36,948 (36,948) 266,707 2,141 (33,844) 265,464
-------- --------- ------ -------- --------- ------ -------- ---------
Operating income
(loss)......... -- (139,250) -- -- (139,250) 1,243 -- (138,007)
Other (income)
expense:
Interest expense.. 33,020 29,123 -- -- 29,123 1,243 (29,123) 34,263
Interest income
and other........ (33,020) -- -- -- -- -- 29,123 (3,897)
-------- --------- ------ -------- --------- ------ -------- ---------
Net loss........ -- (168,373) -- -- (168,373) -- -- (168,373)
Accretion of
mandatorily
redeemable
preferred stock.... (15,889) -- -- -- -- -- -- (15,889)
-------- --------- ------ -------- --------- ------ -------- ---------
Net loss
attributable to
common equity...... $(15,889) $(168,373) $ -- $ -- $(168,373) $ -- $ -- $(184,262)
======== ========= ====== ======== ========= ====== ======== =========
</TABLE>
F-45
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the year ended December 31, 1998:
<TABLE>
<CAPTION>
TeleCorp Communications, Inc.
-----------------------------------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss........... $ -- $ (51,155) $ -- $ -- $ (51,155) $ -- $ -- $ (51,155)
Adjustment to
reconcile net loss
to net cash (used
in) provided by
operating
activities:
Depreciation and
amortization...... 803 542 239 -- 781 -- -- 1,584
Noncash
compensation
expense related to
stock option
grants and
restricted stock
awards............ -- 2 -- -- 2 -- -- 2
Noncash interest
expense........... 963 -- -- -- -- 219 -- 1,182
Noncash general
and administrative
change by
affiliate......... -- 197 -- -- 197 -- -- 197
Changes in cash
flow from
operations
resulting from
changes in assets
and liabilities:
Accounts
receivable........ -- -- -- -- -- -- -- --
Inventory......... -- (778) -- -- (778) -- -- (778)
Intercompany
receivables....... (166,015) -- -- -- -- -- 166,015 --
Prepaid expenses
and other current
assets............ -- (2,035) (1,296) -- (3,331) -- -- (3,331)
Other assets...... -- -- (1,184) -- (1,184) -- -- (1,184)
Accounts payable.. -- -- 11,586 -- 11,586 -- -- 11,586
Accrued expenses.. -- 4,115 5,030 -- 9,145 -- -- 9,145
Accrued interest.. 1,434 612 -- -- 612 -- -- 2,046
Deferred revenue.. -- -- -- -- -- -- -- --
Intercompany
payables.......... -- 98,196 43,698 -- 141,894 24,121 (166,015) --
--------- --------- -------- ----- --------- ------- -------- ---------
Net cash (used in)
provided by
operating
activities........ (162,815) 49,696 58,073 -- 107,769 24,340 -- (30,706)
--------- --------- -------- ----- --------- ------- -------- ---------
Cash flows from
investing
activities:
Expenditures for
network under
development,
wireless network
and property and
equipment......... -- (49,469) (58,073) -- (107,542) -- -- (107,542)
Capitalized
interest on
network under
development and
wireless network.. -- (227) -- -- (227) -- -- (227)
Expenditures for
microwave
relocation........ -- -- -- -- -- (3,340) -- (3,340)
Purchase of PCS
licenses.......... -- -- -- -- -- (21,000) -- (21,000)
Deposit on PCS
licenses.......... -- -- -- -- -- -- -- --
Purchase of
intangibles --
AT&T agreements... -- -- -- -- -- -- -- --
Capitalized
interest on PCS
licenses.......... -- -- -- -- -- -- -- --
Capitalized Tritel
acquisition
costs............. -- -- -- -- -- -- -- --
--------- --------- -------- ----- --------- ------- -------- ---------
Net cash used in
investing
activities........ -- (49,696) (58,073) -- (107,769) (24,340) -- (132,109)
--------- --------- -------- ----- --------- ------- -------- ---------
Cash flows from
financing
activities:
Proceeds from sale
of mandatorily
redeemable
preferred stock... 26,661 -- -- -- -- -- -- 26,661
Receipt of
preferred stock
subscription
receivable........ -- -- -- -- -- -- -- --
Direct issuance
costs from sale of
mandatorily
redeemable
preferred stock... (1,027) -- -- -- -- -- -- (1,027)
Proceeds from sale
of common stock
and series F
preferred stock... 38 -- -- -- -- -- -- 38
Proceeds from
long-term debt.... 257,492 -- -- -- -- -- -- 257,492
Payments of
deferred financing
costs............. (9,110) -- -- -- -- -- -- (9,110)
Payments on long-
term debt......... (2,073) -- -- -- -- -- -- (2,073)
--------- --------- -------- ----- --------- ------- -------- ---------
Net cash provided
by financing
activities........ 271,981 -- -- -- -- -- -- 271,981
--------- --------- -------- ----- --------- ------- -------- ---------
Net increase in
cash and cash
equivalents........ 109,166 -- -- -- -- -- -- 109,166
Cash and cash
equivalents at the
beginning of
period............. 2,567 -- -- -- -- -- -- 2,567
--------- --------- -------- ----- --------- ------- -------- ---------
Cash and cash
equivalents at the
end of period...... $ 111,733 $ -- $ -- $ -- $ -- $ -- $ -- $ 111,733
========= ========= ======== ===== ========= ======= ======== =========
</TABLE>
F-46
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Cash Flow Information for the year ended December 31, 1999:
<TABLE>
<CAPTION>
TCI-- TCI Non- Other Non-
TeleCorp Guarantor Guarantor TCI Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss.......... $ -- $ (250,996) $ -- $-- $ (250,996) $ -- $ -- $ (250,996)
Adjustment to
reconcile net loss
to net cash (used
in) provided by
operating
activities:
Depreciation and
amortization...... 5,658 20,897 25,746 -- 46,643 2,809 -- 55,110
Noncash
compensation
expense related
to stock option
grants and
restricted stock
awards............ -- 31,817 -- -- 31,817 -- -- 31,817
Noncash interest
expense .......... 32,325 -- -- -- -- 393 -- 32,718
Bad debt
expense........... -- 2,962 -- -- 2,962 -- -- 2,962
Changes in cash
flow from
operations
resulting from
changes in assets
and liabilities:
Accounts
receivable........ -- (23,581) -- -- (23,581) -- -- (23,581)
Inventory......... -- (15,024) -- -- (15,024) -- -- (15,024)
Prepaid expenses
and other current
assets............ -- 427 (851) -- (424) -- -- (424)
Other assets...... -- (1,406) 283 -- (1,123) -- -- (1,123)
Intercompany
receivable........ (586,801) -- -- -- -- -- 586,801 --
Accounts
payable........... -- 11,163 13,645 -- 24,808 -- -- 24,808
Accrued
expenses.......... -- 8,202 9,629 -- 17,831 -- -- 17,831
Accrued
interest.......... (2,194) -- -- -- -- (910) -- (3,104)
Deferred
revenue........... -- 1,709 -- -- 1,709 -- -- 1,709
Intercompany
payable........... -- 354,967 114,234 -- 469,201 117,600 (586,801) --
--------- ---------- --------- ---- ---------- --------- -------- ----------
Net cash (used
in) provided by
operating
activities...... (551,012) 141,137 162,686 -- 303,823 119,892 -- (127,297)
--------- ---------- --------- ---- ---------- --------- -------- ----------
Cash flows from
investing
activities: --
Expenditures for
network under
development,
wireless network
and property and
equipment......... -- (135,820) (162,686) -- (298,506) -- -- (298,506)
Capitalized
interest on
network under
development and
Wireless Network
and PCS
licenses.......... -- (5,317) -- -- (5,317) -- -- (5,317)
Expenditures for
microwave
relocation........ -- -- -- -- -- (5,654) -- (5,654)
Purchase of
intangibles--AT&T
agreements........ (17,310) -- -- -- -- -- -- (17,310)
Purchase of PCS
licenses.......... -- -- -- -- -- (114,238) -- (114,238)
--------- ---------- --------- ---- ---------- --------- -------- ----------
Net cash used in
investing
activities...... (17,310) (141,137) (162,686) -- (303,823) (119,892) -- (441,025)
--------- ---------- --------- ---- ---------- --------- -------- ----------
Cash flows from
financing
activities:
Proceeds from
sale of
mandatorily
redeemable
preferred stock... 70,323 -- -- -- -- -- -- 70,323
Receipt of
preferred stock
subscription
receivable........ 9,414 -- -- -- -- -- -- 9,414
Direct issuance
costs from sale
of mandatorily
redeemable
preferred stock... (2,500) -- -- -- -- -- -- (2,500)
Proceeds from
sale of common
stock and series
F preferred
stock............. 21,724 -- -- -- -- -- -- 21,724
Proceeds from
long-term debt.... 407,635 -- -- -- -- -- -- 407,635
Payments of
deferred
financing costs... (12,742) -- -- -- -- -- -- (12,742)
Payments on long
term debt......... (50,451) -- -- -- -- -- -- (50,451)
Costs associated
with initial
public offering... (1,801) -- -- -- -- -- -- (1,801)
Proceeds
associated with
initial public
offering.......... 197,317 -- -- -- -- -- -- 197,317
--------- ---------- --------- ---- ---------- --------- -------- ----------
Net cash
provided by
financing
activities...... 638,919 -- -- -- -- -- -- 638,919
--------- ---------- --------- ---- ---------- --------- -------- ----------
Net increase in
cash and cash
equivalents........ 70,597 -- -- -- -- -- -- 70,597
Cash and cash
equivalents at the
beginning of
period............. 111,733 -- -- -- -- -- -- 111,733
--------- ---------- --------- ---- ---------- --------- -------- ----------
Cash and cash
equivalents at the
end of period...... $ 182,330 $ -- $ -- $-- $ -- $ -- $ -- $ 182,330
========= ========== ========= ==== ========== ========= ======== ==========
</TABLE>
F-47
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the six months ended June 30, 1999
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss.......... $ -- $(78,283) $ -- $ -- $ (78,283) $ -- $ -- $ (78,283)
Adjustment to
reconcile net loss
to net cash (used
in) provided by
operating
activities:
Depreciation and
amortization..... 2,081 6,377 7,395 -- 13,772 638 -- 16,491
Noncash
compensation
expense related
to stock option
grants and
restricted stock
awards........... -- 365 -- -- 365 -- -- 365
Noncash interest
expense.......... 8,978 -- -- -- -- 148 -- 9,126
Bad debt
expense.......... -- 159 -- -- 159 -- -- 159
Changes in cash
flow from
operations
resulting from
changes in assets
and liabilities:
Accounts
receivable....... -- (12,337) -- -- (12,337) -- -- (12,337)
Inventory........ -- (6,955) -- -- (6,955) -- -- (6,955)
Intercompany
receivables...... (363,590) -- -- -- -- -- 363,590 --
Prepaid expenses
and other current
assets........... -- 1,095 (101) -- 994 -- -- 994
Other assets..... -- (599) (556) -- (1,155) -- -- (1,155)
Accounts
payable.......... -- 8,537 10,022 -- 18,559 -- -- 18,559
Accrued
expenses......... -- 980 1,151 -- 2,131 -- -- 2,131
Accrued
interest......... (310) -- -- -- -- (101) -- (411)
Deferred
revenue.......... -- 705 -- -- 705 -- -- 705
Intercompany
payables......... -- 177,498 91,935 -- 269,433 94,157 (363,590) --
--------- -------- --------- ------ --------- ------- -------- ---------
Net cash (used
in) provided by
operating
activities....... (352,841) 97,542 109,846 -- 207,388 94,842 -- (50,611)
--------- -------- --------- ------ --------- ------- -------- ---------
Cash flows from
investing
activities:
Expenditures for
network under
development,
wireless network
and property and
equipment........ -- (93,389) (109,846) -- (203,235) -- -- (203,235)
Capitalized
interest on
network under
development and
PCS licenses..... -- (4,153) -- -- (4,153) -- -- (4,153)
Expenditures for
microwave
relocation....... -- -- -- -- -- (5,137) -- (5,137)
Purchase of PCS
licenses......... -- -- -- -- -- (72,188) -- (72,188)
Deposit on PCS
licenses......... -- -- -- -- -- (28,878) -- (28,878)
Partial refund of
deposit on PCS
licenses......... -- -- -- -- -- 11,361 -- 11,361
Purchase of
intangibles-AT&T
agreements....... (16,145) -- -- -- -- -- -- (16,145)
Capitalized
Tritel
acquisition
costs............ -- -- -- -- -- -- -- --
--------- -------- --------- ------ --------- ------- -------- ---------
Net cash used in
investing
activities....... (16,145) (97,542) (109,846) -- (207,388) (94,842) -- (318,375)
--------- -------- --------- ------ --------- ------- -------- ---------
Cash flows from
financing
activities:
Proceeds from
sale of
mandatorily
redeemable
preferred stock.. 60,411 -- -- -- -- -- -- 60,411
Receipt of
preferred stock
subscription
receivable....... 3,740 -- -- -- -- -- -- 3,740
Direct issuance
costs from sale
of mandatorily
redeemable
preferred
stock............ (2,500) -- -- -- -- -- -- (2,500)
Proceeds from
sale of common
stock and series
F preferred
stock............ 5 -- -- -- -- -- -- 5
Proceeds from
long-term debt... 397,635 -- -- -- -- -- -- 397,635
Payments of
deferred
financing costs.. (10,600) -- -- -- -- -- -- (10,600)
Payments on long-
term debt........ (40,000) -- -- -- -- -- -- (40,000)
--------- -------- --------- ------ --------- ------- -------- ---------
Net cash provided
by financing
activities....... 408,691 -- -- -- -- -- -- 408,691
--------- -------- --------- ------ --------- ------- -------- ---------
Net increase in
cash and cash
equivalents....... 39,705 -- -- -- -- -- -- 39,705
Cash and cash
equivalents at the
beginning of
period............ 111,733 -- -- -- -- -- -- 111,733
--------- -------- --------- ------ --------- ------- -------- ---------
Cash and cash
equivalents at the
end of period..... $ 151,438 $ -- $ -- $ -- $ -- $ -- $ -- $ 151,438
========= ======== ========= ====== ========= ======= ======== =========
</TABLE>
F-48
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Consolidating Statement of Cash Flows for the six months ended June 30, 2000
(unaudited):
<TABLE>
<CAPTION>
TeleCorp Communications, Inc. TeleCorp PCS, Inc.
-------------------------------------- ---------------------------------------
TeleCorp Guarantor Non-Guarantor Non-Guarantor
PCS, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Eliminations Consolidated
--------- ---------- ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss................ $ -- $ (168,373) $ -- $ (168,373) $ -- $ -- $ (168,373)
Adjustment to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization........... 3,577 19,526 25,139 44,665 2,141 -- 50,383
Noncash compensation
expense related to
stock option grants and
restricted stock
awards................. -- 26,883 -- 26,883 -- -- 26,883
Noncash interest
expense................ 23,092 -- -- -- 257 -- 23,349
Bad debt expense....... -- 5,639 -- 5,639 -- -- 5,639
Changes in cash flow
from operations
resulting from changes
in assets and
liabilities:
Accounts receivable.... -- (12,933) -- (12,933) -- -- (12,933)
Inventory.............. -- (4,802) -- (4,802) -- -- (4,802)
Intercompany
receivables............ (275,780) -- -- -- -- 275,780 --
Prepaid expenses and
other current assets... -- (3,151) 635 (2,516) -- -- (2,516)
Other assets........... -- (4,173) -- (4,173) -- -- (4,173)
Accounts payable....... -- (5,664) (26,585) (32,249) -- -- (32,249)
Accrued expenses....... -- (2,456) (3,361) (5,817) -- -- (5,817)
Accrued interest....... 567 -- -- -- (399) -- 168
Deferred revenue....... -- 908 -- 908 -- -- 908
Intercompany payables.. -- 199,497 64,186 263,683 12,097 (275,780)
--------- ---------- -------- ---------- ------- --------- ----------
Net cash (used in)
provided by operating
activities............. (248,544) 50,901 60,014 110,915 14,096 -- (123,533)
--------- ---------- -------- ---------- ------- --------- ----------
Cash flows from
investing activities:
Expenditures for
network under
development, wireless
network and property
and equipment.......... -- (49,103) (60,014) (109,117) -- -- (109,117)
Capitalized interest on
network under
development and
wireless network....... -- (1,798) -- (1,798) -- -- (1,798)
Expenditures for
microwave relocation... -- -- -- -- (4,279) -- (4,279)
Purchase of PCS
licenses............... -- -- -- -- (733) -- (733)
Deposit on PCS
licenses............... -- -- -- -- -- -- --
Purchase of
intangibles -- AT&T
agreements............. (12,368) -- -- -- -- -- (12,368)
Capitalized Tritel
acquisition costs...... -- -- -- -- (8,409) -- (8,409)
--------- ---------- -------- ---------- ------- --------- ----------
Net cash used in
investing activities... (12,368) (50,901) (60,014) (110,915) (13,421) -- (136,704)
--------- ---------- -------- ---------- ------- --------- ----------
Cash flows from
financing activities:
Proceeds from sale of
mandatorily redeemable
preferred stock........ -- -- -- -- -- -- --
Receipt of preferred
stock subscription
receivable............. -- -- -- -- -- -- --
Direct issuance costs
from sale of
mandatorily redeemable
preferred stock........ -- -- -- -- -- -- --
Proceeds from sale of
common stock and series
F preferred stock...... 41,869 -- -- -- -- -- 41,869
Proceeds from long-term
debt................... 65,000 -- -- -- -- -- 65,000
Payments of deferred
financing costs........ (64) -- -- -- -- -- (64)
Payments on long-term
debt................... -- -- -- -- (675) -- (675)
--------- ---------- -------- ---------- ------- --------- ----------
Net cash provided by
(used in) financing
activities............. 106,805 -- -- -- (675) -- 106,130
--------- ---------- -------- ---------- ------- --------- ----------
Net decrease in cash and
cash equivalents........ (154,107) -- -- -- -- -- (154,107)
Cash and cash
equivalents at the
beginning of period..... 182,330 -- -- -- -- -- 182,330
--------- ---------- -------- ---------- ------- --------- ----------
Cash and cash
equivalents at the end
of period............... $ 28,223 $ -- $ -- $ -- $ -- $ -- $ 28,223
========= ========== ======== ========== ======= ========= ==========
</TABLE>
F-49
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
20. Subsequent Events
Tritel Merger and Contribution and Exchange with AT&T Wireless
On February 28, 2000, the Company agreed to merge with Tritel, Inc. (Tritel)
through a merger of each of the Company and Tritel into a newly formed
subsidiary of a new holding company (Holding Company). The merger will result
in 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. Both the Company and Tritel
will become subsidiaries of the holding company.
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 to 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 proposed merger has been unanimously approved by the Company's and
Tritel's board of directors, with three of the Company's 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, AT&T has agreed to
contribute certain assets and rights to the Company. This contribution will
result in the Company acquiring various assets in exchange for the
consideration issued as follows:
The Company acquires:
. $20,000 cash from AT&T Wireless Services.
. The right to acquire all of the common and preferred stock of Indus,
Inc. (Indus).
. The right to acquire additional wireless properties and assets from
Airadigm Communications, Inc. (Airadigm).
. The two year extension and expansion of the AT&T network membership
licenses agreement to cover all people in Holding Company's markets.
Consideration issued:
. 9,272,740 shares of class A common stock of the new holding company
formed from the Tritel merger to AT&T Wireless Services.
Separately, AT&T Wireless and the Company entered into an Asset Exchange
Agreement pursuant to which the Company has agreed to exchange certain assets
with AT&T Wireless, among other consideration.
F-50
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
The Company is receiving certain consideration in exchange for assets as
follows:
The Company acquires:
. $80,000 in cash from AT&T Wireless.
. AT&T Wireless 10 MHZ PCS licenses in the areas covering part of the
Wisconsin market, in addition to adjacent licenses.
. AT&T Wireless' existing 10 MHZ PCS 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 New England Market Segment to AT&T Wireless.
. Cash and/or class A common stock to Polycell and ABC Wireless.
Further, AT&T has agreed to extend the term of the roaming agreement and to
expand the geographic coverage of the AT&T operating agreements with TeleCorp
to include the new markets, either through amending TeleCorp's existing
agreements or by entering into new agreements with Holding Company on
substantially the same terms as TeleCorp's existing agreements. In addition,
TeleCorp has granted AT&T Wireless a "right of first refusal" with respect to
certain markets transferred by AT&T Wireless Services or AT&T Wireless
triggered in the event of a sale of the Company to a third party.
These transactions will be accounted for as an asset purchase and
disposition and recorded at fair value. The purchase price will be determined
based on cash paid, the fair value of the Class A common stock issued, and the
fair value of the assets relinquished. The purchase price will be
proportionately allocated to the noncurrent assets acquired based on their
estimated fair values. A gain is recognized as the difference between the fair
value of the New England assets disposed and their net book value. 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.
21. Subsequent events (unaudited)
Acquisitions
On April 7, 2000, the Company completed its acquisition of TeleCorp LMDS,
Inc. (TeleCorp LMDS) through an exchange of all of the outstanding stock of
TeleCorp LMDS for 878,400 shares of the Company's Class A common stock valued
at $45,896 on the closing date. TeleCorp LMDS had no operations and its only
assets were local multipoint distribution service licenses. By acquiring
TeleCorp LMDS, TeleCorp gained 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. TeleCorp LMDS's stockholders were
Mr. Vento, Mr. Sullivan and three of the Company's initial investors. As Mr.
Vento and Mr. Sullivan have voting control of the Company and TeleCorp LMDS,
the acquisition was accounted for as an acquisition between companies under
common control and recorded at historical cost. The licenses acquired have been
recorded by the Company at $2,707 which represents the historical cost of
TeleCorp LMDS.
On April 11, 2000, the Company completed its acquisition of the 15% of Viper
Wireless, Inc. (Viper Wireless) that it did not already own from Mr. Vento and
Mr. Sullivan in exchange for an aggregate of 323,372 shares of the Company's
Class A common stock and 800 shares of its Series E preferred stock. The
Company acquired 85% of Viper Wireless on March 1, 1999 in exchange for $32,286
contributed by AT&T and certain of the Company's other initial investors for
additional shares of the Company's preferred and common stock.
F-51
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Viper Wireless used the proceeds to participate in the Federal Communications
Commission's reauction of PCS licenses. Viper Wireless was granted six PCS
licenses in the reauction. In connection with the completion of the
acquisition, the Company recognized compensation expense of $15,297 based on
the fair value of the Class A common stock and Series E preferred stock at the
closing date.
On April 27, 2000, the Company completed its acquisition of 15 MHz PCS
licenses in the Lake Charles, Louisiana basic trading area from Gulf Telecom,
LLC (Gulf Telecom). As consideration for the PCS licenses, the Company paid
Gulf Telecom $262 in cash, assumed approximately $2,433, less a discount of
$401, in Federal Communications Commission debt related to the license and
reimbursed Gulf Telecom $471 for interest it paid to the Federal Communications
Commission on the debt related to the license from June 1998 through March
2000. The entire purchase price has been allocated to acquired licenses.
Senior Subordinated Notes
On July 14, 2000, the Company completed the issuance and sale of 10 5/8%
Senior Subordinated Notes (Subordinated Notes) with an aggregate principal
amount of $450,000. The Subordinated Notes mature July 15, 2010 and the Company
is required to pay interest semi-annually beginning on January 15, 2001.
Offering expenses consisting of underwriting, printing, legal and accounting
fees totaled approximately $13,000. The Subordinated Notes are subject to
optional redemption, allowing the Company on or after July 15, 2005, to redeem
some or all of the Subordinated Notes together with accrued and unpaid interest
at redemption prices. The Company also has the option until July 15, 2003, to
redeem up to 35% of the original aggregate principal amount of these notes with
the net proceeds of certain types of qualified equity offerings at a redemption
price equal to 118.625% of the principal amount as long as at least 65% of the
original aggregate principal amount of the notes remains outstanding
immediately after redemption. If the Company experiences a change of control at
any time on or prior to July 15, 2005, the Company has the option to redeem all
of the Subordinated Notes at par plus a premium. If the Company has not
previously redeemed the Subordinated Notes and if the Company experiences a
change in control, the note holders may require the Company to make an offer to
repurchase all of the Subordinate Notes after July 15, 2005 at a price equal to
101% of the principal amount, plus accrued and unpaid interest, if any, to the
date of repurchase. The Company is required to comply with certain financial
covenants outlined in the indenture agreement. The Subordinated Notes are not
collateralized. The Subordinated Notes are subordinate to all of the Company's
existing and future senior debt, rank equally with all existing senior
subordinated debt and rank senior to all existing and future subordinated debt.
The Subordinated Notes are guaranteed by the Company's wholly owned subsidiary,
TCI.
Lucent Notes
On July 14, 2000, Holding Company entered into a commitment letter with
Lucent Technologies Inc. (Lucent). Under the terms of the commitment letter,
Lucent agreed that following the merger of TeleCorp and Tritel into
subsidiaries of Holding Company, Lucent will purchase from Holding Company,
should Holding Company issue, the Senior Subordinated Discount Notes (Lucent
Notes) with gross proceeds up to $350,000. The Lucent Notes mature 10 years
from the date of issuance, unless previously redeemed by the Holding Company.
As interest accrues, it will be added to the principal as an increase to
interest expense and to the carrying value of the notes for five years from the
date of issuance. After five years, interest on the Lucent Notes will become
payable semi-annually. The Lucent Notes are not collaterized. The Lucent Notes
would be senior subordinated unsecured obligations of the Holding Company,
ranking equivalent in right of payment to all of the Holding Company's future
senior subordinated debt. The Lucent Notes would be subordinate in right of
payment to any future senior debt incurred by the Holding Company or its
guarantor subsidiaries but senior in right of payment to any future
subordinated debt incurred by Holding Company or any of its guarantor
subsidiaries.
F-52
<PAGE>
TELECORP PCS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($ in thousands, except per share data)
Black Label Wireless, Inc. Credit Agreement
On July 14, 2000, Black Label Wireless, Inc. (Black Label), a company wholly
owned by Messrs. Sullivan and Vento, entered into a credit agreement with
Lucent, under which Lucent agreed to lend Black Label up to $175,000. Black
Label intends to use the proceeds of loans under the credit agreement to
develop the network related to the licenses being acquired from AT&T Wireless
in the Contribution and the Exchange. Upon consummation of the merger, Black
Label intends to transfer its assets to the Company and the Company intends to
satisfy Black Label's indebtedness to Lucent. Black Label is considered by the
Company to be a special purpose entity and the Company will include all of
Black Label's activities in its consolidated financial statements.
The obligations under the Black Label credit agreement must be repaid upon
the later to occur of the date six months after the consummation of the merger
of TeleCorp and Tritel and related At&T transactions and July 14, 2001.
Additionally, if, the obligations under the credit agreement are assumed by
TeleCorp, the commitments under the credit agreement shall immediately
terminate and all obligations due under the credit agreement shall immediately
become due and payable.
Senior Credit Facility
On July 14, 2000, the Company borrowed $35,000 on the Tranche A term loan.
The total principal outstanding on the Tranche A term loan was $100,000 as of
July 14, 2000.
Preferred Stock Subscription Receivable
On July 17, 2000, the Company received $37,650 from certain of its initial
institutional investors related to the preferred stock subscriptions
receivable.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Tritel, Inc.:
We have audited the accompanying consolidated balance sheets of Tritel, Inc.
and subsidiaries (the Company) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, members' and stockholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Tritel, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
KPMG LLP
Jackson, Mississippi
February 18, 2000, except with
respect to Note 21 which is as of
February 28, 2000
F-54
<PAGE>
TRITEL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999 and June 30, 2000 (unaudited)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1998 1999 2000
------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 846 $ 609,269 $ 350,573
Due from affiliates......................... 241 2,565 3,719
Accounts receivable, net.................... -- 5,040 14,325
Inventory................................... -- 8,957 20,512
Prepaid expenses and other current assets... 719 4,733 6,255
------- ---------- ----------
Total current assets...................... 1,806 630,564 395,384
------- ---------- ----------
Restricted cash............................... -- 6,594 5,487
Property and equipment, net................... 13,816 262,343 415,651
Federal Communications Commission licensing
costs, net................................... 71,466 201,946 202,894
Intangible assets, net........................ -- 59,508 56,646
Other assets.................................. 1,933 35,407 33,689
------- ---------- ----------
Total assets.............................. $89,021 $1,196,362 $1,109,751
======= ========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................... $22,405 $ -- $ --
Current maturities of long-term debt........ -- 923 974
Accounts payable............................ 8,221 103,677 88,299
Accrued liabilities......................... 2,285 9,647 26,675
------- ---------- ----------
Total current liabilities................. 32,911 114,247 115,948
------- ---------- ----------
Non-current liabilities:
Long-term debt.............................. 51,599 557,716 571,464
Note payable to related party............... 6,270 -- --
Deferred income taxes and other
liabilities................................ 224 37,367 37,856
------- ---------- ----------
Total non-current liabilities............. 58,093 595,083 609,320
------- ---------- ----------
Total liabilities......................... 91,004 709,330 725,268
------- ---------- ----------
Series A 10% redeemable convertible preferred
stock........................................ -- 99,586 104,119
Stockholders' equity:
Preferred stock, 3,100,000 shares
authorized:
Series D, 46,374 shares outstanding at
December 31, 1999......................... -- 46,374 46,374
Common stock, 30 shares issued and
outstanding at December 31, 1998........... -- -- --
Common stock issued and outstanding at
December 31, 1999
Class A Voting--97,796,906 shares; Class B
Non-voting--2,927,120 shares; Class C--
1,380,448 shares; Class D--4,962,804
shares; Voting Preference--6 shares........ -- 1,071 1,071
Contributed capital--Predecessor Companies.. 13,497 -- --
Additional paid in capital.................. -- 611,277 748,432
Deferred compensation....................... -- -- (74,450)
Accumulated deficit......................... (15,480) (271,276) (441,063)
------- ---------- ----------
Total stockholders' equity (deficit)...... (1,983) 387,446 280,364
------- ---------- ----------
Total liabilities, redeemable preferred
stock and stockholders' equity........... $89,021 $1,196,362 $1,109,751
======= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE>
TRITEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999 and
the Six Months Ended June 30, 1999 and 2000
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June
Years Ended December 31, 30,
----------------------------- ------------------------
1997 1998 1999 1999 2000
------- -------- ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 6,759 $ -- $ 41,307
------- -------- ---------- ---------- ------------
Operating expenses:
Cost of services and
equipment............ -- -- 6,966 -- 29,111
Technical operations.. 104 1,939 18,459 3,946 21,987
General and
administrative....... 3,123 4,947 22,915 7,204 26,425
Sales and marketing... 28 452 20,404 2,724 28,603
Stock-based
compensation......... -- -- 190,664 -- 62,111
Depreciation and
amortization......... 20 348 12,839 3,474 24,875
------- -------- ---------- ---------- ------------
Total operating
expenses........... 3,275 7,686 272,247 17,348 193,112
------- -------- ---------- ---------- ------------
Operating loss........ (3,275) (7,686) (265,488) (17,348) (151,805)
Interest income......... 121 77 16,791 5,332 15,892
Financing cost.......... -- -- (2,230) (2,230) --
Interest expense........ -- (722) (24,970) (5,104) (30,416)
------- -------- ---------- ---------- ------------
Loss before
extraordinary item
and income taxes..... (3,154) (8,331) (275,897) (19,350) (166,329)
Income tax benefit...... -- -- 28,443 6,448 1,076
------- -------- ---------- ---------- ------------
Loss before
extraordinary items.. (3,154) (8,331) (247,454) (12,902) (165,253)
Extraordinary item--
Loss on return of
spectrum............. -- (2,414) -- -- --
------- -------- ---------- ---------- ------------
Net loss.............. (3,154) (10,745) (247,454) (12,902) (165,253)
Series A preferred
dividend requirement... -- -- (8,918) (4,347) (4,534)
------- -------- ---------- ---------- ------------
Net loss available to
common stockholders.... $(3,154) $(10,745) $ (256,372) $ (17,249) $ (169,787)
======= ======== ========== ========== ============
Basic and diluted net
loss per share......... $ (33.25) $ (5.68) $ (1.43)
========== ========== ============
Weighted average common
shares outstanding..... 7,710,649 3,034,681 118,451,248
========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE>
TRITEL, INC.
CONSOLIDATED STATEMENTS OF MEMBERS' AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999 and
the Six Month Period Ended June 30, 2000
<TABLE>
<CAPTION>
Additional Members' and
Preferred Common Contributed Paid in Deferred Accumulated Stockholders'
Stock Stock Capital Capital Compensation Deficit Equity
---------- ------ ----------- ---------- ------------ ----------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... $ -- $ -- $ 7,255 $ -- $ -- $ (1,581) $ 5,674
Contributed capital, net of
expenses of $148.............. -- -- 5,437 -- -- -- 5,437
Conversion of debt to members'
equity........................ -- -- 805 -- -- -- 805
Net loss....................... -- -- -- -- -- (3,154) (3,154)
---------- ------ --------- -------- -------- --------- ----------
Balance at December 31, 1997... -- -- 13,497 -- -- (4,735) 8,762
Net loss....................... -- -- -- -- -- (10,745) (10,745)
---------- ------ --------- -------- -------- --------- ----------
Balance at December 31, 1998... -- -- 13,497 -- -- (15,480) (1,983)
Conversion of debt to members'
equity in Predecessor
Company....................... -- -- 8,976 -- -- -- 8,976
Series C Preferred Stock issued
to Predecessor Company,
including distribution of
assets and liabilities........ 17,193 -- (22,473) -- -- 576 (4,704)
Series C Preferred Stock issued
in exchange for cash.......... 163,370 -- -- -- -- -- 163,370
Payment of preferred stock
issuance costs................ (8,507) -- -- -- -- -- (8,507)
Series C Preferred Stock issued
to Central Alabama in exchange
for net assets................ 2,602 -- -- -- -- -- 2,602
Series D Preferred Stock issued
to AT&T Wireless in exchange
for
licenses and other agreements.. 46,374 -- -- -- -- -- 46,374
Grant of unrestricted rights in
common stock to officer....... -- -- -- 4,500 -- -- 4,500
Conversion of preferred stock
into common stock............. (174,658) 783 -- 173,875 -- -- --
Sale of common stock, net of
issuance costs of $15,338..... -- 288 -- 242,238 -- -- 242,526
Stock-based compensation....... -- -- -- 190,664 -- -- 190,664
Accrual of dividends on Series
A redeemable preferred stock.. -- -- -- -- -- (8,918) (8,918)
Net loss....................... -- -- -- -- -- (247,454) (247,454)
---------- ------ --------- -------- -------- --------- ----------
Balance at December 31, 1999... 46,374 1,071 -- 611,277 -- (271,276) 387,446
---------- ------ --------- -------- -------- --------- ----------
Unaudited:
Stock issuance costs.......... -- -- -- (195) -- -- (195)
Exercise of stock options..... -- -- -- 789 -- -- 789
Stock-based compensation...... -- -- -- 62,111 -- -- 62,111
Deferred compensation expense
related to restricted stock
awards....................... -- -- -- 74,450 (74,450) --
Accrual of dividends on
Series A redeemable
preferred stock.............. -- -- -- -- -- (4,534) (4,534)
Net loss...................... -- -- -- -- -- (165,253) (165,253)
---------- ------ --------- -------- -------- --------- ----------
Balance, June 30, 2000
(unaudited)................... $ 46,374 $1,071 $ -- $748,432 $(74,450) $(441,063) $ 280,364
========== ====== ========= ======== ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-57
<PAGE>
TRITEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999, and
the Six Months Ended June 30, 1999 and 2000
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
---------------------------- -------------------
1997 1998 1999 1999 2000
------- -------- --------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss................... $(3,154) $(10,745) $(247,454) $(12,902) $(165,253)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Loss on return of
spectrum.................. -- 2,414 -- -- --
Financing costs............ -- -- 2,230 2,230 --
Depreciation and
amortization.............. 20 348 12,839 3,474 24,875
Stock-based compensation
and grant of unrestricted
rights in common stock to
officer................... -- -- 195,164 -- 62,111
Accretion of discount on
debt and amortization of
debt issue costs ......... -- -- 10,608 -- 13,705
Deferred income tax
benefit................... -- -- (28,443) (6,448) (1,076)
Provision for bad debts.... -- -- 42 -- 550
Changes in operating
assets and liabilities:
Accounts receivable....... -- -- (5,082) -- (9,835)
Inventory................. -- -- (8,957) -- (10,805)
Accounts payable and
accrued expenses......... 45 (180) 24,659 3,171 3,094
Other current assets and
liabilities.............. (814) (333) (6,681) (3,941) (2,384)
------- -------- --------- -------- ---------
Net cash used in
operating activities.... (3,903) (8,496) (51,075) (14,416) (85,018)
------- -------- --------- -------- ---------
Cash flows from investing
activities:
Capital expenditures....... (6) (5,970) (172,448) (44,687) (171,798)
Payment for Federal
Communications Commission
licenses.................. (3,935) -- -- -- --
Refund of Federal
Communications Commission
deposit................... 1,376 -- -- -- --
Advance under notes
receivable................ -- -- (7,550) (7,550) --
Capitalized interest on
network construction and
Federal Communications
Commission licensing
costs..................... (415) (2,905) (13,623) (5,896) (2,805)
(Increase) decrease in
restricted cash........... -- -- (6,594) (7,957) 1,107
Other...................... (72) -- (614) (325) (129)
------- -------- --------- -------- ---------
Net cash used in
investing activities.... (3,052) (8,875) (200,829) (66,415) (173,625)
------- -------- --------- -------- ---------
Cash flows from financing
activities:
Proceeds from notes
payable to related
parties................... 5,700 -- -- -- --
Proceeds from notes
payable................... 5,000 38,705 -- -- --
Proceeds from (repayment
of) long-term debt........ -- -- 300,000 200,000 (449)
Proceeds from senior
subordinated discount
notes..................... -- -- 200,240 200,240 --
Repayments of notes
payable................... (6,200) (21,300) (22,100) (22,100) --
Payment of preferred stock
issuance costs............ -- -- (8,507) (8,507) --
Payment of debt issuance
costs and other deferred
charges................... (1,251) (951) (30,202) (27,966) (198)
Proceeds from vendor
discount.................. -- -- 15,000 15,000 --
Issuance of preferred
stock..................... -- -- 163,370 113,623 --
Issuance of common stock,
net of issuance costs..... -- -- 242,526 -- 594
Capital contributions, net
of related expenses....... 5,437 -- -- -- --
------- -------- --------- -------- ---------
Net cash provided by
financing activities.... 8,686 16,454 860,327 470,290 (53)
------- -------- --------- -------- ---------
Net increase (decrease) in
cash and cash equivalents.. 1,731 (917) 608,423 389,459 (258,696)
Cash and cash equivalents at
beginning of period........ 32 1,763 846 846 609,269
------- -------- --------- -------- ---------
Cash and cash equivalents at
end of period.............. $ 1,763 $ 846 $ 609,269 $390,305 $ 350,573
======= ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All information subsequent to December 31, 1999 is unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
Airwave Communications, LLC ("Airwave Communications") (formerly Mercury
PCS, LLC) and Digital PCS, LLC ("Digital PCS") (formerly Mercury PCS II, LLC)
were formed on July 27, 1995 and July 29, 1996, respectively, to acquire for
development Personal Communications Services ("PCS") licenses in markets in the
south-central United States. Airwave Communications and Digital PCS are
referred to collectively as "the Predecessor Company" or "the Predecessor
Companies."
Tritel, Inc. ("Tritel") was formed on April 23, 1998 by the controlling
shareholders of Airwave Communications and Digital PCS to develop PCS markets
in the south-central United States. Tritel's 1998 activities consisted of $1.5
million in capital expenditures and $32,000 in net loss. On January 7, 1999,
the Predecessor Companies transferred substantially all of their assets and
liabilities at historical cost to Tritel in exchange for 18,262 shares of
series C preferred stock in Tritel. The controlling shareholders of the
Predecessor Companies control Tritel. Tritel will continue the activities of
the Predecessor Companies and, for accounting purposes, this transaction was
accounted for as a reorganization of the Predecessor Company into a C
corporation and a name change to Tritel. Tritel and the Predecessor Company,
together with Tritel's subsidiaries, are referred to collectively as "the
Company."
Tritel began commercial operations during the fourth quarter of 1999. Prior
to that time, Tritel and the Predecessor Companies were considered to be in the
development stage.
The consolidated accounts of the Company include its subsidiaries, Tritel
PCS, Inc. ("Tritel PCS"); Tritel A/B Holding Corp.; Tritel C/F Holding Corp.;
Tritel Communications, Inc.; Tritel Finance, Inc.; and others. All significant
intercompany accounts or balances have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of financial statement classification, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
Accounts Receivable
Accounts receivable balances are presented net of allowances for losses. The
Company's allowance for losses was $42,000 and $379,000 as of December 31, 1999
and June 30, 2000, respectively.
Inventory
Inventory consisting primarily of wireless telephones and telephone
accessories is stated at cost.
Restricted Cash
On March 31, 1999, the Company entered into a deposit agreement with Toronto
Dominion (Texas), Inc., as administrative agent, on behalf of the depository
bank and the banks and other financial institutions who are a party to the bank
facility described in Note 8. Under the terms of the agreement, the Company has
placed on deposit $6,594,000 and $5,487,000 at December 31, 1999 and June 30,
2000, respectively, with the depository bank, which will be used for the
payment of interest and/or commitment fees due under the bank facility.
F-59
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
When assets are placed in service, depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, generally
seven years for wireless network assets and three years for information systems
assets. Leasehold improvements are amortized over the lease term. The Company
capitalizes interest on certain of its wireless network construction
activities. Routine expenditures for repairs and maintenance are charged to
expense as incurred.
Federal Communications Commission Licensing Costs
Licensing costs are accounted for in accordance with industry standards and
include the value of license fees at date of acquisition and the direct costs
incurred to obtain the licenses. Licensing costs also include capitalized
interest during the period of time necessary to build out the wireless network.
The Federal Communications Commission grants licenses for terms of up to ten
years, and generally grants renewals if the licensee has complied with its
license obligations. The Company believes it will be able to secure renewal of
its PCS licenses. Amortization of such license costs, which begins for each
geographic service area upon commencement of service, is over a period of 40
years. Accumulated amortization on Federal Communications Commission licensing
costs at December 31, 1999 and June 30, 2000 was $597,000 and $2,440,000,
respectively.
The Company evaluates the propriety of the carrying amounts of its Federal
Communications Commission licensing costs whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. There
have been no impairments through June 30, 2000.
Derivative Financial Instruments
Derivative financial instruments in the form of interest rate swap
agreements are entered into by the Company to manage interest rate exposure.
These are contractual agreements between counterparties to exchange interest
streams based on notional principal amounts over a set period of time. Interest
rate swap agreements normally involve the exchange of fixed and floating rate
interest payment obligations without the exchange of the underlying principal
amounts. The notional or principal amount does not represent the amount at
risk, but is used only as a basis for determining the actual interest cash
flows to be exchanged related to the interest rate contracts. Market risk, due
to potential fluctuations in interest rates, is inherent in swap agreements.
Amounts paid or received under these agreements are included in interest
expense during the period accrued or earned.
Interest Capitalization
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
34, Tritel capitalizes interest expense related to the construction or purchase
of certain assets including its Federal Communications Commission licenses
which constitute activities preliminary to the commencement of the planned
principal operations. Interest capitalized in the years ended December 31,
1997, 1998, and 1999 was $7,214,000, $10,545,000 and $23,685,000, respectively.
Interest capitalized in the six months ended June 30, 2000 was $5,106,000.
F-60
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Income Taxes
Because the Predecessor Company was a nontaxable entity, operating results
prior to January 7, 1999 were included in the income tax returns of its
members. Therefore, the accompanying consolidated financial statements do not
include any provision for income tax benefit for the years ended December 31,
1997 and 1998 or any deferred income taxes on any temporary differences in
asset bases as of December 31, 1998.
As of January 7, 1999, the Company accounts for income taxes in accordance
with SFAS No. 109, which requires the use of the asset and liability method in
accounting for deferred taxes.
Revenue Recognition
The Company earns revenue by providing wireless 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.
Generally, access fees, airtime and long distance are billed monthly and are
recognized as service is provided. Revenue from the sale of equipment is
recognized when sold to the customer.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
totaled $6.2 million for the year ended December 31, 1999 and $8.2 million for
the six months ended June 30, 2000. No advertising costs were incurred prior to
1999.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has chosen to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
See Note 12.
Use of Estimates
The preparation of financial statements in accordance 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 at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. A significant estimate impacting the preparation of the
consolidated financial statements is the estimated useful life of Federal
Communications Commission licensing costs. Actual results could differ from
those estimates.
Per Share Amounts
The Company computes net loss per common 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 and diluted net loss per
common share is computed by dividing the net loss available to common
shareholders for the period by the weighted average number of shares of all
classes of common stock outstanding during the period. For purposes of this
calculation, common stock issued on January 7, 1999 was assumed to be
outstanding as of January 1, 1999. Series D preferred stock was included in the
computation of common shares outstanding after December 13, 1999, as 19,712,328
shares of common stock are issuable upon
F-61
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
the conversion of series D preferred stock. Such conversion can be made at any
time at the option of the holder and the number of shares to be received upon
conversion is fixed. In accordance with SFAS No. 128, outstanding stock options
and nonvested restricted stock grants have been excluded from these
calculations as the effect would be antidilutive.
Net loss per common share has not been reflected in the accompanying
financial statements for periods prior to 1999 because the Predecessor
Companies were limited liability corporations and did not have the existing
capital structure.
Comprehensive Income
Comprehensive income is the total of net income (loss) and all other non-
owner changes in stockholders' equity in a given period. The Company had no
comprehensive income components for the periods ended December 31, 1997, 1998,
and 1999 and June 30, 2000; therefore, comprehensive loss is the same as net
loss for all periods.
Segment Reporting
The Company presently operates in a single business segment as a provider of
wireless services in its licensed regions in the south-central United States.
Stock Split
On November 19, 1999, the board of directors approved a 400-for-1 stock
split for class A, class B, class C and class D common stock effective
immediately prior to the initial public offering. All common stock share data
have been retroactively adjusted to reflect this change.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 will
significantly change the accounting treatment of derivative instruments and,
depending upon the underlying risk management strategy, these accounting
changes could affect future earnings, assets, liabilities, and shareholders'
equity. The Company is closely monitoring the deliberations of the FASB's
derivative implementation task force. With the issuance of SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which delayed the effective date of
SFAS 133, the Company will be required to adopt SFAS 133 on January 1, 2001.
Presently, the Company has not yet quantified the impact that the adoption will
have on its consolidated financial statements.
(2) LIQUIDITY
As reflected in the accompanying consolidated financial statements, the
Company began commercial operations in certain of its markets late in 1999 and,
therefore, has limited revenues to fund expenditures. The Company expects to
grow rapidly while it develops and constructs its PCS network and builds its
customer
F-62
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Information subsequent to December 31, 1999 is unaudited)
base. The Company expects this growth to strain its financial resources and
result in significant operating losses and negative cash flows.
The planned high level of indebtedness could have a material adverse effect
on the Company, including the effect of such indebtedness on: (i) the Company's
ability to fund internally, or obtain additional debt or equity financing in
the future for capital expenditures, working capital, debt service
requirements, operating losses, acquisitions and other purposes; (ii) the
Company's ability to dedicate funds for the wireless network buildout,
operations or other purposes, due to the need to dedicate a substantial portion
of operating cash flow to fund interest payments; (iii) the Company's
flexibility in planning for, or reacting to, changes in its business and market
conditions; (iv) the Company's ability to compete with less highly leveraged
competitors; and (v) the Company's financial vulnerability in the event of a
downturn in its business or the economy.
The Company believes that the proceeds from the equity offerings in December
1999, together with the proceeds from the sale of senior subordinated discount
notes, the financing made available to it by the Federal Communications
Commission, borrowings under its bank credit facility and the equity investment
it has received, will provide it with sufficient funds to build out its
existing network as planned and fund operating losses until it completes its
planned network buildout and generate positive cash flow. There can be no
assurance that such funds will be adequate to complete the buildout of the
Company's PCS network. Under those circumstances, the Company could be required
to change its plans relating to the buildout of the network.
(3) PROPERTY AND EQUIPMENT
Major categories of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
1998 1999 2000
----------- ----------- -----------
(dollars in thousands) (unaudited)
<S> <C> <C> <C>
Furniture and fixtures................. $ 1,779 $ 14,853 $ 19,573
Network construction and development... 11,416 230,777 391,966
Leasehold improvements................. 728 22,082 31,006
---------- ----------- --------
13,923 267,712 442,545
Less accumulated depreciation.......... (107) (6,834) (27,115)
Deposits on equipment.................. -- 1,465 221
---------- ----------- --------
$ 13,816 $ 262,343 $415,651
========== =========== ========
</TABLE>
(4) FEDERAL COMMUNICATIONS COMMISSION LICENSING COSTS
During 1996 and 1997, the Federal Communications Commission granted to the
Predecessor Company as the successful bidder C-, D-, E- and F-Block licenses
with an aggregate license fee of $106,716,000 after deducting a 25% small
business discount.
The Federal Communications Commission provided below market rate financing
for a portion of the bid price of the C-and F-Block licenses. Based on the
Company's estimates of borrowing costs for similar debt, the Company discounted
the face amount of the debt to yield a market rate and the discount was applied
to reduce the carrying amount of the licenses and the debt. Accordingly, the
licenses were recorded at $90,475,000.
During July 1998, the Company took advantage of a reconsideration order by
the Federal Communications Commission allowing companies holding C-Block PCS
licenses several options to restructure their license holdings and associated
obligations. The Company elected the disaggregation option and returned one-
half of the broadcast spectrum originally acquired for each of the C-Block
license areas. As a result, the Company
F-63
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Information subsequent to December 31, 1999 is unaudited)
reduced the carrying amount of the related licenses by one-half, or
$35,442,000, and reduced the discounted debt and accrued interest due to the
Federal Communications Commission by $33,028,000. As a result of the
disaggregation election, the Company recognized an extraordinary loss of
approximately $2,414,000.
AT&T Wireless contributed certain A- and B-Block PCS licenses to the Company
on January 7, 1999 in exchange for preferred stock. The Company recorded such
licenses at $127,307,000 including related costs of the acquisition. Also, in
an acquisition of Central Alabama Partnership, LP 132, the Company acquired
certain C-Block licenses with an estimated fair value of $9,284,000, exclusive
of $6,072,000 of debt to the Federal Communications Commission.
Additionally on January 7, 1999, licenses with a carrying amount, including
capitalized interest and costs, totaling $21,874,000 were retained by the
Predecessor Company (see Note 15). The assets and liabilities retained by the
Predecessor Company have been reflected in these financial statements as a
distribution to the Predecessor Company.
Each of the Company's licenses is subject to an Federal Communications
Commission requirement that the Company construct wireless network facilities
offering coverage to certain percentages of the population within certain time
periods following the grant of such licenses. Failure to comply with these
requirements could result in the revocation of the related licenses or the
imposition of fines on the Company by the Federal Communications Commission.
(5) AT&T TRANSACTION
On May 20, 1998, the Predecessor Company and Tritel entered into a
Securities Purchase Agreement with AT&T Wireless and the other stockholders of
Tritel, whereby the Company agreed to construct a PCS network and provide
wireless services using the AT&T and SunCom brand names, giving equal emphasis
to each, in the south-central United States. On January 7, 1999, the parties
closed the transactions contemplated in the Securities Purchase Agreement.
At the closing, Tritel issued preferred stock to AT&T Wireless in exchange
for 20 MHz A- and B-Block PCS licenses which were assigned to the Company, and
for certain other agreements covering the Company's markets, including the
following agreements.
License Agreement
Pursuant to a Network Membership License Agreement, dated January 7, 1999
(the "License Agreement"), between AT&T Corp. and the Company, AT&T granted to
the Company a royalty-free, nontransferable, non-exclusive, nonsublicensable,
limited right, and license to use certain licensed marks solely in connection
with certain licensed activities. The licensed marks include the logo
containing AT&T and the globe design and the expression "Member of the AT&T
Wireless Network." The "Licensed Activities" include (i) the provision to end-
users and resellers, solely within the territory as defined in the License
Agreement, of Company communications services as defined in the License
Agreement on frequencies licensed to the Company for Commercial Mobile Radio
Services ("CMRS") provided in accordance with the License Agreement
(collectively, the "Licensed Services") and (ii) marketing and offering the
Licensed Services within the territory. The License Agreement also grants to
the Company the right and license to use licensed marks on certain permitted
mobile phones.
The License Agreement contains numerous restrictions with respect to the use
and modification of any of the licensed marks. Furthermore, the Company is
obligated to use commercially reasonable efforts to cause all
F-64
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Information subsequent to December 31, 1999 is unaudited)
Licensed Services marketed and provided using the licensed marks to be of
comparable quality to the Licensed Services marketed and provided by AT&T and
its affiliates in areas that are comparable to the territory taking into
account, among other things, the relative stage of development of the areas.
The License Agreement also sets forth specific testing procedures to determine
compliance with these standards, and affords the Company with a grace period to
cure any instances of alleged noncompliance therewith.
The Company may not assign or sublicense any of its rights under the License
Agreement; provided, however, that the License Agreement may be assigned to the
Company's lenders under the Bank Facility and after the expiration of any
applicable grace and cure periods under the Bank Facility, such lenders may
enforce the Company's rights under the License Agreement and assign the License
Agreement to any person with AT&T's consent.
The term of the License Agreement is for five years and renews for an
additional five-year period if each party gives the other notice to renew the
Agreement. The License Agreement may be terminated by AT&T at any time in the
event of a significant breach by the Company, including the Company's misuse of
any licensed marks, the Company's licensing or assigning any of the rights in
the License Agreement, the Company's failure to maintain AT&T's quality
standards or if a change in control of the Company occurs. After the initial
five-year term, AT&T may also terminate the License Agreement upon the
occurrence of certain transactions described in the Stockholders' Agreement.
The License Agreement, along with the exclusivity provisions of the
Stockholders' Agreement and the Resale Agreement will be amortized on a
straight-line basis over the ten-year term of the agreement. Accumulated
amortization related to these agreements at December 31, 1999 and June 30, 2000
was approximately $4.8 million and $7.3 million, respectively.
Roaming Agreement
Pursuant to the Intercarrier Roamer Service Agreement, dated as of January
7, 1999 (the "Roaming Agreement"), between AT&T Wireless, the Company, and
their affiliates, each party agrees to provide (each in its capacity as serving
provider, the "Serving Carrier") mobile wireless radio telephone service for
registered customers of the other party's (the "Home Carrier") customers while
such customers are out of the Home Carrier's geographic area and in the
geographic area where the Serving Carrier (itself or through affiliates) holds
a license or permit to construct and operate a mobile wireless radio/telephone
system and station. Each Home Carrier whose customers receive service from a
Serving Carrier shall pay to such Serving Carrier 100% of the Serving Carrier's
charges for wireless service and 100% of pass-through charges (i.e., toll or
other charges). Each Serving Carrier's service charges for use per minute or
partial minute for the first three years will be at a fixed rate, and
thereafter may be adjusted to a lower rate as the parties may negotiate from
time to time. Each Serving Carrier's toll charges per minute of use for the
first three years will be at a fixed rate, and thereafter such other rates as
the parties negotiate from time to time.
The Roaming Agreement has a term of 20 years, unless terminated earlier by a
party due to the other party's uncured breach of any term of the Roaming
Agreement.
Neither party may assign or transfer the Roaming Agreement or any of its
rights thereunder except to an assignee of all or part of its license or permit
to provide CMRS, provided that such assignee expressly assumes all or the
applicable part of the obligations of such party under the Roaming Agreement.
F-65
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All Information subsequent to December 31, 1999 is unaudited)
The Roaming Agreement will be amortized on a straight-line basis over the
20-year term of the agreement. Accumulated amortization related to this
agreement at December 31, 1999 and June 30, 2000 was approximately $800,000 and
$1.2 million, respectively.
(6) NOTE RECEIVABLE
On March 1, 1999, the Company entered into agreements with AT&T Wireless,
Lafayette Communications Company L.L.C. ("Lafayette") and ABC Wireless L.L.C.
("ABC") whereby the Company, AT&T Wireless and Lafayette would lend $29,500,000
to ABC to fund its participation in the re-auction of Federal Communications
Commission licenses that were returned to the Federal Communications Commission
by various companies under the July 1998 reconsideration order. The Company's
portion of this loan was $7,500,000 and was recorded in Other Assets.
Subsequent to closing of the agreements, ABC was the successful bidder for
licenses covering the Tritel markets with an aggregate purchase price of
$7,789,000. The Company has agreed, subject to Federal Communications
Commission approval, to purchase these licenses for $7,789,000. If the licenses
are not purchased by March 1, 2004, the note will mature on that date. The note
has a stated interest rate of 16% per year. There are no required payments of
principal or interest on the note until maturity. The note is secured by all
assets of ABC, including, if permitted by the Federal Communications
Commission, the Federal Communications Commission licenses awarded in the re-
auction, and ranks pari passu with the notes to AT&T Wireless and Lafayette.
(7) INCOME TAXES
On January 7, 1999 the Company recorded a deferred tax liability of
$55,100,000 primarily related to the difference in asset bases on the assets
acquired from AT&T Wireless.
Because the Predecessor Company was a nontaxable entity, the results
presented below relate solely to the year ended December 31, 1999. Components
of income tax benefit for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
--------------------------
Current Deferred Total
------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Federal.......................................... $-- $(24,725) $(24,725)
State............................................ -- (3,718) (3,718)
---- -------- --------
Total.......................................... $-- $(28,443) $(28,443)
==== ======== ========
</TABLE>
F-66
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Actual tax benefit differs from the "expected" tax benefit using the federal
corporate rate of 35% as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(dollars in
thousands)
<S> <C>
Computed "expected" tax benefit........................... $(96,564)
Reduction (increase) resulting from:
Change in valuation allowance for deferred tax assets..... 1,020
Nondeductible compensation related expense................ 68,308
Nontaxable loss of Predecessor Company.................... 780
Nondeductible portion of discount accretion............... 557
State income taxes, net of federal tax benefit............ (2,496)
Other..................................................... (48)
--------
$(28,443)
========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liability at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(dollars in
thousands)
<S> <C>
Deferred tax assets:
Net operating loss carryforward........................ $25,232
Tax basis of capitalized start-up costs in excess of
book basis............................................ 11,533
Discount accretion in excess of tax basis.............. 5,700
Tax basis of property and equipment in excess of book
basis................................................. 1,865
Other.................................................. 785
-------
Total gross deferred tax assets.......................... 45,115
Less: valuation allowance.............................. (1,020)
-------
Net deferred tax assets.................................. 44,095
-------
Deferred tax liabilities:
Intangible assets book basis in excess of tax basis.... $22,646
Federal Communications Commission licenses book basis
in excess of tax basis................................ 32,245
Capitalized interest book basis in excess of tax
basis................................................. 12,779
Discount accretion book basis in excess of tax basis... 2,130
-------
Total gross deferred tax liabilities................. 69,800
-------
Net deferred tax liability........................... $25,705
=======
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of $65,965,000 which are available to offset future
federal taxable income, if any, through 2019.
F-67
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
The valuation allowance for the gross deferred tax asset at December 31,
1999 was $1,020,000. No valuation allowance has been provided for the remaining
gross deferred tax asset principally due to the existence of a deferred tax
liability which was recorded upon the closing of the AT&T Wireless transaction
on January 7, 1999. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the period in
which those temporary differences become deductible. Management considered the
scheduled reversal of deferred tax liabilities in making this assessment. Based
upon anticipated future taxable income over the periods in which the deferred
tax assets are realizable, management believes it is more likely than not the
Company will realize the benefits of these deferred tax assets.
(8) NOTES PAYABLE AND LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
---------------- June 30,
1998 1999 2000
------- -------- -----------
(dollars in
thousands) (unaudited)
<S> <C> <C> <C>
Bank facility.................................. $ -- $300,000 $300,000
Senior Subordinated Discount Notes............. -- 216,734 230,497
Federal Communications Commission debt......... 51,599 41,905 41,941
------- -------- --------
51,599 558,639 572,438
Less current maturities........................ -- (923) (974)
------- -------- --------
$51,599 $557,716 $571,464
======= ======== ========
</TABLE>
Bank Facility
During 1999, the Company entered into a loan agreement (the "Bank
Facility"), which provides for (i) a $100,000,000 senior secured term loan (the
"Term Loan A"), (ii) a $200,000,000 senior secured term loan (the "Term Loan
B") and (iii) a $250,000,000 senior secured reducing revolving credit facility
(the "Revolver"). Tritel PCS Inc., Toronto Dominion (Texas), Inc., as
Administrative Agent, and certain banks and other financial institutions are
parties thereto.
The commitment to make loans under the Revolver automatically and
permanently reduces, quarterly beginning on December 31, 2002. The quarterly
reductions in the commitment are $6.25 million on December 31, 2002, $7.4
million for each quarter in 2003, $11.3 million for each quarter in 2004, $13.3
million for each quarter in 2005, $16.0 million for each quarter in 2006, and
$25.8 million for the first two quarters of 2007.
Interest on the Revolver, Term Loan A and Term Loan B accrues, at the
Company's option, either at a LIBOR rate plus an applicable margin or the
higher of the issuing bank's prime rate and the Federal Funds Rate (as defined
in the Bank Facility) plus 0.5%, plus an applicable margin. The borrowings
outstanding at June 30, 2000 carried a 10.89% average interest rate as of that
date. The Revolver requires an annual commitment fee ranging from 0.50% to
1.75% of the unused portion of the Bank Facility.
The Bank Facility also required the Company to purchase an interest rate
hedging contract covering an amount equal to at least 50% of the total amount
of the outstanding indebtedness of the Company (other than indebtedness which
bears interest at a fixed rate). In May 1999, Tritel entered into such interest
rate hedging contracts which are further described in Note 9.
F-68
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
The Term Loans are required to be prepaid and commitments under the
Revolving Bank Facility reduced in an aggregate amount equal to 50% of excess
cash flow of each fiscal year commencing with the fiscal year ending December
31, 2001; 100% of the net proceeds of asset sales, in excess of a yearly
threshold, outside the ordinary course of business or unused insurance
proceeds; and 50% of the net cash proceeds of issuances of equity by Tritel PCS
or its subsidiaries.
All obligations of the Company under the facilities are unconditionally and
irrevocably guaranteed by Tritel and all subsidiaries of Tritel PCS. The bank
facilities and guarantees, and any related hedging contracts provided by the
lenders under the Bank Facility, are secured by substantially all of the assets
of Tritel PCS and certain subsidiaries of Tritel PCS, including a first
priority pledge of all of the capital stock held by Tritel or any of its
subsidiaries, but excluding the Company's PCS licenses. The PCS licenses will
be held by one or more single purpose subsidiaries of the Company and, in the
future if the Company is permitted to pledge its PCS licenses, they will be
pledged to secure the obligations of the Company under the Bank Facility.
The Bank Facility contains covenants customary for similar facilities and
transactions, including covenants relating to the amounts of indebtedness that
the Company may incur, limitations on dividends and distributions on, and
redemptions and repurchases of, capital stock and other similar payments and
various financial maintenance covenants. The Bank Facility also contains
covenants relating to the population covered by the Company's network and
number of customers, as well as customary representations, warranties,
indemnities, conditions precedent to borrowing, and events of default.
Loans under the Bank Facility are available to fund capital expenditures
related to the construction of the Company's PCS network, the acquisition of
related businesses, working capital needs of the Company, and customer
acquisition costs. All indebtedness under the Bank Facility will constitute
senior debt.
The terms of the Bank Facility allow the Company to incur senior
subordinated debt with gross proceeds of not more than $250,000,000.
As of June 30, 2000, the Company has drawn $300,000,000 of advances under
Term Loan A and Term Loan B.
Senior Subordinated Discount Notes
On May 11, 1999, Tritel PCS, Inc. ("Tritel PCS"), a wholly-owned subsidiary
of the Company, issued unsecured senior subordinated discount notes with a
principal amount at maturity of $372,000,000. Such notes were issued at a
discount from their principal amount at maturity for proceeds of $200.2
million. No interest will be paid on the notes prior to May 15, 2004.
Thereafter, Tritel PCS will be required to pay interest semiannually at 12 3/4%
per annum beginning on November 15, 2004 until maturity of the notes on May 15,
2009.
The notes are fully unconditionally guaranteed on a joint and several basis
by the Company and by Tritel Communications, Inc. and Tritel Finance, Inc.,
both of which are wholly-owned subsidiaries of Tritel PCS. (See Note 20.) The
notes are subordinated in right of payment to amounts outstanding under the
Company's Bank Facility and to any future subordinated indebtedness of Tritel
PCS or the guarantors.
The indenture governing the notes limit, among other things, the Company's
ability to incur additional indebtedness, pay dividends, sell or exchange
assets, repurchase its stock, or make investments.
F-69
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Federal Communications Commission Debt
The Federal Communications Commission provided below market rate financing
for 90% of the bid price of the C-Block PCS licenses and 80% of the bid price
of the F-Block PCS licenses. Such Federal Communications Commission debt is
secured by all of the Company's rights and interest in the licenses financed.
The debt incurred in 1996 by the Company for the purchase of the C-Block PCS
licenses totaled $63,890,000 (undiscounted). The debt bears interest at 7%;
however, based on the Company's estimate of borrowing costs for similar debt, a
rate of 10% was used to determine the debt's discounted present value of
$52,700,000. As discussed in Note 4, the Company elected to disaggregate and
return one-half of the broadcast spectrum of the C-block licenses. The Federal
Communications Commission permitted such spectrum to be returned effective as
of the original purchase. As a result, the Company reduced the discounted debt
due to the Federal Communications Commission for such licenses by $27,410,000.
F-Block licenses were granted in 1997. The debt incurred by the Company for
the purchase of such licenses totaled $28,167,000 (undiscounted). The debt
bears interest at 6.125%, however; based on the Company's estimate of borrowing
costs for similar debt, a rate of 10% was used to determine the debt's
discounted present value of $23,116,000.
In the acquisition of Central Alabama Partnership, LP 132 on January 7,
1999, the Company assumed debt of $6,072,000 payable to the Federal
Communications Commission for the licenses acquired.
Additionally, certain licenses and the related Federal Communications
Commission debt for those licenses were retained by the Predecessor Company.
The discounted carrying amount of the debt for the licenses retained by the
Predecessor Company was $15,889,000.
All the scheduled interest payments on the Federal Communications Commission
debt were suspended for the period from January 1997 through March 1998 by the
Federal Communications Commission. Payments of such suspended interest resumed
in July 1998 with the total suspended interest due in eight quarterly payments
through April 30, 2000. The Company is required to make quarterly principal and
interest payments on the Federal Communications Commission debt.
Notes Payable
At December 31, 1998, the Company had $22,100,000 payable under a
$28,500,000 loan agreement with a supplier. The loan agreement was secured by a
pledge of the membership equity interests of certain members of Predecessor
Company management and the interest rate was 9%. Amounts outstanding under this
loan agreement were repaid in January 1999.
At December 31, 1998, the Predecessor Company had a $1,000,000 line of
credit with a commercial bank, that expired July 27, 1999 bearing interest at
the bank's prime rate of interest plus 1% at December 31, 1998. The amount
outstanding on the line of credit was $305,000 at December 31, 1998. This line
of credit related specifically to licenses that were retained by the
Predecessor Company. Amounts outstanding under this loan agreement were repaid
in January 1999.
F-70
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Notes Payable to Related Party
In March 1997, the Predecessor Company entered into a loan agreement for a
$5,700,000 long-term note payable to Southern Farm Bureau Life Insurance
Company ("SFBLIC"). SFBLIC was a member of Mercury Southern, LLC, which was a
member of the Predecessor Company. This note was secured by a pledge of the
membership equity interests of certain members of Predecessor Company
management and interest accrued annually at 10% on the anniversary date of the
note. At December 31, 1998, the balance of the note was $6,270,000 as a result
of the capitalization of the first year's interest. The indebtedness under the
note was convertible into equity at the face amount at any time at the option
of SFBLIC, subject to Federal Communications Commission equity ownership
limitations applicable to entrepreneurial block license holders. The
Predecessor Company and SFBLIC subsequently negotiated a revised arrangement
under which the amount due of $6,270,000 plus accrued interest of $476,000 was
not paid but instead was converted into $8,976,000 of members' equity in the
Predecessor Company on January 7, 1999. The $2,230,000 preferred return to the
investor was accounted for as a financing cost during the year ended December
31, 1999. The interest accrued at the contractual rate was capitalized during
the accrual period.
As of December 31, 1999, the following is a schedule of future minimum
principal payments of the Company's long-term debt due within five years and
thereafter:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(dollars in
thousands)
<S> <C>
December 31, 2000.......................................... $ 923
December 31, 2001.......................................... 1,004
December 31, 2002.......................................... 5,567
December 31, 2003.......................................... 23,548
December 31, 2004.......................................... 30,483
Thereafter................................................. 657,950
---------
719,475
Less unamortized discount.................................. (160,836)
---------
Total...................................................... $ 558,639
=========
</TABLE>
(9) INTEREST RATE SWAP AGREEMENTS
As of December 31, 1999 and June 30, 2000, the Company was a party to
interest rate swap agreements with a total notional amount of $200 million. The
agreements establish a fixed effective rate of 9.05% on $200.0 million of the
current balance outstanding under the Bank Facility through the earlier of
March 31, 2002 or the date on which the Company achieves operating cash flow
breakeven.
(10) REDEEMABLE PREFERRED STOCK
Series A Preferred Stock
The series A preferred stock, with respect to dividend rights and rights on
liquidation, dissolution or winding up, ranks on a parity basis with the series
B preferred stock, and ranks senior to series C preferred stock, series D
preferred stock and common stock. The holders of series A preferred stock are
entitled to receive cumulative quarterly cash dividends at the annual rate of
10% multiplied by the liquidation preference,
F-71
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
which is equal to $1,000 per share plus declared but unpaid dividends. Tritel
may elect to defer payment of any such dividends until the date on which the
42nd quarterly dividend payment is due, at which time, and not earlier, all
deferred payments must be made. Except as required by law or in certain
circumstances, the holders of the series A preferred stock do not have any
voting rights. The series A preferred stock is redeemable, in whole but not in
part, at the option of Tritel on or after January 15, 2009 and at the option of
the holders of the series A preferred stock on or after January 15, 2019.
Additionally, on or after January 15, 2007, AT&T Wireless, and qualified
transferees, have the right to convert each share of series A preferred stock
into shares of class A common stock. The number of shares the holder will
receive upon conversion will be the liquidation preference per share divided by
the market price of class A common stock times the number of shares of series A
preferred stock to be converted.
The Company issued 90,668 shares of series A preferred stock with a stated
value of $90,668,000 to AT&T Wireless on January 7, 1999.
Series B Preferred Stock
The series B preferred stock ranks on a parity basis with the series A
preferred stock and is identical in all respects to the series A preferred
stock, except:
. the series B preferred stock is redeemable at any time at the option of
Tritel,
. the series B preferred stock is not convertible into shares of any other
security issued by Tritel, and
. the series B preferred stock may be issued by Tritel pursuant to an
exchange event as defined in the Restated Certification of
Incorporation.
No series B preferred stock has been issued by the Company.
(11) STOCKHOLDERS' EQUITY
The Predecessor Companies were organized as limited liability corporations
(LLC) and as such had no outstanding stock. Owners (members) actually held a
membership interest in the LLC. As a result, the investment of those members in
the Predecessor Companies is reflected as contributed capital--Predecessor
Company in the accompanying balance sheet.
On January 7, 1999, the Company issued stock to the Predecessor Company as
well as other parties as described herein.
Preferred Stock
Following is a summary of the preferred stock of the Company:
3,100,000 shares of authorized preferred stock, par value $.01 per share
(the "preferred stock"), 1,100,000 of which have been designated as follows:
. 200,000 shares designated "Series A Convertible Preferred Stock" (the
"series A preferred stock"), 10% redeemable convertible, $1,000 stated
and liquidation value (See Note 10);
. 300,000 shares designated "Series B Preferred Stock" (the "series B
preferred stock"), 10% cumulative, $1,000 stated and liquidation value
(See Note 10);
F-72
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
. 500,000 shares designated "Series C Convertible Preferred Stock" (the
"series C preferred stock"), 6.5% cumulative convertible, $1,000 stated
and liquidation value; and
. 100,000 shares designated "Series D Convertible Preferred Stock" (the
"series D preferred stock"), 6.5% cumulative convertible, $1,000 stated
and liquidation value.
Series C Preferred Stock
Series C preferred stock (1) ranks junior to the series A preferred stock
and the series B preferred stock with respect to dividend rights and rights on
liquidation, dissolution or winding up, (2) ranks junior to the series D
preferred stock with respect to rights on a statutory liquidation, (3) ranks on
a parity basis with the
series D preferred stock with respect to rights on liquidation, dissolution or
winding up, except a statutory liquidation, (4) ranks on a parity basis with
series D preferred stock and common stock with respect to dividend rights, and
(5) ranks senior to the common stock and any other series or class of the
Company'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 rights on liquidation, dissolution and winding up.
Holders of series C preferred stock are entitled to dividends in cash or
property when, as and if declared by the Board of Directors of Tritel. Upon any
liquidation, dissolution or winding up of Tritel, holders of series C preferred
stock are entitled to receive, after payment to any stock ranking senior to the
series C preferred stock, a liquidation preference equal to (1) the quotient of
the aggregate paid-in-capital of all series C preferred stock held by a
stockholder divided by the total number of shares of series C preferred stock
held by that stockholder plus (2) declared but unpaid dividends on the series C
preferred stock, if any, plus (3) an amount equal to interest on the invested
amount at the rate of 6 1/2% per annum, compounded quarterly. The holders of
the series C preferred stock have the right at any time to convert each share
of series C preferred stock, and upon the initial public offering in December
1999, each share of series C preferred stock automatically converted into
shares of class A common stock of and class D common stock. The number of
shares the holder received upon conversion was determined by dividing the
aforementioned liquidation preference by the conversion price in effect at the
time of $2.50. On all matters to be submitted to the stockholders of Tritel,
the holders of series C preferred stock shall have the right to vote on an as-
converted basis as a single class with the holders of the common stock.
Additionally, the affirmative vote of the holders of a majority of the series C
preferred stock is required to approve certain matters. The series C preferred
stock is not redeemable.
The Company issued 18,262 shares of series C preferred stock with a stated
value of $18,262,000 to the Predecessor Company on January 7, 1999 in exchange
for certain of its assets, liabilities and continuing operations. The stock was
recorded at the historical cost of the assets and liabilities acquired from the
Predecessor Company since, for accounting purposes, this transaction was
accounted for as a reorganization of the Predecessor Company into a C
corporation and a name change to Tritel.
The Company also issued 14,130 shares of series C preferred stock with a
stated value of $14,130,000 to the Predecessor Company on January 7, 1999 in
exchange for cash of $14,130,000. In the same transaction, the Company also
issued 149,239 shares of series C preferred stock with a stated value of
$149,239,000 to investors on January 7, 1999 in exchange for cash. The stock
was recorded at its stated value and the costs associated with this transaction
have been offset against equity.
Additionally, the Company issued 2,602 shares of series C preferred stock
with a stated value of $2,602,000 to Central Alabama Partnership, LP 132 on
January 7, 1999 in exchange for its net assets. The stock was recorded at its
stated value and the assets and liabilities were recorded at estimated fair
values.
F-73
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
All of the series C preferred stock outstanding converted into 73,349,620
shares of class A and 4,962,804 shares of class D common stock upon the closing
of the initial public offering on December 13, 1999.
Series D Preferred Stock
The series D preferred stock (1) ranks junior to the series A preferred
stock and the series B preferred stock with respect to dividend rights and
rights on liquidation, dissolution or winding up, (2) ranks senior to the
series C preferred stock with respect to rights on a statutory liquidation, (3)
ranks on a parity basis with series C preferred stock with respect to rights on
liquidation, dissolution and winding up, except a statutory liquidation, (4)
ranks on a parity basis with series C preferred stock and common stock with
respect to dividend
rights, and (5) ranks senior to the common stock and any other series or class
of Tritel's common or preferred stock, now or hereafter authorized, other than
series A preferred stock, series B preferred stock or series C preferred stock,
with respect to rights on liquidation, dissolution and winding up. Subject to
the preceding sentence, the series D preferred stock is identical in all
respects to the series C preferred stock, except:
. the series D preferred stock is convertible into an equivalent number of
shares of series C preferred stock at any time. This stock is then
convertible to common stock at the conversion rate of the original
series C preferred stock set forth on the date of the initial public
offering, or 18,463,121 shares of class A common stock and 1,249,207
shares of class D common stock;
. the liquidation preference for series D preferred stock equals $1,000
per share plus declared but unpaid dividends plus an amount equal to
interest on $1,000 at the rate of 6 1/2% per annum, compounded
quarterly, from the date of issuance of such share to and including the
date of the payment;
. the holders of series D preferred stock do not have any voting rights,
other than those required by law or in certain circumstances; and
. shares of series D preferred stock are not automatically convertible
upon an initial public offering of the Company's stock.
The Company issued 46,374 shares of series D preferred stock with a stated
value of $46,374,000 to AT&T Wireless on January 7, 1999.
Common Stock
Following is a summary of the common stock of the Company:
. 1,016,000,009 shares of common stock, par value $.01 per share (the
"common stock "), which have been designated as follows:
. 500,000,000 shares designated "Class A Voting Common Stock" (the "class
A common stock"),
. 500,000,000 shares designated "Class B Non-Voting Common Stock" (the
"class B common stock"),
. 4,000,000 shares designated "Class C Common Stock" (the "class C common
stock "),
. 12,000,000 shares designated "Class D Common Stock" (the "class D common
stock ") and
. nine shares designated "Voting Preference Common Stock" (the "voting
preference common stock ")
The common stock of Tritel is divided into two groups, the "non-tracked
common stock," which is comprised of the class A common stock, the class B
common stock and the voting preference common stock, and the "tracked common
stock," which is comprised of the class C common stock and class D common
stock.
F-74
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Each share of common stock is identical, and entitles the holder thereof to the
same rights, powers and privileges of stockholders under Delaware law, except:
. dividends on the tracked common stock track the assets and liabilities
of Tritel C/F Holding Corp., a subsidiary of Tritel;
. rights on liquidation, dissolution or winding up of Tritel of the
tracked common stock track the assets and liabilities of Tritel C/F
Holding Corp.;
. the class A common stock, together with the series C preferred stock,
has 4,990,000 votes, the class B common stock has no votes, the class C
common stock has no votes, the class D common stock has no votes and the
voting preference common stock has 5,010,000 votes, except that in any
matter requiring a separate class vote 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 will be entitled to one vote per share;
. in the event the Federal Communications Commission indicates that the
class A common stock and the voting preference stock (1) may be voted as
a single class on all matters, (2) may be treated as a single class for
all quorum requirements and (3) may have one vote per share, then,
absent action by the Board of Directors and upon an affirmative vote of
66 2/3% or more of the class A common stock, Tritel must seek consent
from the Federal Communications Commission to permit the class A common
stock and the voting preference common stock to vote and act as a single
class in the manner described above;
. 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 the restated certificate of incorporation that adversely
affects the powers, preferences or special rights of the holders of the
class B common stock;
. each share of class B common stock may be converted, at any time at the
holder's option, into one share of class A common stock;
. each share of class A common stock may be converted, at any time at the
holder's option, into one share of class B common stock; and
. in the event the Federal Communications Commission indicates that it
will permit the conversion of tracked common stock into either class A
common stock or class B common stock, then, absent action by the Board
of Directors and upon an affirmative vote of 66 2/3% or more of the
class A common stock, such conversion will be allowed by Tritel at the
option of the holders of the tracked common stock.
As of December 31, 1999, the Company has issued 10,981,932 shares of class A
common stock, 1,380,448 shares of class C common stock and 6 shares of voting
preference common stock to certain members of management of the Company. The
class A and class C common stock issued to management are restricted shares
subject to repurchase agreements which require the holders to sell to the
Company at a $0.01 repurchase price per share, the number of shares that would
be equal to $2.50 per share on specified "Trigger Dates" including a change of
control, termination of employment, or the seventh anniversary of the
agreement. On the "Trigger Date," the holders must sell to the Company the
number of shares necessary, based on the then current fair value of the stock
based on the average closing price for the most recent ten trading days, to
reduce the number of shares of stock held by an amount equal to the number of
shares then held by the holder times $2.50 per share (in essence, requiring the
holders to pay $2.50 per share for their shares of stock). Also, in the event
the Company does not meet certain performance measurements, certain members of
management will be required to sell to the Company a fixed number of shares at
$0.01 per share.
F-75
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Based on the terms of the repurchase agreement, this plan is being accounted
for as a variable stock plan. Accordingly, the Company will record Stock-based
Compensation Expense over the vesting period for the difference between the
quoted market price of the Company's stock at each measurement date and the
current fair value of the stock to be repurchased from the individuals.
Subsequent to year end, the Board of Directors approved a plan to modify these
awards to remove the provision that requires management to surrender a portion
of their shares. This modification, which was completed during the second
quarter of 2000, established the measurement date upon which the value of the
awards were fixed. Based on the market price of Tritel's common stock at the
measurement date, Tritel will record additional non-cash compensation expense
related to these shares for the period from 2000 to 2004 of approximately $74.5
million. In addition, Tritel will record a maximum of $26.0 million in cash
compensation expense during the period from 2000 to 2004 to reimburse the
participants for the tax consequences of the modification of these awards.
In conjunction with the Company's agreement with Mr. Sullivan (see Note 17),
the Company agreed to repurchase 1,276,000 shares of the officer's stock at
$0.01 per share and allow the officer to become fully vested in his remaining
1.8 million shares without restriction or repurchase rights. As a result, the
Company recorded $4.5 million as compensation expense and additional paid in
capital. Such amount represents the fair value of the stock at the time of the
agreement without restrictions or repurchase rights.
(12) STOCK OPTION PLANS
In January 1999, the Company adopted a stock option plan for employees and a
stock option plan for non-employee directors.
Tritel's 1999 Stock Option Plan (the "Stock Option Plan") authorizes the
grant of certain tax-advantaged stock options, nonqualified stock options and
stock appreciation rights for the purchase of an aggregate of up to 10,462,400
shares of common stock of Tritel. The Stock Option Plan benefits qualified
officers, employee directors and other key employees of, and consultants to,
Tritel and its subsidiaries in order to attract and retain those persons and to
provide those persons with appropriate incentives. The Stock Option Plan also
allows grants or sales of common stock to those persons. The maximum term of
any stock option to be granted under the Stock Option Plan is ten years. Grants
of options under the Stock Option Plan are determined by the Board of Directors
or a compensation committee designated by the Board.
The exercise price of incentive stock options under the Stock Option Plan
must not be less than the fair market value of the common stock on the grant
date and the exercise price of all other options must not be less that 75% of
such fair market value. The Stock Option Plan will terminate in 2009 unless
extended by amendment.
As of December 31, 1999, 4,585,028 restricted shares and 2,081,422 stock
options with an average exercise price of $18.05 were granted under the Stock
Option Plan. The restricted stock is subject to the repurchase agreements as
discussed in Note 11. The restricted shares will vest in varying percentages,
up to 80% vesting, over five years. The remaining 20% will vest if the Company
meets certain performance benchmarks for development and construction of its
wireless PCS network. Stock options generally vest 25% on each of the first
four anniversaries of the date of the grant. A portion of the stock options
granted to employees in connection with the initial public offering vest 25% on
the thirty-first day after grant and 25% on each of the first three
anniversaries of the date of the grant. The stock options outstanding as of
December 31, 1999 vest 100% upon a change of control.
F-76
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Tritel's 1999 Stock Option Plan for Non-employee Directors (the "Non-
employee Directors Plan") authorizes the grant of certain nonqualified stock
options for the purchase of an aggregate of up to 100,000 shares of common
stock of Tritel. The Non-employee Directors Plan benefits non-employee
directors of Tritel in order to attract and retain those persons and to provide
those persons with appropriate incentives. The maximum term of any stock option
to be granted under the Non-employee Directors Plan is ten years. Grants of
options under the Non-employee Directors are determined by the Board of
Directors.
The exercise price of nonqualified stock options granted under the Non-
employee Directors Plan must not be less than the fair market value of the
common stock on the grant date. The Non-employee Directors Plan will terminate
in 2009 unless extended by amendment.
As of December 31, 1999, 45,000 options with an exercise price of $18 per
share were outstanding under the Non-employee Directors Plan. These options
vest 20% on the date of grant and an additional 20% on each of the first four
anniversaries of the date of the grant and fully vest upon a change of control.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation has
been recognized for the stock options. If compensation cost had been determined
based on the fair value at grant date for awards in 1999 in accordance with
SFAS No. 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below (dollars in thousands):
<TABLE>
<S> <C>
Net loss--As reported.................................................. $247,454
Net loss--Pro forma.................................................... 250,608
Net loss per share--As reported........................................ 33.25
Net loss per share--Pro forma.......................................... 33.66
</TABLE>
The fair value of each option on the date of grant is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<S> <C>
Expected life........................................................... 5 Years
Risk-free interest rate................................................. 6.16%
Expected volatility..................................................... 56%
Dividend yield.......................................................... 0%
</TABLE>
The weighted average fair value of options granted during 1999 was $8.52 per
share. At December 31, 1999, 9,000 options were exercisable.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Exercise Number of Options Remaining
Price Outstanding Contractual Life
-------- ----------------- ----------------
<S> <C> <C>
$18.00 2,119,572 10 years
31.69 6,850 10 years
</TABLE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made pursuant to SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Fair value estimates are subject to inherent
F-77
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
limitations. Estimates of fair value are made at a specific point in time,
based on relevant market information and information about the financial
instrument. The estimated fair values of financial instruments are not
necessarily indicative of amounts the Company might realize in actual market
transactions. Estimates of fair value are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates. The carrying amounts at December 31, 1998 and 1999 for cash and
cash equivalents, accounts receivable, notes receivable, accounts payable,
accrued liabilities, notes payable, and variable rate long-term debt are
reasonable estimates of their fair values. The carrying amount of fixed-rate
long-term debt is believed to approximate fair value because such debt was
discounted to reflect market interest rate at inception and such discount is
believed to be approximate for valuation of this debt.
(14) RELATED PARTY TRANSACTIONS
On January 7, 1999, the Company entered into a secured promissory note
agreement under which it agreed to lend up to $2,500,000 to the Predecessor
Company. Interest on advances under the loan agreement is 10% per year. The
interest will compound annually and interest and principal are due at maturity
of the note. The note is secured by the Predecessor Company's ownership
interest in the Company. Any proceeds from the sales of licenses by the
Predecessor Company, net of the repayment of any Federal Communications
Commission debt, are required to be applied to the note balance. If the note
has not been repaid within five years, it will be repaid through a reduction of
the Predecessor Company's interest in the Company based on a valuation of the
Company's stock at that time. The balance of this note at December 31, 1999 was
approximately $2.3 million.
(15)ASSETS AND LIABILITIES RETAINED BY PREDECESSOR COMPANY
Certain assets and liabilities, with carrying amounts of $22,070,000 and
$17,367,000, respectively, principally for certain Federal Communications
Commission licenses and related Federal Communications Commission debt, which
were retained by the Predecessor Company have been reflected in these financial
statements as a distribution to the Predecessor Company. The Predecessor
Company is holding such assets and liabilities but is not currently developing
the PCS markets. Of the assets retained by the Predecessor Company, Tritel was
granted an option to acquire certain PCS licenses for approximately 1.2 million
shares of class A common stock. During May 1999, Tritel notified the
Predecessor Company of its intent to exercise this option. Such licenses will
be transferred to Tritel after approval by the Federal Communications
Commission. Tritel has committed to sell to AT&T Wireless or its designee such
licenses.
F-78
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
(16) LEASES
The Company leases office space, equipment, and co-location tower space
under noncancelable operating leases. Expense under operating leases was
$3,000, $334,000 and $7.2 million for 1997, 1998 and 1999, respectively.
Management expects that in the normal course of business these leases will be
renewed or replaced by similar leases. The leases extend through 2008.
Future minimum lease payments under these leases at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
(dollars
in
thousands)
----------
<S> <C>
2000.............................................................. $13,940
2001.............................................................. 13,846
2002.............................................................. 13,731
2003.............................................................. 13,239
2004.............................................................. 8,955
Thereafter........................................................ 8,881
-------
Total........................................................... $72,592
=======
</TABLE>
(17) COMMITMENTS AND CONTINGENCIES
Effective September 1, 1999, Tritel, Inc. and Jerry M. Sullivan entered into
an agreement to redefine Mr. Sullivan's relationship with Tritel, Inc. and its
subsidiaries. Mr. Sullivan has resigned as an officer and a director of Tritel,
Inc. and all of its subsidiaries. Mr. Sullivan will retain the title Executive
Vice President of Tritel, Inc. through December 31, 2001; however, under the
agreement, he is not permitted to represent the Company nor will he perform any
functions for Tritel, Inc. As part of the agreement, Mr. Sullivan will also
receive an annual salary of $225,000 and an annual bonus of $112,500 through
December 31, 2002. Mr. Sullivan became fully vested in 1,800,000 shares of
class A common stock and returned all other shares held by him, including his
voting preference common stock to Tritel, Inc. Accordingly, the Company has
recorded $5.8 million in additional compensation expense during 1999. The $5.8
million was determined pursuant to the settlement of Mr. Sullivan's employment
relationship with the Company, and includes $4.5 million for the grant of
additional stock rights, $225,000 annual salary and $112,500 annual bonus
through December 31, 2002, and other related amounts.
Mr. Sullivan had served as Director, Executive Vice President and Chief
Operating Officer of Tritel, Inc. since 1993. The foregoing agreements
supersede the employment relationship between Tritel, Inc. and Mr. Sullivan
defined by the Management Agreement and Mr. Sullivan's employment agreement.
In December 1998, the Company entered into an acquisition agreement with an
equipment vendor whereby the Company agreed to purchase a minimum of
$300,000,000 of equipment, software and certain engineering services over a
five-year period in connection with the construction of its wireless
telecommunications network. The Company agreed that the equipment vendor would
be the exclusive provider of such equipment during the term of the agreement.
As part of this agreement, the vendor advanced $15,000,000 to the Company at
the closing of the transactions described herein. The $15,000,000 deferred
credit is accounted for as a reduction in the cost of the equipment as the
equipment is purchased.
F-79
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
(18) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
For the Quarters Ended
---------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- -------------- ----------------- ------------------
1998 1999 1998 1999 1998 1999 1998 1999
----- ------- ----- ------- ------- -------- ------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ -- $ 179 $ -- $ 6,580
Operating loss.......... (763) (7,471) (997) (9,877) (1,390) (21,229) (4,536) (226,911)
Loss before
extraordinary item..... (743) (6,247) (990) (6,655) (1,398) (15,855) (5,200) (218,698)
Net loss................ (743) (6,247) (990) (6,655) (3,812) (15,855) (5,200) (218,698)
Net loss per common
share.................. $ (2.80) $ (2.94) $ (7.41) $ (9.20)
</TABLE>
(19) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
------------------------ --------------
1997 1998 1999 1999 2000
------- ------- -------- ------ -------
(unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash paid for interest, net of amounts
capitalized............................ $ -- $ -- $ 14,362 $5,104 $16,711
Significant non-cash investing and
financing activities:
Long-term debt incurred to obtain
Federal Communications Commission
licenses, net of discount............ 23,116 -- -- -- --
Capitalized interest and discount on
debt................................. 6,799 7,614 10,062 455 2,301
Deposits applied to purchase of
Federal Communications Commission
licenses............................. 5,000 -- -- -- --
Capital expenditures included in
accounts payable..................... -- 5,762 81,913 -- 80,469
Election of Federal Communications
Commission disaggregation option for
return of spectrum:
Reduction in Federal Communications
Commission licensing costs......... -- 35,442 -- -- --
Reduction in accrued interest
payable and long-term debt......... -- 33,028 -- -- --
Preferred stock issued in exchange for
assets and liabilities................. -- -- 156,837 -- --
</TABLE>
F-80
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
(20)CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements as of December
31, 1999 and June 30, 2000 and for the year ended December 31, 1999 and for the
six months ended June 30, 1999 and 2000, are presented for Tritel, Tritel PCS,
those subsidiaries of Tritel PCS who serve as guarantors and those subsidiaries
who do not serve as guarantors of the senior subordinated discount notes.
Condensed Consolidating Balance Sheet
As of December 31, 1999
<TABLE>
<CAPTION>
Tritel
Tritel, PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
-------- -------- ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ -- $613,999 $ (4,730) $ -- $ -- $ 609,269
Other current assets.. 2,462 1,407 17,426 -- -- 21,295
Intercompany
receivables.......... 1,799 210,673 -- -- (212,472) --
-------- -------- -------- -------- --------- ----------
Total current
assets............. 4,261 826,079 12,696 -- (212,472) 630,564
Restricted cash......... -- 6,594 -- -- -- 6,594
Property and equipment,
net.................... -- -- 262,343 -- -- 262,343
Licenses and other
intangibles............ 59,508 -- -- 201,946 -- 261,454
Investment in
subsidiaries........... 445,301 73,286 -- -- (518,587) --
Other long term assets.. -- 62,633 82 -- (27,308) 35,407
-------- -------- -------- -------- --------- ----------
Total assets........ $509,070 $968,592 $275,121 $201,946 $(758,367) $1,196,362
======== ======== ======== ======== ========= ==========
Current liabilities:
Accounts payable,
accrued expenses and
other current
liabilities.......... $ 29 $ 1,240 $111,257 $ 1,721 $ -- $ 114,247
Intercompany
payables............. -- -- 196,950 15,522 (212,472) --
-------- -------- -------- -------- --------- ----------
Total current
liabilities........ 29 1,240 308,207 17,243 (212,472) 114,247
Non-current liabilities:
Long-term debt........ -- 516,734 27,121 40,982 (27,121) 557,716
Deferred income taxes
and other............ 22,009 5,318 (20,024) 30,251 (187) 37,367
-------- -------- -------- -------- --------- ----------
Total liabilities... 22,038 523,292 315,304 88,476 (239,780) 709,330
Series A redeemable
convertible preferred
stock.................. 99,586 -- -- -- -- 99,586
-------- -------- -------- -------- --------- ----------
Stockholders' equity
(deficit).............. 387,446 445,300 (40,183) 113,470 (518,587) 387,446
-------- -------- -------- -------- --------- ----------
Total liabilities
and equity......... $509,070 $968,592 $275,121 $201,946 $(758,367) $1,196,362
======== ======== ======== ======== ========= ==========
</TABLE>
F-81
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Balance Sheet
As of June 30, 2000
<TABLE>
<CAPTION>
Tritel PCS, Guarantor NonGuarantor Consolidated
Tritel, Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------ ----------- ------------ ------------ ------------ ------------
(Dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.......... $ -- $358,085 $ (7,512) $ -- $ -- $ 350,573
Other current assets.. 3,756 2,000 39,055 -- -- 44,811
Intercompany
receivables.......... -- 449,808 -- -- (449,808) --
-------- -------- -------- -------- --------- ----------
Total current
assets............. 3,756 809,893 31,543 -- (449,808) 395,384
Restricted cash......... -- 5,487 -- -- -- 5,487
Property and equipment,
net.................... -- -- 415,651 -- -- 415,651
Licenses and other
intangibles............ 56,646 -- -- 202,894 -- 259,540
Investment in
subsidiaries........... 348,281 (12,476) -- -- (335,805) --
Other long term assets.. -- 75,976 410 -- (42,697) 33,689
-------- -------- -------- -------- --------- ----------
Total assets........ $408,683 $878,880 $447,604 $202,894 $(828,310) $1,109,751
======== ======== ======== ======== ========= ==========
Current liabilities:
Accounts payable,
accrued expenses and
other current
liabilities.......... $ 2,010 $ 1,003 $111,355 $ 1,580 $ -- $ 115,948
Intercompany
payables............. 177 -- 432,417 17,214 (449,808) --
-------- -------- -------- -------- --------- ----------
Total current
liabilities........ 2,187 1,003 543,772 18,794 (449,808) 115,948
Non-current liabilities:
Long-term debt........ -- 530,497 42,409 40,967 (42,409) 571,464
Deferred income taxes
and other
liabilities.......... 22,013 (901) (13,213) 30,245 (288) 37,856
-------- -------- -------- -------- --------- ----------
Total liabilities... 24,200 530,599 572,968 90,006 (492,505) 725,268
-------- -------- -------- -------- --------- ----------
Series A redeemable
convertible preferred
stock.................. 104,119 -- -- -- -- 104,119
-------- -------- -------- -------- --------- ----------
Stockholders' equity
(deficit).............. 280,364 348,281 (125,364) 112,888 (335,805) 280,364
-------- -------- -------- -------- --------- ----------
Total liabilities
and equity......... $408,683 $878,880 $447,604 $202,984 $(828,310) $1,109,751
======== ======== ======== ======== ========= ==========
</TABLE>
F-82
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Statement of Operations
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Tritel Guarantor NonGuarantor Consolidated
Tritel, Inc. PCS, Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------------ --------- ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 7,974 $1,038 $(2,253) $ 6,759
--------- ------- -------- ------ ------- ---------
Operating Expenses:
Cost of services and
equipment............ -- -- 6,966 -- -- 6,966
Technical operations.. -- -- 18,459 -- -- 18,459
General and
administrative....... 56 45 25,065 2 (2,253) 22,915
Sales and marketing... -- -- 20,404 -- -- 20,404
Stock-based
compensation......... 190,664 -- -- -- -- 190,664
Depreciation and
amortization......... 5,620 -- 6,621 598 -- 12,839
--------- ------- -------- ------ ------- ---------
Total operating
expenses........... 196,340 45 77,515 600 (2,253) 272,247
--------- ------- -------- ------ ------- ---------
Operating loss.......... (196,340) (45) (69,541) 438 -- (265,488)
Interest income......... 170 16,553 255 -- (187) 16,791
Financing cost.......... -- -- (2,230) -- -- (2,230)
Interest expense........ -- (24,924) (233) -- 187 (24,970)
--------- ------- -------- ------ ------- ---------
Income (loss) before
income taxes........... (196,170) (8,416) (71,749) 438 -- (275,897)
Income tax benefit
(expense).............. 2,051 3,135 23,420 (163) -- 28,443
--------- ------- -------- ------ ------- ---------
Net loss................ $(194,119) $(5,281) $(48,329) $ 275 $ -- $(247,454)
========= ======= ======== ====== ======= =========
</TABLE>
F-83
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Statement of Operations
For the Six-Months Ended June 30, 1999
<TABLE>
<CAPTION>
Tritel
Tritel, PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
-------- -------- ------------ ------------ ------------ ------------
(Dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ -- $ --
-------- -------- -------- ------ ------- ---------
Operating Expenses
Cost of services and
equipment............ -- -- -- -- -- --
Technical operations.. -- -- 3,946 -- -- 3,946
General and
administrative....... 2 44 7,156 2 -- 7,204
Sales and marketing... -- -- 2,724 -- -- 2,724
Depreciation and
amortization......... 2,829 -- 645 -- -- 3,474
-------- -------- -------- ------ ------- ---------
Total operating ex-
penses............. 2,831 44 14,471 2 -- 17,348
Operating loss........ (2,831) (44) (14,471) (2) -- (17,348)
Interest income....... 77 5,174 81 -- -- 5,332
Financing cost........ -- -- (2,230) -- -- (2,230)
Interest expense...... (5,104) -- -- -- (5,104)
-------- -------- -------- ------ ------- ---------
Income (loss) before
income taxes......... (2,754) 26 (16,620) (2) -- (19,350)
Income tax benefit
(expense).............. 954 (10) 5,504 -- -- 6,448
-------- -------- -------- ------ ------- ---------
Net loss.............. $ (1,800) $ 16 $(11,116) $ (2) $ -- $ (12,902)
======== ======== ======== ====== ======= =========
Condensed Consolidating Statement of Operations
For the Six-Months Ended June 30, 2000
<CAPTION>
Tritel
Tritel, PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
-------- -------- ------------ ------------ ------------ ------------
(Dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ 41,307 $3,459 $(3,459) $ 41,307
-------- -------- -------- ------ ------- ---------
Operating Expenses
Cost of services and
equipment............ -- -- 29,111 -- -- 29,111
Technical operations.. -- -- 21,987 -- -- 21,987
General and
administrative....... 3,050 -- 26,834 -- (3,459) 26,425
Sales and marketing... -- -- 28,603 -- -- 28,603
Stock-based
compensation......... 62,111 -- -- -- -- 62,111
Depreciation and
amortization......... 2,861 -- 20,171 1,843 -- 24,875
-------- -------- -------- ------ ------- ---------
Total operating
expenses........... 68,022 -- 126,706 1,843 (3,459) 193,112
-------- -------- -------- ------ ------- ---------
Operating income
(loss)............... (68,022) -- (85,399) 1,616 -- (151,805)
Interest income....... 152 16,831 342 -- (1,433) 15,892
Interest expense...... -- (28,199) (1,447) (2,203) 1,433 (30,416)
-------- -------- -------- ------ ------- ---------
Income (loss) before
income taxes......... (67,870) (11,368) (86,504) (587) -- (166,329)
Income tax benefit...... (4) 112 962 6 -- 1,076
-------- -------- -------- ------ ------- ---------
Net loss................ $(67,874) $(11,256) $(85,542) $ (581) $ -- $(165,253)
======== ======== ======== ====== ======= =========
</TABLE>
F-84
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Tritel PCS, Guarantor NonGuarantor Consolidated
Tritel, Inc. Inc. Subsidiaries Subsidiaries Elimination Tritel, Inc.
------------ ----------- ------------ ------------ ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (3,648) $ 3,554 $ (50,981) $ -- $ -- $ (51,075)
--------- --------- --------- ------- ----- ---------
Cash flows from
investing activities:
Capital expenditures.. -- -- (172,448) -- -- (172,448)
Advance under notes
receivable........... -- (7,500) (50) -- -- (7,550)
Investment in
subsidiaries......... (376,718) 376,718 -- -- -- --
Capitalized interest
on debt.............. -- -- (3,863) (9,760) -- (13,623)
Decrease in other
assets............... (325) (6,883) -- -- -- (7,208)
--------- --------- --------- ------- ----- ---------
Net cash provided by
(used in) investing
activities:............ (377,043) 362,335 (176,361) (9,760) -- (200,829)
--------- --------- --------- ------- ----- ---------
Cash flows from
financing activities:
Proceeds from long
term debt............ -- 500,240 -- -- -- 500,240
Repayments of notes
payable.............. (22,100) -- -- -- -- (22,100)
Payment of debt
issuance costs and
other deferred
charges.............. (8,507) (30,202) -- -- -- (38,709)
Intercompany
receivable/payable... 4,556 (236,928) 222,612 9,760 -- --
Proceeds from vendor
discount............. -- 15,000 -- -- -- 15,000
Issuance of preferred
stock................ 163,370 -- -- -- -- 163,370
Issuance of common
stock, net........... 242,526 -- -- -- -- 242,526
--------- --------- --------- ------- ----- ---------
Net cash provided by
financing activities:.. 379,845 248,110 222,612 9,760 -- 860,327
--------- --------- --------- ------- ----- ---------
Net increase (decrease)
in restricted cash,
cash and cash
equivalents............ (846) 613,999 (4,730) -- -- 608,423
Cash and cash
equivalents at
beginning of period.... 846 -- -- -- -- 846
--------- --------- --------- ------- ----- ---------
Cash and cash
equivalents at End of
period................. $ -- $ 613,999 $ (4,730) $ -- $ -- $ 609,269
========= ========= ========= ======= ===== =========
</TABLE>
F-85
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Tritel
Tritel, PCS, Guarantor NonGuarantor Consolidated
Inc. Inc. Subsidiaries Subsidiaries Elimination Tritel, Inc
------- -------- ------------ ------------ ----------- ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities............. $ (94) $ 880 $(14,946) $ (256) $-- $(14,416)
------- -------- -------- ------ ---- --------
Cash flows from
investing activities:
Capital expenditures.. -- -- (44,687) -- -- (44,687)
Advance under notes
receivable........... -- (7,500) (50) -- -- (7,550)
Investment in
subsidiaries (69,386) 69,386
Increase in restricted
cash................. -- (7,957) -- -- -- (7,957)
Capitalized interest
on debt.............. -- -- (4,271) (1,625) -- (5,896)
Other (325) -- -- -- -- (325)
------- -------- -------- ------ ---- --------
Net cash provided by
(used in) investing
activities: (69,711) 53,929 (49,008) (1,625) -- (66,415)
------- -------- -------- ------ ---- --------
Cash flows from
financing activities:
Proceeds from long
term debt............ -- 400,240 -- -- -- 400,240
Repayments of notes
payable.............. (22,100) -- -- -- -- (22,100)
Payment of debt
issuance costs and
other deferred
charges.............. (22,198) (14,275) -- -- -- (36,473)
Intercompany
receivable/payable... 480 (70,044) 67,683 1,881 -- --
Proceeds from vendor
discount............. -- 15,000 -- -- -- 15,000
Issuance of preferred
stock................ 113,623 -- -- -- -- 113,623
------- -------- -------- ------ ---- --------
Net cash provided by
financing activities: 69,805 330,921 67,683 1,881 -- 470,290
------- -------- -------- ------ ---- --------
Net increase in cash and
cash equivalents....... -- 385,730 3,729 -- -- 389,459
Cash and cash
equivalents at
beginning of period.... -- -- 846 -- -- 846
------- -------- -------- ------ ---- --------
Cash and cash
equivalents at end of
period................. $ -- $385,730 $ 4,575 $ -- $-- $390,305
======= ======== ======== ====== ==== ========
</TABLE>
F-86
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Condensed Consolidating Statement of Cash Flows
For the Six-Months Ended June 30, 2000
<TABLE>
<CAPTION>
Tritel, Tritel Guarantor NonGuarantor Consolidated
Inc. PCS, Inc. Subsidiaries Subsidiaries Eliminations Tritel, Inc.
------- --------- ------------ ------------ ------------ ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in)
operating activities... $(2,209) $ 1,379 $(84,188) $ -- $ -- $ (85,018)
------- --------- -------- ------- ------ ---------
Cash flows from
investing activities:
Capital expenditures.. -- -- (171,798) -- -- (171,798)
Capitalized interest
on debt.............. -- -- (1,533) (1,272) -- (2,805)
Decrease in restricted
cash................. -- 1,107 -- -- -- 1,107
Other................. -- -- (129) -- -- (129)
------- --------- -------- ------- ------ ---------
Net cash provided by
(used in)
investing activities: -- 1,107 (173,460) (1,272) -- (173,625)
------- --------- -------- ------- ------ ---------
Cash flows from
financing activities:
Repayment of long term
debt................. -- -- -- (449) -- (449)
Payment of debt
issuance costs
and other deferred
charges.............. -- (198) -- -- -- (198)
Intercompany
receivable/payable... 1,615 (258,202) 254,866 1,721 -- --
Payment of stock
issuance costs....... (195) -- -- -- -- (195)
Proceeds from exercise
of
stock options........ 789 -- -- -- -- 789
------- --------- -------- ------- ------ ---------
Net cash provided by
(used in)
financing activities: 2,209 (258,400) 254,866 1,272 -- (53)
------- --------- -------- ------- ------ ---------
Net decrease in cash and
cash equivalents....... -- (255,914) (2,782) -- -- (258,696)
Cash and cash
equivalents at
beginning of period.... -- 613,999 (4,730) -- -- 609,269
------- --------- -------- ------- ------ ---------
Cash and cash
equivalents at end of
period................. $ -- $ 358,085 $ (7,512) $ -- $ -- $ 350,573
======= ========= ======== ======= ====== =========
</TABLE>
The condensed combining financial statements for 1998 of Tritel, Inc. and
the Predecessor Companies have been provided below to comply with the current
requirement to show consolidating data for guarantors and non-guarantors for
all periods presented. While Tritel, Inc. and its subsidiaries were formed
during 1998, their only activities in 1998 were the acquisition of property and
equipment approximating $1.5 million and losses totaling $32,000. The assets of
the Predecessor Companies and the assets acquired from AT&T Wireless and
Central Alabama were transferred to Tritel, Inc. and its subsidiaries during
1999. Therefore, the following statements do not correspond with the current
corporate structure and do not show data by guarantor and non-guarantor
relationship to the senior subordinated discount notes.
F-87
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Combining Balance Sheet
As of December 31, 1998
<TABLE>
<CAPTION>
Predecessor
Companies Tritel Eliminations Combined
----------- ------ ------------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 845 $ 1 $ -- $ 846
Due from affiliates............... 1,817 -- (1,576) 241
Other current assets.............. 719 -- -- 719
-------- ------ ------- --------
Total current assets............ 3,381 1 (1,576) 1,806
-------- ------ ------- --------
Property and equipment, net......... 12,263 1,553 -- 13,816
Federal Communications Commission
licensing costs.................... 71,466 -- -- 71,466
Other assets........................ 1,933 -- -- 1,933
-------- ------ ------- --------
Total assets.................... $ 89,043 $1,554 $(1,576) $ 89,021
======== ====== ======= ========
LIABILITIES AND MEMBERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable..................... $ 22,405 $ -- $ -- $ 22,405
Due to affiliates................. -- 1,576 (1,576) --
Accounts payable and accrued ex-
penses........................... 10,496 10 -- 10,506
-------- ------ ------- --------
Total current liabilities......... 32,901 1,586 (1,576) 32,911
-------- ------ ------- --------
Non-current liabilities:
Long-term debt.................... 51,599 -- -- 51,599
Note payable to related party..... 6,270 -- -- 6,270
Other liabilities................. 224 -- -- 224
-------- ------ ------- --------
Total non-current liabilities... 58,093 -- -- 58,093
-------- ------ ------- --------
Total liabilities............... 90,994 1,586 (1,576) 91,004
Contributed capital, net............ 13,497 -- -- 13,497
Deficit accumulated during
development stage.................. (15,448) (32) -- (15,480)
-------- ------ ------- --------
Total members' equity
(deficit)...................... (1,951) (32) -- (1,983)
-------- ------ ------- --------
Total liabilities and members'
equity (deficit)............... $ 89,043 $1,554 $(1,576) $ 89,021
======== ====== ======= ========
</TABLE>
F-88
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
Combining Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Predecessor
Companies Tritel Combined
----------- ------- --------
(dollars in thousands)
<S> <C> <C> <C>
Revenues........................................ $ -- $ -- $ --
--------- ------- --------
Operating expenses:
Technical operations.......................... 1,918 21 1,939
General and administrative.................... 4,937 10 4,947
Sales and marketing........................... 451 1 452
Depreciation and amortization................. 348 -- 348
--------- ------- --------
7,654 32 7,686
--------- ------- --------
Operating loss.................................. (7,654) (32) (7,686)
Interest income................................. 77 -- 77
Interest expense................................ (722) -- (722)
--------- ------- --------
Loss before extraordinary item.................. (8,299) (32) (8,331)
Loss on return of spectrum...................... (2,414) -- (2,414)
--------- ------- --------
Net loss........................................ $ (10,713) $ (32) $(10,745)
========= ======= ========
Combining Statement of Cash Flows
For the Year Ended December 31, 1998
<CAPTION>
Predecessor
Companies Tritel Combined
----------- ------- --------
(dollars in thousands)
<S> <C> <C> <C>
Net cash used in operating activities........... $ (10,039) $ 1,543 $ (8,496)
--------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment............ (4,428) (1,542) (5,970)
Capitalized interest on debt used to obtain
Federal Communications Commission licenses... (2,905) -- (2,905)
--------- ------- --------
Net cash used in investing activities........... (7,333) (1,542) (8,875)
--------- ------- --------
Cash flows from financing activities:
Proceeds from notes payable to others......... 38,705 -- 38,705
Repayments of notes payable to others......... (21,300) -- (21,300)
Payment of debt issuance costs and other
deferred charges............................. (951) -- (951)
--------- ------- --------
Net cash provided by financing activities....... 16,454 -- 16,454
--------- ------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (918) 1 (917)
Cash and cash equivalents at beginning of year.. 1,763 -- 1,763
--------- ------- --------
Cash and cash equivalents at end of year........ $ 845 $ 1 $ 846
========= ======= ========
</TABLE>
Tritel, Inc. was formed during 1998. Therefore, the 1997 combining financial
information is identical to the Consolidated Financial Statements.
F-89
<PAGE>
TRITEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All information subsequent to December 31, 1999 is unaudited)
(21) SUBSEQUENT EVENT
On February 28, 2000, the Company announced an agreement to merge with
TeleCorp PCS, Inc., headquartered in Arlington, Virginia. This merger is
expected to take place during the second half of 2000 and is a tax-free
exchange of stock with Tritel shareholders receiving 0.76 shares of the new
entity's stock in exchange for each of their Tritel shares. The exchange ratio
is fixed regardless of future stock price movement. This transaction is
expected to be accounted for as a purchase business combination.
On the closing of the merger, AT&T will extend its initial five-year brand
sharing agreement for an additional two years.
F-90
<PAGE>
TELECORP PCS, INC.
Description of Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined financial statements
combine the historical consolidated balance sheets and consolidated statements
of operations of TeleCorp PCS, Inc. (the Company), Tritel, Indus and Airadigm.
These unaudited pro forma financial statements give effect to the merger with
Tritel, referred to as the Merger, the contribution from AT&T, the acquisition
of the common and preferred stock of Indus, the acquisition of additional
wireless properties and assets from Airadigm, referred to as the Contribution,
the exchange with AT&T which includes the acquisition of PCS licenses from ABC
Wireless and Polycell, referred to as the Exchange, the offering of Senior
Subordinated Notes and pro forma inter-company eliminations.
This information was derived from the audited consolidated financial
statements of the Company and Tritel as of and for the year ended December 31,
1999, the unaudited consolidated financial statements of the Company and Tritel
as of and for the six months ended June 30, 2000, and from the unaudited
financial statements of Indus and Airadigm as of December 31, 1999 and June 30,
2000 and for the year ended December 31, 1999 and the six months ended June 30,
2000, respectively. The Company's financial information is only a summary and
should be read in conjunction with the historical consolidated financial
statements and related notes of the Company elsewhere in this document.
Tritel's financial information is only a summary and should be read in
conjunction with their historical financial statements and related notes as
filed on Form 10-K and Form 10-Q with the Securities and Exchange Commission on
March 30, 2000 and August 11, 2000, respectively.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1999 and for the six months ended June 30, 2000 assumes
each of the transactions was effected on January 1, 1999. The unaudited pro
forma condensed combined balance sheet as of June 30, 2000, gives effect to
each transaction as if it had occurred on June 30, 2000. The accounting
policies of the Company, Tritel, Indus and Airadigm are substantially
comparable. Certain reclassifications have been made to Tritel's, Indus' and
Airadigm's historical presentation to conform to the Company's presentation.
These reclassifications do not materially impact Tritel's, Indus', or
Airadigm's operations or financial position for the period presented.
The unaudited pro forma condensed combined financial statements are provided
for illustrative purposes only. The companies may have performed differently
had they always been combined. The unaudited pro forma condensed combined
financial statements do not purport to be indicative of the historical results
that would have been achieved had the companies always been combined or the
future results that the combined company will experience.
F-91
<PAGE>
TELECORP PCS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 2000
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
Contribution and Exchange
--------------------------------
Pro forma
TeleCorp Offering Subtotal Indus Airadigm Adjustments Subtotal
---------- -------- ---------- ---------- -------- ----------- ----------
(Note (Note
(Note 1a.) 6.) (Note 1c.) 1d.) (Note 3.)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents..... $ 28,223 $437,000 $ 465,223 $ 548 $ 1,170 $ (20,656) 3d.(i) $ 446,285
Accounts
receivable,
net............. 36,514 -- 36,514 -- 647 -- 37,161
Other current
assets.......... 26,948 13,000 39,948 660 745 (1,405) 3d.(ii) 39,948
--------- -------- ---------- -------- -------- --------- ----------
Total current
assets.......... 91,685 450,000 541,685 1,208 2,562 (22,061) 523,394
Property and
equipment, net.. 531,034 -- 531,034 962 39,386 (102,954) 3d.(iii) 468,428
PCS licenses and
microwave
relocation
costs, net...... 277,275 -- 277,275 69,883 78,288 631,927 3d.(iv) 1,057,373
Intangible
assets, net..... 34,330 -- 34,330 -- -- 294,133 3d.(v) 328,463
Other assets.... 32,273 -- 32,273 1,123 -- (1,123) 3d.(vi) 32,273
Goodwill........ -- -- -- -- -- -- --
--------- -------- ---------- -------- -------- --------- ----------
Total assets.... $ 966,597 $450,000 $1,416,597 $ 73,176 $120,236 $ 799,922 $2,409,931
========= ======== ========== ======== ======== ========= ==========
Liabilities,
mandatorily
redeemable
preferred stock
and stockholders'
equity (deficit)
Current
liabilities:
Accounts payable
and accrued
liabilities..... $ 117,530 $ -- $ 117,530 $ 496 $ 8,106 $ (8,106) 3d.(vii) $ 118,026
Other current
liabilities..... 26,145 -- 26,145 14,772 32,583 (32,583) 3d.(viii) 40,917
Current portion
of long-term
debt............ 1,415 -- 1,415 -- 6,232 4,053 3d.(ix) 11,700
--------- -------- ---------- -------- -------- --------- ----------
Total current
liabilities..... 145,090 -- 145,090 15,268 46,921 (36,636) 170,643
Long-term debt.. 728,129 450,000 1,178,129 91,759 157,618 (110,928) 3d.(x) 1,316,578
Microwave
relocation
obligation...... 8,128 -- 8,128 -- -- -- 8,128
Other long term
liabilities..... 9,538 -- 9,538 1,643 2,708 97,982 3d.(xi) 111,871
--------- -------- ---------- -------- -------- --------- ----------
Total
liabilities..... 890,885 450,000 1,340,885 108,670 207,247 (49,582) 1,607,220
--------- -------- ---------- -------- -------- --------- ----------
Mandatorily
redeemable
preferred stock,
net............. 279,128 -- 279,128 -- -- -- 279,128
--------- -------- ---------- -------- -------- --------- ----------
Stockholders'
equity (deficit)
Preferred
stock........... 149 -- 149 450 -- (450) 3d.(xii) 149
Common stock,
net of
subscriptions
receivable...... 313,806 -- 313,806 25,426 10,011 338,370 3d.(xiii) 687,613
Deferred
compensation.... (32,999) -- (32,999) -- -- -- (32,999)
Accumulated
deficit......... (484,372) -- (484,372) (61,370) (97,022) 511,584 3d.(xiv) (131,180)
--------- -------- ---------- -------- -------- --------- ----------
Total
stockholders'
equity
(deficit)....... (203,416) -- (203,416) (35,494) (87,011) 849,504 523,583
--------- -------- ---------- -------- -------- --------- ----------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $ 966,597 $450,000 $1,416,597 $ 73,176 $120,236 $ 799,922 $2,409,931
========= ======== ========== ======== ======== ========= ==========
<CAPTION>
Merger
---------------------------------
Pro forma
Tritel Adjustments Total
----------- --------------------- -----------
(Note 1b.) (Note 2.)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents..... $ 350,573 $ (38,000) 2r.(i) $ 758,858
Accounts
receivable,
net............. 18,044 -- 55,205
Other current
assets.......... 26,767 -- 66,715
----------- --------------------- -----------
Total current
assets.......... 395,384 (38,000) 880,778
Property and
equipment, net.. 415,651 -- 884,079
PCS licenses and
microwave
relocation
costs, net...... 202,894 2,739,306 2r.(ii) 3,999,573
Intangible
assets, net..... 56,646 426,154 2r.(iii) 811,263
Other assets.... 39,176 (26,010) 2m. 45,439
Goodwill........ -- 2,296,139 2o 2,296,139
----------- --------------------- -----------
Total assets.... $1,109,751 $5,397,589 $8,917,271
=========== ===================== ===========
Liabilities,
mandatorily
redeemable
preferred stock
and stockholders'
equity (deficit)
Current
liabilities:
Accounts payable
and accrued
liabilities..... $ 114,974 $ -- $ 233,000
Other current
liabilities..... -- -- 40,917
Current portion
of long-term
debt............ 974 -- 12,674
----------- --------------------- -----------
Total current
liabilities..... 115,948 -- 286,591
Long-term debt.. 571,464 16,160 2i 1,904,202
Microwave
relocation
obligation...... -- -- 8,128
Other long term
liabilities..... 37,856 1,025,418 2r.(iv) 1,175,145
----------- --------------------- -----------
Total
liabilities..... 725,268 1,041,578 3,374,066
----------- --------------------- -----------
Mandatorily
redeemable
preferred stock,
net............. 104,119 (2,705) 2r.(v) 380,542
----------- --------------------- -----------
Stockholders'
equity (deficit)
Preferred
stock........... 46,374 670,176 2r.(vi) 716,699
Common stock,
net of
subscriptions
receivable...... 749,503 3,218,027 2r.(vii) 4,655,143
Deferred
compensation.... (74,450) 29,450 2r.(viii) (77,999)
Accumulated
deficit......... (441,063) 441,063 1b. (131,180)
----------- --------------------- -----------
Total
stockholders'
equity
(deficit)....... 280,364 4,358,716 5,162,663
----------- --------------------- -----------
Total
liabilities,
mandatorily
redeemable
preferred stock
and
stockholders'
equity
(deficit)....... $1,109,751 $5,397,589 $8,917,271
=========== ===================== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-92
<PAGE>
TELECORP PCS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 2000
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Contribution and Exchange
---------------------------------
Pro forma
TeleCorp Offering Subtotal Indus Airadigm Adjustments Subtotal
------------ -------- --------- ---------- ---------- ----------- ---------
(Note 1a.) (Note 6) (Note 1c.) (Note 1d.) (Note 3)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service......... $ 88,056 $ -- $ 88,056 $ -- $ 3,733 $ (7,804) 3a.(vii) $ 83,985
Roaming......... 26,151 -- 26,151 -- -- (4,654) 3a.(vii) 21,497
Equipment....... 13,250 -- 13,250 -- 783 (1,783) 3a.(vii) 12,250
------------ -------- --------- ------- -------- -------- ---------
Total revenue... 127,457 -- 127,457 -- 4,516 (14,241) 117,732
------------ -------- --------- ------- -------- -------- ---------
Operating
expenses:
Cost of
revenue......... 40,433 -- 40,433 -- 2,291 (5,320) 3a.(vii) 37,404
Operations and
development..... 25,535 -- 25,535 1,348 -- (4,311) 3a.(vii) 22,572
Selling and
marketing....... 74,766 -- 74,766 119 663 (5,504) 3a.(vii) 70,044
General and
administrative.. 74,347 -- 74,347 373 6,346 (2,050) 3a.(vii) 79,016
Depreciation and
amortization.... 50,383 -- 50,383 947 4,788 (1,030) 3c.(i) 55,088
------------ -------- --------- ------- -------- -------- ---------
Total operating
expenses........ 265,464 -- 265,464 2,787 14,088 (18,215) 264,124
------------ -------- --------- ------- -------- -------- ---------
Operating loss... (138,007) -- (138,007) (2,787) (9,572) 3,974 (146,392)
Other income
(expense):
Interest
expense.......... (34,263) (24,557) (58,820) (4,474) (6,584) (1,344) 3c.(ii) (71,222)
Interest income
and other........ 3,897 -- 3,897 12 (3,745) -- 164
------------ -------- --------- ------- -------- -------- ---------
Loss before
income taxes..... (168,373) (24,557) (192,930) (7,249) (19,901) 2,630 (217,450)
Income tax
benefit.......... -- -- -- -- -- -- --
------------ -------- --------- ------- -------- -------- ---------
Net loss......... (168,373) (24,557) (192,930) (7,249) (19,901) 2,630 (217,450)
Accretion of
mandatorily
redeemable
preferred stock.. (15,889) -- (15,889) -- -- -- (15,889)
------------ -------- --------- ------- -------- -------- ---------
Net loss
attributable to
common
stockholders..... $ (184,262) $(24,557) $(208,819) $(7,249) $(19,901) $ 2,630 $(233,339)
============ ======== ========= ======= ======== ======== =========
Net loss
attributable to
common equity per
share
outstanding--
basic and
diluted.......... $ (1.84)
============
Weighted average
common equity
shares
outstanding--
basic and
diluted.......... 100,414,647
============
Pro forma net
loss attributable
to common equity
per share--basic
and diluted......
Pro forma
weighted average
common equity
shares
outstanding--
basic and
diluted..........
<CAPTION>
Merger
----------------------------- Inter-
Pro forma Company
Tritel Adjustments Eliminations Total
-------------- -------------- ------------ -------------
(Note 1b.) (Note 2) (Note 4)
<S> <C> <C> <C> <C>
Revenue:
Service......... $ 21,435 $ -- $ -- $ 105,420
Roaming......... 15,240 -- (797) 35,940
Equipment....... 4,632 -- -- 16,882
-------------- -------------- ------------ -------------
Total revenue... 41,307 -- (797) 158,242
-------------- -------------- ------------ -------------
Operating
expenses:
Cost of
revenue......... 29,111 -- (797) 65,718
Operations and
development..... 27,712 -- -- 50,284
Selling and
marketing....... 32,014 -- -- 102,058
General and
administrative.. 79,401 11,250 2n. -- 169,667
Depreciation and
amortization.... 24,875 119,701 2q. -- 199,664
-------------- -------------- ------------ -------------
Total operating
expenses........ 193,113 130,951 (797) 587,391
-------------- -------------- ------------ -------------
Operating loss... (151,806) (130,951) -- (429,149)
Other income
(expense):
Interest
expense.......... (30,416) 516 2i. -- (101,122)
Interest income
and other........ 15,892 -- -- 16,056
-------------- -------------- ------------ -------------
Loss before
income taxes..... (166,330) (130,435) -- (514,215)
Income tax
benefit.......... 1,076 -- -- 1,076
-------------- -------------- ------------ -------------
Net loss......... (165,254) (130,435) -- (513,139)
Accretion of
mandatorily
redeemable
preferred stock.. (4,533) -- -- (20,422)
-------------- -------------- ------------ -------------
Net loss
attributable to
common
stockholders..... $ (169,787) $(130,435) $ -- $ (533,561)
============== ============== ============ =============
Net loss
attributable to
common equity per
share
outstanding--
basic and
diluted.......... $ (1.43)
==============
Weighted average
common equity
shares
outstanding--
basic and
diluted.......... 118,451,248
==============
Pro forma net
loss attributable
to common equity
per share--basic
and diluted...... Note 5 $ (2.79)
=============
Pro forma
weighted average
common equity
shares
outstanding--
basic and
diluted.......... Note 5 191,059,489
=============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-93
<PAGE>
TELECORP PCS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1999
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Contribution and Exchange
--------------------------------
Pro forma
TeleCorp Offering Subtotal Indus Airadigm Adjustments Subtotal
---------- -------- --------- ---------- -------- ----------- ---------
(Note
(Note 1a.) (Note 6) (Note 1c.) 1d) (Note 3)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service.......... $ 41,319 $ -- $ 41,319 $ 339 $ 6,000 $(2,978) 3a.(vii) $ 44,680
Roaming.......... 29,010 -- 29,010 -- -- (5,887) 3a.(vii) 23,123
Equipment........ 17,353 -- 17,353 108 1,701 (1,749) 3a.(vii) 17,413
---------- -------- --------- -------- -------- ------- ---------
Total revenue... 87,682 -- 87,682 447 7,701 (10,614) 85,216
---------- -------- --------- -------- -------- ------- ---------
Operating
expenses:
Cost of
revenue.......... 39,259 -- 39,259 905 5,073 (3,855) 3a.(vii) 41,382
Operations and
development...... 35,979 -- 35,979 -- -- (7,573) 3a.(vii) 28,406
Selling and
marketing........ 71,180 -- 71,180 7,569 1,556 (5,581) 3a.(vii) 74,724
General and
administrative... 92,585 -- 92,585 -- 11,909 (1,905) 3a.(vii) 102,589
Depreciation and
amortization..... 55,110 -- 55,110 4,061 10,253 4,301 3b.(i) 73,725
Restructuring
charges.......... -- -- -- 32,000 -- -- 32,000
---------- -------- --------- -------- -------- ------- ---------
Total operating
expenses........ 294,113 -- 294,113 44,535 28,791 (14,613) 352,826
---------- -------- --------- -------- -------- ------- ---------
Operating loss... (206,431) -- (206,431) (44,088) (21,090) 3,999 (267,610)
Other income
(expense):
Interest
expense.......... (51,313) (49,113) (100,426) (5,944) (12,583) (2,668) 3b.(ii) (121,621)
Interest income
and other........ 6,748 -- 6,748 109 666 -- 7,523
---------- -------- --------- -------- -------- ------- ---------
Loss before
income taxes..... (250,996) (49,113) (300,109) (49,923) (33,007) 1,331 (381,708)
Income tax
benefit.......... -- -- -- 533 -- -- 533
---------- -------- --------- -------- -------- ------- ---------
Net loss......... (250,996) (49,113) (300,109) (49,390) (33,007) 1,331 (381,175)
Accretion of
mandatorily
redeemable
preferred stock.. (24,124) -- (24,124) -- -- -- (24,124)
---------- -------- --------- -------- -------- ------- ---------
Net loss
attributable to
common
stockholders..... $ (275,120) $(49,113) $(324,233) $(49,390) $(33,007) $ 1,331 $(405,299)
========== ======== ========= ======== ======== ======= =========
Net loss
attributable to
common equity per
share
outstanding--
basic and
diluted.......... $ (3.58)
==========
Weighted average
common equity
shares
outstanding--
basic and
diluted.......... 76,895,391
==========
Pro forma net
loss attributable
to common equity
per share--basic
and diluted......
Pro forma
weighted average
common equity
shares
outstanding--
basic and
diluted..........
<CAPTION>
Merger
--------------------------
Inter-
Pro forma Company
Tritel Adjustments Eliminations Total
----------- -------------- ------------ ------------
(Note 1b.) (Note 2) (Note 4)
<S> <C> <C> <C> <C>
Revenue:
Service.......... $ 1,186 $ -- $ -- $ 45,866
Roaming.......... 3,421 -- (2,000) 24,544
Equipment........ 2,152 -- -- 19,565
----------- -------------- ------------ ------------
Total revenue... 6,759 -- (2,000) 89,975
----------- -------------- ------------ ------------
Operating
expenses:
Cost of
revenue.......... 6,966 -- (2,000) 46,348
Operations and
development...... 29,113 -- -- 57,519
Selling and
marketing........ 32,790 -- -- 107,514
General and
administrative... 190,539 22,500 2n. -- 315,628
Depreciation and
amortization..... 12,839 164,862 2p. -- 251,426
Restructuring
charges.......... -- -- -- 32,000
----------- -------------- ------------ ------------
Total operating
expenses........ 272,247 187,362 (2,000) 810,435
----------- -------------- ------------ ------------
Operating loss... (265,488) (187,362) -- (720,460)
Other income
(expense):
Interest
expense.......... (27,200) 712 2i. -- (148,109)
Interest income
and other........ 16,791 -- -- 24,314
----------- -------------- ------------ ------------
Loss before
income taxes..... (275,897) (186,650) -- (844,255)
Income tax
benefit.......... 28,443 -- -- 28,976
----------- -------------- ------------ ------------
Net loss......... (247,454) (186,650) -- (815,279)
Accretion of
mandatorily
redeemable
preferred stock.. (8,918) -- -- (33,042)
----------- -------------- ------------ ------------
Net loss
attributable to
common
stockholders..... $(256,372) $(186,650) $ -- $ (848,321)
=========== ============== ============ ============
Net loss
attributable to
common equity per
share
outstanding--
basic and
diluted.......... $ (33.25)
===========
Weighted average
common equity
shares
outstanding--
basic and
diluted.......... 7,710,649
===========
Pro forma net
loss attributable
to common equity
per share--basic
and diluted...... Note 5 $ (5.06)
============
Pro forma
weighted average
common equity
shares
outstanding--
basic and
diluted.......... Note 5 167,540,233
============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
F-94
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
($'s in thousands, except per share data)
1. Historical Financial Information
1a. Represents the historical consolidated balance sheet and consolidated
statement of operations of TeleCorp.
1b. Represents the historical consolidated balance sheet and consolidated
statement of operations of Tritel adjusted for certain reclassifications that
have been made to conform to TeleCorp's financial statement presentation. These
reclassifications do not materially impact Tritel's results of operations or
financial position.
1c. Represents the historical balance sheet and statement of operations of
Indus adjusted for certain reclassifications that have been made to conform to
TeleCorp's financial statement presentation. These reclassifications do not
materially impact Indus' results of operations or financial position.
1d. Represents the historical balance sheet and statement of operations of
Airadigm adjusted for certain reclassifications that have been made to conform
to TeleCorp's financial statement presentation. These reclassifications do not
materially impact Airadigm's results of operations or financial position.
2. Merger
On February 28, 2000, TeleCorp agreed to merge with Tritel through a merger
of each of TeleCorp and Tritel into a newly formed subsidiary of TeleCorp-
Tritel Holding Company "Holding Company". The merger will result in the
exchange of 100% of the outstanding common and preferred stock of TeleCorp and
Tritel for common and preferred stock of Holding Company. The new entity will
be controlled by TeleCorp's voting preference common stockholders, and TeleCorp
and Tritel will become subsidiaries of Holding Company.
The Merger 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 issued to the former shareholders of Tritel plus cash, the fair value
associated with the conversion of outstanding Tritel stock options, liabilities
assumed, and merger related costs. The fair value of the shares issued will be
determined based on the market price of TeleCorp'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 as determined by a valuation services company. The
excess of the purchase price over the assets acquired will be recorded as
goodwill and amortized over 20 years.
The proposed merger has been unanimously approved by TeleCorp's and Tritel's
board of directors, with three of TeleCorp's 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 unaudited pro forma condensed combined balance sheet and unaudited pro
forma condensed combined statements of operations have been adjusted for the
Merger which includes Holding Company's acquisition of Tritel in exchange for
stock in Holding Company. The Merger will result in an allocation of the
purchase price to the tangible and intangible assets and liabilities of Tritel.
Such allocation reflects the estimated fair value of the assets and liabilities
acquired by Holding Company based upon information available at the date of the
preparation of the accompanying unaudited pro forma condensed combined
financial statements. Such allocations will be adjusted upon the final
determination of such fair values. Management is not aware of any circumstance
that would cause the final purchase price allocation to be significantly
different from that which is reflected in the accompanying pro forma condensed
combined balance sheet. However,
F-95
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands except per share data)
actual valuations and allocation may differ from those reflected herein. The
aggregate purchase price was calculated as follows:
<TABLE>
<S> <C>
Tritel common shares outstanding--Note 2a......................... 107,005,121
Tritel common stock exchange ratio per share--Note 2b............. 0.76
Equivalent Holding Company trading common shares.................. 81,323,891
Tritel conversion price--Note 2c.................................. $ 47.84
-----------
Subtotal(1)....................................................... $ 3,890,535
-----------
Tritel non-trading common shares outstanding--Note 2d............. 63,432
Tritel common stock exchange ratio per share--Note 2b............. 0.76
Equivalent Holding Company non-trading common shares.............. 48,208
Tritel conversion price--Note 2f.................................. $ 31.10
-----------
Subtotal(2)....................................................... $ 1,499
-----------
Tritel Series A convertible preferred stock outstanding........... 90,668
Tritel Series A convertible preferred stock exchange ratio per
share--Note 2e................................................... 1.00
Equivalent Holding Company convertible preferred shares........... 90,668
Tritel conversion price--Note 2f.................................. $ 1,118.53
-----------
Subtotal(3)....................................................... $ 101,415
-----------
Tritel Series D preferred stock--Note 2g.(4)...................... $ 716,550
-----------
Fair value of Tritel shares exchanged for Holding Company shares
(items (1) through (4)).......................................... $ 4,709,999
Cash consideration--Note 2h.(i)................................... 10,000
Fair value of liabilities of Tritel at June 30, 2000--Note 2i..... 741,428
Option conversion costs--Note 2j.................................. 75,496
Put right--Note 2h.(ii)........................................... 10,000
Merger related costs--Note 2k..................................... 28,000
Assumed deferred tax liability--Note 2l........................... 1,015,418
-----------
Total consideration............................................... $ 6,590,341
Less: Fair value of assets acquired:
Fair value of tangible assets of Tritel--Note 2m.................. $ 824,202
Fair value of PCS licenses--Note 2m............................... 2,942,200
Fair value of AT&T operating agreements--Note 2m.................. 409,200
Fair value of other intangibles--Note 2m.......................... 73,600
Deferred compensation--Note 2n.................................... 45,000
-----------
Goodwill--Note 2o................................................. $ 2,296,139
-----------
</TABLE>
2a. Tritel common shares outstanding used for purposes of this pro forma
presentation are as of February 28, 2000, the date of the announcement. The
common shares outstanding of Tritel for purposes of this pro forma include all
shares that will be converted into Holding Company trading Class A common
shares as follows:
<TABLE>
<S> <C>
Tritel Class A voting common stock............................... 97,798,181
Tritel Class B non voting common stock........................... 2,927,120
Tritel Class C voting/non voting common stock (i)................ 1,366,644
Tritel Class D voting/non voting common stock (ii)............... 4,913,176
-----------
Total Tritel common shares outstanding........................... 107,005,121
===========
</TABLE>
F-96
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(i) The terms of the Merger agreement provide that all of the
outstanding shares of Tritel Class C common stock will be converted into
Holding Company Class A common stock and Holding Company Class E common
stock at a ratio of 1.00 to 0.7524 and 1.00 to 0.0076, respectively. Note
that only the Tritel Class C common shares converted to Holding Company
Class A common stock are included in this chart as they are considered
Holding Company trading common shares. The Tritel Class C common stock
converted into Holding Company Class E common stock are included in the
chart below (2d.) as Holding Company non-trading common stock.
(ii) The terms of the Merger agreement provide that all of the
outstanding shares of Tritel Class D common stock will be converted into
Holding Company Class A common stock and Holding Company Class F common
stock at a ratio of 1.00 to 0.7524 and 1.00 to 0.0076, respectively. Note
that only the Tritel Class D common shares converted to Holding Company
Class A common stock are included in this chart as they are considered
Holding Company non-trading common shares. The Tritel Class D common stock
converted into Holding Company Class F common stock are included in the
chart below (2d.) as Holding Company non- trading common stock.
2b. The terms of the Merger agreement provide that the Tritel exchange ratio
for shares of Holding Company common stock shall be 1.00 to 0.76.
2c. The conversion price is based on TeleCorp's Class A public trading
securities two days before, the day of and two days after the date of the
announcement.
2d. Tritel non-trading common shares outstanding used for purposes of this pro
forma presentation are as of February 28, 2000, the date of the announcement.
The non-trading common shares outstanding of Tritel for purposes of this pro
forma presentation include all shares that will be converted into Holding
Company non-trading common shares and consist of the following:
<TABLE>
<S> <C>
Tritel Class C voting/nonvoting common stock (i).................... 13,804
Tritel Class D voting/nonvoting common stock (ii)................... 49,628
-------
Total Tritel non-trading common stock outstanding................... 63,432
=======
</TABLE>
(i) The terms of the Merger agreement provide that all of the
outstanding shares of Tritel Class C common stock will be converted into
Holding Company Class A common stock and Holding Company Class E common
stock at a ratio of 1.00 to 0.7524 and 1.00 to 0.0076, respectively. Note
that only the Tritel Class C common shares converted to Holding Company
Class E common stock are included in this chart as they are considered
Holding Company non-trading common shares.
(ii) The terms of the Merger agreement provide that all of the
outstanding shares of Tritel Class D common stock will be converted into
Holding Company Class A common stock and Holding Company Class F common
stock at a ratio of 1.00 to 0.7524 and 1.00 to 0.0076, respectively. Tritel
Class D common shares converted to Holding Company Class F common stock are
included in this chart as they are considered Holding Company non-trading
common shares.
2e. The terms of the Merger provide that all of the outstanding Series A
convertible preferred shares of Tritel will be converted into Series B
convertible preferred shares of Holding Company at the exchange rate of 1.00 to
1.00.
2f. The conversion price is based on an independent valuation performed by an
investment banker.
F-97
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands except per share data)
2g. The terms of the agreement provide that all of the outstanding Series D
preferred shares of Tritel will be converted into Series G preferred shares of
Holding Company at the exchange ratio of 1.00 to 0.76. Based on the Holding
Company stockholders agreement, each share of Series G preferred stock can be
immediately converted into 14,971,876 shares of Holding Company Class A common
stock and 9,494 shares of Holding Company Class F common stock. For purposes of
this pro forma presentation the Tritel Series D preferred stock has been valued
based on the number of Holding Company Class A common shares and Holding
Company Class F common shares into which the shares will be ultimately
converted.
<TABLE>
<CAPTION>
Holding Company Holding Company Total value of
Tritel Series D preferred Class A trading Class F non-trading Tritel Series D
stock common stock common stock preferred stock
------------------------- --------------- ------------------- ---------------
<S> <C> <C> <C>
46,374 shares:
Pro forma shares
converted................ 14,971,876 9,494
Tritel conversion price
(note 2c and note 2f).... $ 47.84 $31.10
----------- ------ --------
$ 716,255 $ 295 $716,550
=========== ====== ========
</TABLE>
2h. Tritel voting preference common stock
(i) The terms of the Merger provide that all of the outstanding shares
of Tritel voting preference common stock owned by E. B. Martin, Jr. shall
be converted into and become exchangeable for an aggregate amount of
$10,000 in cash.
(ii) The terms of the Merger provide that all of the outstanding shares
of Tritel voting preference common stock owned by William M. Mounger, II
shall be converted to 3 shares of Holding Company voting preference common
stock. Furthermore, Mr. Mounger received a put right (the "Put Right") to
sell his 3 shares of Holding Company voting preference common stock for
$10,000 at any time after the first anniversary of the closing of the
Merger.
2i. Represents the fair value of Tritel debt, increasing Tritel's historic
balance by $16,160 using TeleCorp's incremental borrowing rate of 11.1% at
February 28, 2000, the date of the announcement. A reduction of interest
expense of $712 was recorded as an adjustment to the unaudited pro forma
condensed combined statement of operations for the year ended December 31, 1999
to reflect the interest expense related to the incremental debt as if the
Merger had occurred on January 1, 1999. A reduction of interest expense of $516
was recorded as an adjustment to the unaudited pro forma condensed combined
statement of operations for the six months ended June 30, 2000 to reflect the
interest expense related to the incremental debt as if the Merger had occurred
on January 1, 1999.
2j. Represents the fair value, based on a Black-Scholes valuation, associated
with the conversion of outstanding Tritel stock options to equivalent stock
options of Holding Company at the time of the agreement based on the number of
Tritel stock options outstanding and the closing market price of TeleCorp as of
February 28, 2000, the date of the announcement. At the closing of the Merger,
each outstanding and unexercised option to purchase shares of Tritel's common
stock will be converted into an option to purchase shares of Holding Company
common stock. The estimated fair value of these options has been recorded as
additional purchase price.
F-98
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
2k. Anticipated costs of the transactions to Holding Company have been included
as additional purchase price and are:
<TABLE>
<S> <C>
Investment banking fees............................................. $18,000
Legal, accounting and printing fees................................. 8,000
Other costs......................................................... 2,000
-------
Total transaction cost.............................................. $28,000
=======
</TABLE>
2l. A deferred tax liability has been recorded for the differences between the
estimated fair value and tax bases of the Tritel assets acquired and
liabilities assumed. The Merger is being accounted for using the purchase
method while for tax purposes, the merger is a tax free business combination.
The effective tax rate reflects TeleCorp's composite federal and state income
tax rate (net of federal tax benefit). The deferred tax liability has been
calculated as follows:
<TABLE>
<CAPTION>
Tax Temporary
Fair value Basis Difference
---------- -------- ----------
<S> <C> <C> <C>
Property and equipment.................... $ 415,651 $404,147 $ 11,504
PCS licenses.............................. 2,942,200 90,280 2,851,920
Identifiable intangible assets............ 482,800 26,262 456,538
Long-term debt............................ (571,464) (547,266) (24,198)
Deferred compensation..................... 45,000 -- 45,000
Net operating losses...................... -- 170,183 (170,183)
---------- -------- ----------
Total................................... $3,314,187 $143,606 $3,170,581
========== ========
Effective tax rate........................ 38%
----------
Net deferred tax liability................ $1,204,821
Tritel historical net deferred tax
liability................................ (25,199)
Reversal of TeleCorp historical valuation
allowance................................ (164,204)
----------
Net deferred tax liability related to
merger................................... $1,015,418
==========
</TABLE>
2m. The fair value (based on an independent valuation performed by a valuation
services company) of Tritel's PCS licenses, AT&T operating agreements and other
intangible and tangible assets received by Holding Company as part of the
Merger are as follows:
<TABLE>
<S> <C>
PCS licenses...................................................... $2,942,200
AT&T operating agreements......................................... 409,200
Other assets...................................................... 824,202
Subscriber list................................................... 73,600
----------
Total fair value of assets acquired by Holding Company............ $4,249,202
==========
</TABLE>
PCS licenses being acquired have an estimated fair value of $2,942,200. As
Tritel did not commence service in its BTAs until September 1999, a pro forma
adjustment has been made to the unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999 to record four
months of amortization expense totaling $22,835 on these licenses. A pro forma
adjustment has been made to the unaudited pro forma condensed combined
statement of operations for the three months ended June 30, 2000 to record six
months of amortization expense totaling $34,238 on these licenses.
F-99
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Other assets being acquired have an estimated fair value of $824,202. The
components of this balance are the historical balances at June 30, 2000 of
Tritel's tangible assets as follows:
<TABLE>
<S> <C>
Cash and cash equivalents....................................... $350,573
Accounts receivable, net ....................................... 14,325
Inventory....................................................... 20,512
Other current assets............................................ 9,975
Restricted cash................................................. 5,487
Property and equipment.......................................... 415,651
Notes receivable................................................ 7,550
Other assets, long term......................................... 129
--------
$824,202
========
</TABLE>
TeleCorp's management believes these historical balances at June 30, 2000
approximate fair value. Furthermore, Tritel's historical balance of deferred
financing costs of $26,010 are presented as a pro forma adjustment to reflect
its pro forma fair value of $0.
AT&T operating agreements (Network Membership License, Exclusivity, and
Roaming) being acquired have an estimated fair value of $409,200. The summary
of the characteristics of the AT&T operating agreements historically held by
Tritel and obtained by Holding Company is included in Note 4a. The amortization
of the Network Membership License Agreement will occur over its term of five
years. A pro forma adjustment of $15,400 is included as amortization expense in
the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 to reflect the effect of the Merger as if it had
occurred on January 1, 1999. A pro forma adjustment of $7,700 is included as
amortization expense in the unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 2000 to reflect the effect of the
Merger as if it had occurred on January 1, 1999. The amortization of the
Exclusivity and Roaming Agreements will commence once PCS service is provided
in the related BTAs. As Tritel did not commence service in these BTAs until
September 1999, amortization expense has been recorded on the Exclusivity and
Roaming agreements in the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 for four months totaling
$7,440. Amortization expense has been recorded on the Exclusivity and Roaming
agreements in the unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 2000 for six months totaling
$11,160.
Subscriber list held by Tritel has an estimated fair value of $73,600. The
subscriber list has an estimated life of four years. As Tritel did not commence
service in its BTAs until September 1999, amortization expense has been
recorded on the subscriber list in the unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999 for four months
totaling $6,133. Amortization expense has been recorded on the subscriber list
in the unaudited pro forma condensed combined statement of operations for the
six months ended June 30, 2000 for six months totaling $9,200.
2n. Represents unvested restricted stock awards granted by Holding Company in
exchange for restricted stock awards held by certain employees of Tritel which
have been included in the purchase price. However, since service is required
subsequent to the consummation date of the merger in order to vest the
replacement restricted stock awards, $45,000 of the intrinsic value of the
unvested awards has been allocated to deferred compensation to be recognized
over a two year period. For the year ended December 31, 1999 and the six months
ended June 30, 2000, $22,500 and $11,250, of compensation has been recorded
respectively.
F-100
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
2o. Goodwill
The goodwill associated with the Merger of $2,296,139 is recorded as a pro
forma adjustment to the unaudited pro forma combined condensed balance sheet as
of June 30, 2000. Amortization of goodwill over a twenty year period results in
a pro forma adjustment of $57,403 in the unaudited pro forma condensed combined
statement of operation for the six months ended June 30, 2000 as if the Merger
occurred on January 1, 1999. Amortization of the December 31, 1999 goodwill of
$2,261,073 results in a pro forma adjustment of $113,054 in the unaudited pro
forma condensed combined statement of operation for the year ended December 31,
1999 as if the merger occurred on January 1, 1999.
2p. Summary of Merger adjustments to the unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999.
The following table sets forth the depreciation and amortization pro forma
adjustment as presented on the unaudited pro forma condensed combined statement
of operations for the year ended December 31, 1999 related to the Merger:
<TABLE>
<S> <C> <C>
Pro forma merger adjustment to amortization expense
Amortization of:
PCS licenses.......................................... Note 2m. $ 22,835
Network Membership License agreement.................. Note 2m. 15,400
Exclusivity and Roaming agreements.................... Note 2m. 7,440
Subscriber list....................................... Note 2m. 6,133
Goodwill.............................................. Note 2o. 113,054
--------
$164,862
========
2q. Summary of Merger adjustments to the unaudited pro forma condensed combined
statement of operations for the six months ended June 30, 2000.
The following table sets forth the depreciation and amortization pro forma
adjustment as presented on the unaudited pro forma condensed combined statement
of operations for the three months ended March 31, 2000 related to the Merger:
Pro forma merger adjustment to amortization expense:
PCS licenses.......................................... Note 2m. $ 34,238
Network Membership License agreement.................. Note 2m. 7,700
Exclusivity and Roaming agreements.................... Note 2m. 11,160
Subscriber list....................................... Note 2m. 9,200
Goodwill.............................................. Note 2o. 57,403
--------
$119,701
========
</TABLE>
F-101
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
2r. Summary of Merger adjustments to the unaudited pro forma condensed combined
balance sheet at June 30, 2000.
The following tables set forth the summary of pro forma adjustments as
presented on the unaudited pro forma condensed combined balance sheet at June
30, 2000 related to the Merger:
(i) Cash
<TABLE>
<S> <C> <C>
Pro forma Merger adjustment to cash
Cash consideration....................... Note 2h.(i) $ (10,000)
Transaction related costs................ Note 2k. (28,000)
----------
$ (38,000)
==========
(ii) PCS licenses
Pro forma Merger adjustment to PCS licenses
Fair value............................... Note 2m. $2,942,200
Historic cost of Tritel.................. Note 1b. (202,894)
----------
$2,739,306
==========
(iii) Intangible assets
Pro forma Merger adjustment to intangible
assets
Fair value--AT&T operating agreements.... Note 2m. $ 409,200
Subscriber list.......................... Note 2m. 73,600
Historic cost of Tritel.................. Note 1b. (56,646)
----------
$ 426,154
==========
(iv) Other long term payables
Pro forma Merger adjustment to other long
term payables
Deferred tax liability................... Note 2l. $1,015,418
William M. Mounger II put right.......... Note 2h.(ii) 10,000
----------
$1,025,418
==========
(v) Redeemable preferred stock
Pro forma Merger adjustment to redeemable
preferred stock
Fair value--redeemable preferred stock... Note 2 subtotal(3) $ 101,415
Historic cost of Tritel.................. Note 1b. (104,120)
----------
$ (2,705)
==========
(vi) Preferred stock
Pro forma Merger adjustment to preferred
stock
Fair value--preferred stock.............. Note 2g. $ 716,550
Historic cost of Tritel.................. Note 1b. (46,374)
----------
$ 670,176
==========
(vii) Common stock
Pro forma Merger adjustment to common stock
Fair value--common stock.................. Note 2 subtotal(1) $3,890,535
Fair value--common stock.................. Note 2 subtotal(2) 1,499
Fair value--option conversion cost........ Note 2j. 75,496
Historic cost of Tritel................... Note 1b. (749,503)
----------
$3,218,027
==========
</TABLE>
F-102
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(viii) Deferred compensation
<TABLE>
<S> <C> <C>
Pro forma Merger adjustment to deferred compensation
Fair value.............................................. Note 2n. $(45,000)
Historic cost of Tritel................................. Note 1b. 74,450
--------
$ 29,450
========
</TABLE>
3. Contribution and Exchange
In connection with the Merger, AT&T has agreed to contribute certain assets
and rights to Holding Company (the Contribution). The Contribution will result
in Holding Company acquiring various assets in exchange for the consideration
issued as follows:
Holding Company acquires:
. $20,000 cash from AT&T Wireless Services
. The right to acquire all of the common and preferred stock of Indus.
. The right to acquire additional wireless properties and assets from
Airadigm.
. The two year extension and expansion of the AT&T network membership
license agreement to cover all people in Holding Company's markets.
Consideration issued:
. 9,272,740 shares of Class A common stock of Holding Company formed from
the Tritel merger to AT&T Wireless Services.
Separately, AT&T Wireless and TeleCorp entered into an Asset Exchange
Agreement pursuant to which TeleCorp has agreed to exchange certain assets with
AT&T Wireless, among other consideration. TeleCorp is receiving certain
consideration in exchange for assets as follows:
TeleCorp acquires:
. $80,000 in cash from AT&T Wireless less $5,100 and $6,868 paid to
Polycell and ABC Wireless, respectively, on behalf of TeleCorp by AT&T
Wireless.
. AT&T Wireless' 10 MHZ PCS licenses in the areas covering part of the
Wisconsin market, in addition to adjacent licenses and AT&T Wireless
10MHZ licenses in Fort Dodge and Waterloo, Iowa.
. PCS licenses from Polycell.
. PCS licenses from ABC Wireless.
Consideration issued:
. TeleCorp's New England market segment to AT&T Wireless.
Further, AT&T has agreed to extend the term of the roaming agreement and to
expand the geographic coverage of the AT&T operating agreements with TeleCorp
to include the new markets, either through amending TeleCorp's existing
agreements or by entering into new agreements with Holding Company on
substantially the same terms as TeleCorp's existing agreements. In addition,
TeleCorp has granted AT&T Wireless a "right of first refusal" with respect to
certain markets transferred by AT&T Wireless Services or AT&T Wireless
triggered in the event of a sale of Holding Company to a third party.
F-103
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
These unaudited pro forma combined condensed financial statements are
presented as if TeleCorp exercised its rights to purchase Indus and Airadigm.
As such, the following incremental consideration will be given by TeleCorp in
exercising the right to purchase Indus and Airadigm:
. $34,688 in cash to the shareholders of Indus.
. An assumption of Indus' debt and other liabilities of $100,518.
. $74,000 in cash to Airadigm.
. An assumption of Airadigm's debt and other liabilities of $65,127.
The Contribution and Exchange from AT&T will be accounted for as an asset
purchase and disposition and recorded at fair value. The purchase price will be
determined based on cash paid, the fair value of the Class A common stock
issued, and the fair value of the assets relinquished. The purchase price will
be proportionately allocated to the noncurrent assets acquired based on their
estimated fair values. A gain is recognized as the difference between the fair
value of the New England assets disposed and their net book value.
For purposes of these unaudited pro forma combined condensed financial
statements, Holding Company exercised its rights to purchase Indus and Airadigm
based on incremental cash paid and liabilities assumed based on their estimated
fair values. These transactions will be accounted for as asset purchases. The
purchase price will be allocated to the assets acquired based on their
estimated fair values.
3a. Cost Basis of Assets Received and Gain on Disposal of New England
Operations
The cost basis of assets received is based on the fair value of the assets
relinquished:
<TABLE>
<S> <C>
Fair value of Holding Company consideration issued
Holding Company Class A common stock given to AT&T (i).......... $ 373,807
Fair value of the TeleCorp New England assets transferred to
AT&T (ii)...................................................... 434,900
Cash paid to Indus (iii)........................................ 34,688
Assumption of Indus' debt and other liabilities (iv)............ 100,518
Cash paid to Airadigm (v)....................................... 74,000
Assumption of Airadigm's debt and other liabilities (vi)........ 65,127
Cash paid to ABC Wireless....................................... 6,868
Cash paid to Polycell........................................... 5,100
Assumption of deferred tax liability............................ 100,690
----------
Total fair value.............................................. $1,195,698
==========
</TABLE>
A gain is recognized as the difference between the fair value of the assets
relinquished related to TeleCorp New England assets transferred to AT&T and
those assets' net book value.
<TABLE>
<S> <C>
Fair value of the New England assets transferred to AT&T (ii).... $434,900
Net book value of the New England assets transferred to AT&T
(vii)........................................................... (81,708)
--------
Gain on disposal of New England assets (viii).................... $353,192
========
</TABLE>
The contribution and the exchange represent the purchase of assets and the
disposition of a business. This transaction is accounted for at fair value for
book purposes. For tax purposes, these transactions are primarily tax-free and
recorded at historical cost. Therefore, this represents an asset purchase
whereby the fair value of acquired assets differs from the tax basis of the
assets resulting in an adjustment to the carrying amount of the acquired assets
and a deferred tax liability of $100,690.
F-104
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
The purchase price will be allocated to the assets acquired based on their
estimated fair values. The following table sets forth the fair values of the
assets received:
<TABLE>
<S> <C>
Fair value of assets Holding Company received
Cash from AT&T.................................................. $ 100,000
Cash from historic financial statements of Indus (Note 1c.)..... 548
Cash from historic financial statements of Airadigm (Note 1d.).. 1,170
Accounts receivable from historic financial statements of
Airadigm (Note 1d.)............................................ 647
PCS licenses from AT&T (ix)..................................... 191,554
AT&T network membership license agreement extension (x)......... 165,000
AT&T operating agreements (xi).................................. 118,400
PCS license from ABC Wireless, at cost (xii).................... 6,868
PCS licenses from Polycell, at cost (xii)....................... 5,100
PCS licenses from Airadigm (xiii)............................... 330,000
PCS licenses from Indus (xiv)................................... 225,200
----------
Total fair value of assets received........................... $1,144,487
==========
</TABLE>
The difference of the fair value of the assets acquired as compared to the
consideration is allocated to increase proportionately the values assigned to
non-current assets in determining their cost basis. The following table sets
forth the difference of fair value of assets received as compared to the cost
and related increase to non-current assets.
<TABLE>
<S> <C>
Total fair value of consideration issued........................ $1,195,698
Total fair value of assets Holding Company received............. 1,144,487
----------
Difference...................................................... $ 51,211
==========
Proportionate allocation increasing the fair value of noncurrent
assets received
PCS licenses from AT&T (ix)..................................... $ 9,522
AT&T network membership license agreement extension (x)......... 8,203
AT&T operating agreements (xi).................................. 5,886
PCS license from ABC Wireless, at cost (xii).................... --
PCS licenses from Polycell, at cost (xii)....................... --
PCS licenses from Airadigm (xiii)............................... 16,405
PCS licenses from Indus (xiv)................................... 11,195
----------
Increase in fair value of non-current assets.................. $ 51,211
==========
Basis of assets Holding Company received
Cash (from AT&T and historic basis of Indus and Airadigm)....... $ 101,718
Accounts receivable (historical basis of Airadigm).............. 647
PCS licenses from AT&T (ix)..................................... 201,076
AT&T network membership license agreement extension (x)......... 173,203
AT&T operating agreements (xi).................................. 124,286
PCS license from ABC Wireless, at cost (xii).................... 6,868
PCS licenses from Polycell, at cost (xii)....................... 5,100
PCS license from Airadigm (xiii)................................ 346,405
PCS licenses from Indus (xiv)................................... 236,395
----------
Total basis of assets Holding Company received................ $1,195,698
==========
</TABLE>
F-105
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands except per share data)
The unaudited pro forma condensed combined balance sheet and the unaudited
pro forma condensed combined statements of operations have been adjusted for
the Contribution and Exchange.
(i) Holding Company class A common stock given to AT&T
Holding Company will issue 9,272,740 shares of class A common stock with a
fair value of $373,807 as determined by TeleCorp's class A public trading
securities on June 30, 2000 which were priced at $40.3125 per share. As this is
an asset purchase, the fair value of the stock issued will be measured upon
close.
(ii) Fair value of the TeleCorp New England assets transferred to AT&T
Holding Company will issue to AT&T the New England market segment with a
fair value of $434,900 as determined by an independent appraiser. The table
below sets forth the components of the value as appraised:
<TABLE>
<S> <C>
PCS licenses.......................................................... $333,800
Property and equipment................................................ 79,000
Subscriber list....................................................... 22,100
--------
$434,900
========
</TABLE>
(iii) Cash paid to Indus
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Indus was exercised. Of the cash
consideration to Indus, $4,000 may be paid as common stock at the option of
Indus. For the purpose of the pro forma combined financial statements it was
assumed this consideration was paid in cash.
(iv) Assumption of Indus' debt and other liabilities
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Indus was exercised. The fair value
of Indus long term debt is $83,607, net of a discount of $8,152 using
TeleCorp's incremental borrowing rate of 11.1% at February 28, 2000. The fair
value of other liabilities assumed by Holding Company from Indus totaled
$16,911. Interest expense of $1,237 and $628 was recorded as an adjustment to
the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 and the six months ended June 30, 2000, respectively,
to reflect the amortization of the debt discount as if the Contribution and
Exchange had occurred on January 1, 1999.
(v) Cash paid to Airadigm
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Airadigm was exercised.
(vi) Assumption of Airadigm's debt and other liabilities
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Airadigm was exercised. In
consideration to Airadigm for assets received as part of the Contribution,
Holding Company will pay Airadigm cash and assume long term debt of $54,842,
net a discount of $9,432 and current liabilities with a fair value of
approximately $10,285. Interest expense of $1,431 and $716 was recorded as an
adjustment to the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 and the six months ended June
30, 2000, respectively, to reflect the amortization of the debt discount as if
the Contribution and Exchange had occurred on January 1, 1999.
F-106
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(vii) Net book value of the New England assets transferred to AT&T
The following table sets forth the historical carrying cost of New England's
assets at June 30, 2000
<TABLE>
<S> <C>
PCS licenses........................................................ $15,746
Property and equipment.............................................. 62,606
AT&T operating agreements........................................... 3,356
-------
$81,708
=======
</TABLE>
Property and equipment
Property and equipment consist of the wireless network, computer equipment,
internal use software, furniture, fixtures, office equipment and leasehold
improvements related to the Holding Company's New England market. The net book
value of the assets recorded in TeleCorp's historical financial statements as
of June 30, 2000 was reduced as a pro forma adjustment to reflect the
disposition as if it had occurred on March 31, 2000. The related depreciation
expense incurred by TeleCorp and recorded in TeleCorp's historical financial
statements for the year ended December 31, 1999 and the six months ended June
30, 2000 was reduced as a pro forma adjustment to reflect the disposition as if
it had occurred on January 1, 1999.
PCS licenses
The four PCS licenses conveyed to AT&T are 20 megahertz (MHz) PCS licenses
in Manchester, NH, Worcester, Rockingham and, Stafford County and Hyannis, MA.
These licenses are currently being amortized over a 40 year life. The net book
value of the licenses recorded in TeleCorp's historical balance sheet as of
June 30, 2000 was reduced as a pro forma adjustment to reflect the disposition
as if it had occurred on June 30, 2000. The related amortization incurred by
TeleCorp was reduced in the statements of operations for the year ended
December 31, 1999 and the six months ended June 30, 2000 to reflect the
disposition as if it had occurred on January 1, 1999.
AT&T operating agreements
In January 1998, TeleCorp entered into a Securities Purchase Agreement with
AT&T Wireless and TWR Cellular, Inc. whereby TeleCorp, in exchange for
securities and cash, received licenses and operating agreements from AT&T. The
total value of the operating agreements was allocated to each of TeleCorp's
regions based on POP's.
In connection with this Exchange, as a pro forma adjustment, we removed the
net book value of each of the agreements from Holding Company's balance sheet
and removed $6,766 and $470 from the Holding Company's statements of operations
for the year ended December 31, 1999 and the six months ended June 30, 2000,
respectively.
Historical results of operations of New England BTAs
Services, roaming, and equipment revenues of $2,978, $5,887 and $1,749,
respectively, for the year ended December 31, 1999 recorded in TeleCorp's
historical financial statements have been eliminated as pro forma adjustments
to reflect the disposition of the BTAs underlying assets as if it had occurred
on January 1, 1999.
Cost of revenue, operations and development expense, selling and marketing,
general and administration expenses, and depreciation and amortization of
$3,855, $7,573, $5,581, $1,905 and $6,766 respectively, for the
F-107
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
year ended December 31, 1999 recorded in TeleCorp's historical financial
statements have been eliminated as pro forma adjustments to reflect the
disposition of the BTAs underlying assets as if it had occurred on January 1,
1999.
Services, roaming, and equipment revenues of $7,804, $4,654 and $1,783,
respectively, for the six months ended June 30, 2000 recorded in TeleCorp's
historical financial statements have been eliminated as pro forma adjustments
to reflect the disposition of the BTAs underlying assets as if it had occurred
on January 1, 1999.
Cost of revenue, operations and development expense, selling and marketing,
general and administration expenses, and depreciation and amortization of
$5,320, $4,311, $5,504, $2,050 and $6,289 respectively, for the six months
ended June 30, 2000 recorded in TeleCorp's historical financial statements have
been eliminated as pro forma adjustments to reflect the disposition of the BTAs
underlying assets as if it had occurred on January 1, 1999.
(viii) Gain on disposal of New England operations
The gain on the disposal of New England assets of $353,192 is presented
in the unaudited pro forma condensed combined balance sheet as if the
transaction had occurred on June 30, 2000. The gain is not included in the
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 or the unaudited pro forma condensed combined
statement of operations for the six months ended June 30, 2000 as if the
transaction had occurred on January 1, 1999 due to its non-recurring
nature.
(ix) PCS licenses from AT&T
Holding Company acquired PCS licenses from AT&T; 14 D-Block 10 MHz and
one E-Block 10 MHz located in Wisconsin, Michigan and Iowa that have a
total fair value of $191,554. As part of the proportionate increase in the
fair value due to the difference of consideration given, PCS licenses from
AT&T were increased $9,522. The cost basis of the PCS licenses from AT&T
are recorded in the unaudited pro forma condensed combined balance sheet at
$201,076.
As Holding Company is not planning to commence service in these BTAs
within the twelve months following the February 28, 2000 announcement,
amortization expenses has not been recorded on these licenses in either of
the unaudited pro forma condensed combined statements of operations.
(x) AT&T network membership license agreement extension
Holding Company acquired a two year extension of its network membership
license agreement with AT&T (discussed elsewhere in this offering
memorandum) with a fair value of $165,000. As part of the proportionate
increase in the fair value due to the difference of consideration given the
AT&T network membership license extension was increased $8,203. The cost
basis of the AT&T network membership license extension agreement are
recorded in the unaudited pro forma condensed combined balance sheet at
$173,203.
Holding Company will begin amortization of the extension of the network
membership license agreement upon expiration of its existing network
membership license agreement over its extension term of two years. As the
current network membership license agreement will not expire within one
year of the February 28, 2000 announcement, no pro forma amortization
expense was included in the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1999 or the six
months ended June 30, 2000 to reflect the effect of the Contribution and
Exchange as if it had occurred on January 1, 1999.
(xi) AT&T operating agreements
Holding Company acquired operating agreements with AT&T (discussed
elsewhere in this prospectus) with a fair value $118,400. These operating
agreements are the same agreements held by
F-108
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
Holding Company for TeleCorp and Tritel extended to include the BTAs
associated with the PCS licenses of Airadigm, Indus, Polycell, ABC Wireless
and the licenses obtained from AT&T. As part of the proportionate increase
in the fair value due to the difference of consideration given the AT&T
operating agreements were increased $5,886. The cost basis of the AT&T
operating agreements are recorded in the unaudited pro forma condensed
combined balance sheet at $124,286.
The cost basis of these agreements are as follows:
<TABLE>
<S> <C>
Network membership license....................................... $ 52,591
Exclusivity...................................................... 36,950
Roaming.......................................................... 34,745
--------
$124,286
========
</TABLE>
Holding Company's accounting policy will be to begin amortization of the
network membership license agreement upon close of the transaction over the
remainder of its term of five years. A pro forma adjustment of $11,067 and
$5,259 is included as amortization expense in the unaudited pro forma
condensed combined statements of operations for the year ended December 31,
1999 and the six months ended June 30, 2000, respectively to reflect the
effect of the transactions as if they had occurred on January 1, 1999.
Holding Company will commence amortization of the Exclusivity and
Roaming Agreements once PCS service is provided in the related BTAs. As
Holding Company is not projecting to commence service in theses BTAs within
the twelve months after the February 28, 2000 announcement, no amortization
expense has been recorded on these agreements in either of the unaudited
pro forma condensed combined statements of operations.
(xii) PCS licenses from ABC Wireless and Polycell
Holding Company obtained PCS licenses from ABC Wireless, a related party
controlled by shareholders who also control TeleCorp. Holding Company paid
ABC Wireless cash of $6,868 for these licenses (paid by AT&T on behalf of
Holding Company). Holding Company obtained PCS licenses from Polycell
through rights obtained by ABC Wireless, a related party controlled by
shareholders who also control TeleCorp. Holding Company paid Polycell cash
of $5,100 for these licenses (paid by AT&T on behalf of Holding Company).
The amounts paid on behalf of Holding Company by AT&T reduce the cash
consideration received by Holding Company from AT&T.
The licenses obtained from ABC Wireless were recorded on the unaudited
pro forma condensed combined balance sheet at the historic cost of ABC
Wireless which also equaled the cash consideration of $6,868. Furthermore,
the licenses obtained from Polycell were recorded on the unaudited pro
forma condensed combined balance sheet at a value equal to the cash
consideration paid of $5,100. As these licenses are recorded at cost, they
were not increased by the difference of fair value of consideration given.
As Holding Company is not projecting to commence service in these BTAs
within the twelve months following the February 28, 2000 announcement, no
amortization expense has been recorded on these licenses in either of the
unaudited pro forma condensed combined statements of operations.
(xiii) PCS licenses from Airadigm
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Airadigm was exercised.
Holding Company acquired PCS licenses from Airadigm that have a total
fair value of $330,000. As part of the proportionate increase in the fair
value due to the difference of consideration given, PCS
F-109
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
licenses from Airadigm were increased $16,405. The cost basis of the PCS
licenses from Airadigm are recorded in the unaudited pro forma condensed
combined balance sheet at $346,405.
As Holding Company is not planning to commence service in these BTAs
within the twelve months following the February 28, 2000 announcement,
amortization expense has not been recorded on these licenses in the
unaudited pro forma condensed combined statement of operations.
(xiv) PCS licenses from Indus
For the purposes of the unaudited pro forma condensed combined financial
statements, we assume the right to purchase Indus was exercised.
Holding Company acquired PCS licenses from Indus that have a total fair
value of $225,200. As part of the proportionate increase in the fair value
due to the difference of consideration given, PCS licenses from Indus were
increased $11,195. The cost basis of the PCS licenses from Indus are
recorded in the unaudited pro forma condensed combined balance sheet at
$236,395.
As Holding Company is not planning to commence service in these BTAs
within the twelve months following the February 28, 2000 announcement,
amortization expense has not been recorded on these licenses in either of
the unaudited pro forma condensed combined statements of operations.
3b. Summary of Contribution and Exchange adjustments to the unaudited pro forma
condensed combined statements of operations for the year ended December 31,
1999.
The following table sets forth the summary of the (i) depreciation and
amortization and (ii) interest expense pro forma adjustments as presented on
the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 related to the Contribution and Exchange.
(i) Depreciation and amortization
<TABLE>
<S> <C> <C>
Pro forma adjustment to amortization of:
New England historical results................... Note 3a.(vii) $(6,766)
Operating agreements............................. Note 3a.(xi) 11,067
-------
$ 4,301
=======
(ii) Interest expense
Pro forma adjustment to interest expense
Incremental interest related to Indus debt....... Note 3a.(iv) $ 1,237
Incremental interest related to Airadigm debt.... Note 3a.(vi) 1,431
-------
$ 2,668
=======
</TABLE>
3c. Summary of Contribution and Exchange adjustments to the unaudited pro forma
condensed combined statement of operations for the six months ended June 30,
2000.
The following table sets forth the summary of the (i) depreciation and
amortization and (ii) interest expense pro forma adjustments as presented on
the unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 2000 related to the Contribution and Exchange.
(i) Depreciation and amortization
<TABLE>
<S> <C> <C>
Pro forma adjustment to amortization of:
New England historical results................... Note 3a.(vii) $(6,289)
Operating agreements............................. Note 3a.(xi) 5,259
-------
$(1,030)
=======
</TABLE>
F-110
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(ii) Interest expense
<TABLE>
<S> <C> <C>
Pro forma adjustment to interest expense
Incremental interest related to Indus debt.......... Note 3a.(iv) $ 628
Incremental interest related to Airadigm debt....... Note 3a.(vi) 716
------
$1,344
======
</TABLE>
3d. Summary of Contribution and Exchange adjustments to the unaudited pro forma
condensed combined balance sheet.
The following tables set forth the summary of pro forma adjustments as
presented on the unaudited Pro forma condensed combined balance sheet related
to the Contribution and Exchange.
(i) Cash
<TABLE>
<S> <C> <C>
Pro forma adjustment to cash
Cash from AT&T................................ Note 3a. $ 100,000
Cash to ABC Wireless.......................... Note 3a.(xii) (6,868)
Cash to Polycell.............................. Note 3a.(xii) (5,100)
Cash to Indus................................. Note 3a.(iii) (34,688)
Cash to Airadigm.............................. Note 3a.(v) (74,000)
---------
$ (20,656)
=========
(ii) Other current assets
Pro forma adjustment to other current assets
Fair value of other current assets received as
consideration................................ $ --
Historic cost of Indus' other current assets.. Note 1c. (660)
Historic cost of Airadigm's other current
assets....................................... Note 1d. (745)
---------
$ (1,405)
=========
(iii) Property and equipment
Pro forma adjustment to property and equipment
Fair value received as consideration.......... $ --
Historic cost of New England property and
equipment.................................... Note 3a.(vii) (62,606)
Historic cost of Indus' property and
equipment.................................... Note 1c. (962)
Historic cost of Airadigm's property and
equipment.................................... Note 1d. (39,386)
---------
$(102,954)
=========
</TABLE>
(iv) PCS licenses
<TABLE>
<S> <C> <C>
Pro forma adjustment to PCS licenses
Cost basis of New England PCS licenses....... Note 3a.(vii) $(15,746)
Fair value as adjusted of PCS licenses from
AT&T........................................ Note 3a.(ix) 201,076
Fair value as adjusted of PCS licenses from
ABC Wireless................................ Note 3a.(xii) 6,868
Fair value as adjusted of PCS licenses from
Polycell.................................... Note 3a.(xii) 5,100
Fair value as adjusted of PCS licenses
received from Indus......................... Note 3a.(xiv) 236,395
Historic cost of Indus' PCS licenses......... Note 1c. (69,883)
Cost basis PCS license received from
Airadigm.................................... Note 3a.(xiii) 346,405
Historic cost of Airadigm's PCS licenses..... Note 1d. (78,288)
--------
$631,927
========
</TABLE>
F-111
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(v) Intangible assets
<TABLE>
<S> <C> <C>
Pro forma adjustment to intangible assets
AT&T network membership license agreement
extension.................................... Note 3a.(x) $173,203
AT&T operating agreements..................... Note 3a.(xi) 124,286
Historic cost of AT&T operating agreements in
New England.................................. Note 3a.(vii) (3,356)
--------
$294,133
========
(vi) Other assets
Pro forma adjustment to other assets
Fair value of other assets received as
consideration................................ $ --
Historic cost of Indus' other assets.......... Note 1c. (1,123)
--------
$ (1,123)
========
</TABLE>
(vii) Accounts payable and accrued expenses
<TABLE>
<S> <C> <C>
Pro forma adjustment to accounts payable and
accrued liabilities
Fair value of Airadigm accounts payable and
accrued liabilities........................... $ --
Historic cost of Airadigm's accounts payable
and accrued expenses.......................... Note 1d. (8,106)
---------
$ (8,106)
=========
(viii) Other current liabilities
Pro forma adjustment to other current liabilities
Fair value of Airadigm's other current
liabilities................................... $ --
Historic cost of Airadigm's other current
liabilities................................... Note 1d. (32,583)
---------
$ (32,583)
=========
(ix) Long term debt, current portion
Pro forma adjustment to long term debt, current
portion
Fair value of long term debt, current portion,
assumed from Airadigm......................... Note 3a.(vi) $ 10,285
Historic cost of Airadigm's long term debt,
current portion............................... Note 1d. (6,232)
---------
$ 4,053
=========
(x) Long term debt
Pro forma adjustment to long term debt
Fair value of Indus' long term debt assumed.... Note 3a.(iv) $ 83,607
Historic cost of Indus' long term debt......... Note 1c. (91,759)
Fair value of Airadigm's long term debt
assumed....................................... Note 3a.(vi) 54,842
Historic cost of Airadigm's long term debt..... Note 1d. (157,618)
---------
$(110,928)
=========
</TABLE>
F-112
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands)
(xi) Other long term payables
<TABLE>
<S> <C> <C>
Pro forma adjustment to other long term payables
Fair value of other long term payables assumed.. $ --
Deferred tax liability.......................... Note 3a. 100,690
Historic cost of Airadigm's other long term
payables....................................... Note 1d. (2,708)
--------
$ 97,982
========
(xii) Preferred stock
Pro forma adjustment to preferred stock
Elimination of historic cost of Indus' preferred
stock.......................................... Note 1c. $ (450)
--------
$ (450)
========
(xiii) Common stock
Pro forma adjustment to common stock
Fair value of common stock given to AT&T........ Note 3a.(i) $373,807
Elimination of historic cost of Indus' common
stock.......................................... Note 1c. (25,426)
Elimination of historic cost of Airadigm's
common stock................................... Note 1d. (10,011)
--------
$338,370
========
(xiv) Accumulated deficit
Pro forma adjustment to accumulated deficit on
disposal of New England operations............... Note 3a.(viii) $353,192
Elimination of historic cost of Indus'
accumulated deficit............................ Note 1c. 61,370
Elimination of historic cost of Airadigm's
accumulated deficit............................ Note 1d. 97,022
--------
$511,584
========
</TABLE>
4. Inter-Company Eliminations
4a. Roaming revenue and cost of revenue of $1,000 and $1,000, respectively
included on the historical consolidated statement of operations of TeleCorp for
the year ended December 31, 1999 relate to amounts earned and expensed by
Tritel during 1999. As such, roaming revenue and cost of revenue of $1,000 and
$1,000 included on the historical consolidated statement of operations for the
year ended December 31, 1999 of Tritel relates to amounts earned and expensed
directly with TeleCorp. The pro forma inter-company eliminations adjustment of
revenue and cost of revenue for the year ended December 31, 1999 of $2,000 is
the reduction of such balances as if the transaction occurred on January 1,
1999.
4b. Roaming revenue and cost of revenue of $238 and $559, respectively included
on the historical consolidated statement of operations of TeleCorp for the six
months ended June 30, 2000 of TeleCorp relate to amounts earned and expensed by
Tritel during the six months ended June 30, 2000. As such, roaming revenue and
cost of revenue of $238 and $559 included on the historical consolidated
statement of operations of Tritel for the six months ended June 30, 2000
relates to amounts earned and expensed directly with TeleCorp. The pro forma
inter-company eliminations adjustment of revenue and cost of revenue for the
six months ended June 30, 2000 of $797 is the reduction of such balances as if
the transaction occurred on January 1, 1999.
F-113
<PAGE>
TELECORP PCS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)
($ in thousands except per share data)
No payables, receivables or inter-company investments existed between any of
the companies at June 30, 2000. No inter-company eliminations were necessary
for the June 30, 2000 unaudited pro forma condensed combined balance sheet.
5. Calculation of Pro Forma Net Loss Per Share
For purposes of calculating pro forma net loss per share for the year ended
December 31, 1999, all share issuances and conversions, other than TeleCorp
historical weighted average common shares, have been calculated as if the
Transaction and other pending transactions occurred on January 1, 1999.
Additionally, for pro forma purposes, an assumption was made that all payments
to Indus were satisfied in cash (Note 3a.(iv)).
<TABLE>
<S> <C> <C>
TeleCorp weighted average common shares......... Note 1a. 76,895,391
Conversion of Tritel common stock to Holding
Company trading common stock................... Note 2 81,323,891
William M. Mounger, II voting preference stock.. Note 2h.(ii) 3
Conversion of Tritel outstanding common stock... Note 2 48,208
Issuance of common stock to AT&T................ Note 3a.(i) 9,272,740
------------
Total weighted average common shares.......... 167,540,233
------------
Holding Company pro forma net loss.............. $ (848,321)
------------
Basic and diluted net loss per common share..... $ (5.06)
============
</TABLE>
For purposes of calculating pro forma net loss per share for the six months
ended June 30, 2000, all share issuances and conversions, other than TeleCorp
historical weighted average common shares, have been calculated as if the
Transaction and other pending transactions occurred on January 1, 1999.
Additionally, for pro forma purposes, an assumption was made that all payments
to Indus were satisfied in cash (Note 3a.(iv)).
<TABLE>
<S> <C> <C>
TeleCorp weighted average common shares......... Note 1a. 100,414,647
Conversion of Tritel common stock to Holding
Company trading common stock................... Note 2 81,323,891
William M. Mounger, II voting preference stock.. Note 2h.(ii) 3
Conversion of Tritel outstanding common stock... Note 2 48,208
Issuance of common stock to AT&T................ Note 3a.(i) 9,272,740
------------
Total weighted average common shares.......... 191,059,489
------------
Holding Company pro forma net loss.............. $ (533,561)
------------
Basic and diluted net loss per common share..... $ (2.79)
============
</TABLE>
6. Offering
Adjustment to the unaudited condensed combined balance sheet reflects the
receipt of $437,000 of proceeds for the sale of the Subordinated Notes from the
Offering, net of pro forma deferred financing costs of estimated underwriting
discounts and offering expenses of $13,000. Adjustments to interest expense,
inclusive of amortization of pro forma deferred financing costs, of $49,113 and
$24,557 to the unaudited condensed combined statements of operations for the
year ended December 31, 1999 and the six months ended June 30, 2000,
respectively, assume the offering had occurred on January 1, 1999.
F-114
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus or in the
accompanying letter of transmittal. You must not rely on any unauthorized
information or representations. This prospectus does not offer to sell or buy
any securities in any jurisdiction where it is unlawful. The information in
this prospectus and the accompanying letter of transmittal is current only as
of August 11, 2000.
Until [ ], 2000, all dealers that effect transactions in these
securities, whether or not participating in the exchange offer, may be required
to deliver a prospectus in connection with this exchange offer. This is in
addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
TeleCorp PCS, Inc.
$450,000,000
Exchange Offer for our
10 5/8% Senior Subordinated Notes
due 2010
----------------
PROSPECTUS
----------------
August 11, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
[ALTERNATIVE PAGE]
This prospectus, dated [ ], 2000, is subject to completion and amendment
PROSPECTUS
TeleCorp PCS, Inc.
10 5/8% Senior Subordinated Notes Due 2010
You should carefully review the risk factors beginning on page [ ] of this
Prospectus.
Neither the SEC nor any state securities commission has approved or
disapproved of the notes, or determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Chase Securities Inc. may use this prospectus in connection with offers and
sales of the notes in market-making transactions at negotiated prices related
to prevailing market prices at the time of sale. Chase Securities Inc. may act
as a principal or agent in these transactions. For as long as a market-making
prospectus is required to be delivered, the ability of Chase Securities Inc. to
make a market in the notes may in part depend on our ability to maintain a
current market-making prospectus.
The date of this prospectus is [ ], 2000.
A-1
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in
the prospectus in the "Risk Factors" section.]
RISK FACTORS
There is no public market for the exchange notes.
There is no existing trading market for the exchange notes, and there can be
no assurance regarding the development of an active or liquid trading market in
the exchange notes or the ability of the holders of the exchange notes to sell
their exchange notes or the price at which the holders may be able to sell
their exchange notes. If a liquid market were to develop, the exchange notes
could trade at prices that may be higher or lower than their initial offering
price depending on many factors, including prevailing interest rates, our
operating performance and financial condition, the interest of securities
dealers in making a market in the exchange notes and the market for similar
securities. Although it is not obligated to do so, Chase Securities Inc.
intends to make a market in the exchange notes. Any such market-making activity
may be discontinued at any time, for any reason, without notice at the sole
discretion of Chase Securities Inc. No assurance can be given as to the
liquidity of or the trading market for the exchange notes.
Chase Securities Inc. is affiliated with entities that beneficially own our
capital stock. If Chase Securities Inc. conducts any market-making activities,
it may be required to deliver a market making prospectus when effecting offers
and sales in the exchange notes because Chase Securities Inc. is affiliated
with such entities. Pursuant to the registration rights agreement, we have
agreed to file and maintain a registration statement that would allow Chase
Securities Inc. to engage in market-making transactions in the exchange notes.
Subject to certain exceptions set forth in the registration rights agreement,
the registration statement will remain effective for as long as Chase
Securities Inc. may be required to deliver a prospectus in connection with
market-making transactions in the exchange notes. We have agreed to bear
substantially all the costs and expenses related to such registration
statement.
A-2
<PAGE>
[ALTERNATIVE SECTION]
USE OF PROCEEDS
The Company will receive none of the proceeds for the sale of the notes by
Chase Securities Inc. or any of its affiliates.
A-3
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in
the prospectus in the "Description of the Notes" section.]
DESCRIPTION OF THE NOTES
General
As used in this section entitled "Description of the Notes," the term
"Company" means TeleCorp PCS, Inc., a Delaware corporation, but does not
include any of the Company's subsidiaries. Capitalized terms used in this
section entitled "Description of the Notes" and not otherwise defined have the
meanings set forth under "--Certain Definitions."
The outstanding Notes have been, and the exchange notes will be, issued
under an indenture, to be dated as of July 14, 2000 (the "Indenture"), among
the Company, TeleCorp Communications, Inc., as Subsidiary Guarantor, and
Bankers Trust Company, as Trustee (the "Trustee"), a copy of the form of which
is available upon request to the Company.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
TIA.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee, at 4 Albany Street, New
York, New York 10006), except that, at the option of the Company, payment of
interest may be made by check mailed to the registered holders of the Notes at
their registered addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
A-4
<PAGE>
[ALTERNATIVE PROVISIONS]
[The following provisions replace the provisions under the same headings in
the prospectus in the "Book-Entry; Delivery and Form" section.]
BOOK-ENTRY; DELIVERY AND FORM
The notes are represented by a permanent global certificate in definitive,
fully registered form. The global note is registered in the name of a nominee
of the Depository Trust Company.
A-5
<PAGE>
[ALTERNATIVE SECTION]
PLAN OF DISTRIBUTION
Chase Securities Inc. may use this prospectus in connection with offers and
sales of the notes in market-making transactions at negotiated prices relating
to prevailing market prices at the time of sale. Chase Securities Inc. must
deliver this prospectus because, by virtue of the ownership of some of our
equity by affiliates of Chase Securities Inc., we may be deemed to be
affiliates. Chase Securities Inc. may act as principal or agent in the
transaction. For as long as a market-making prospectus is required to be
delivered, the ability of Chase Securities Inc. to make a market in the notes
may in part depend on our ability to maintain a current market-making
prospectus.
The notes are new securities with no established trading market. We do not
intend to list the notes on any securities exchange. Any trading that does
develop will occur on the over-the-counter market. Chase Securities Inc. has
advised us that it intends to make a market in the notes, but it has no
obligation to do so. Chase Securities Inc. may discontinue any market-making at
any time. A liquid market may not develop for the notes, you may not be able to
sell your notes at a particular time and the prices that you receive when you
sell may not be favorable. Future trading prices of the notes will depend on
many factors, including our operating performance and financial condition,
prevailing interest rates and the market for similar securities.
Chase Securities Inc. acted as an initial purchaser in connection with the
initial private offering of the notes, and received customary compensation in
connection with the offering. Chase Securities Inc. and its affiliates perform
various investment banking and commercial banking services from time to time
for us and our affiliates. The Chase Manhattan Bank, an affiliate of Chase
Securities Inc., is the agent bank and a lender under our senior credit
facilities. Mr. Michael R. Hannon, a member of our board, is a General Partner
of Chase Capital Partners, an affiliate of Chase Securities Inc. In addition,
affiliates of Chase Capital Partners own a portion of our common stock. For
further information concerning these relationships, see "Securities Ownership
of Beneficial Owners and Management."
Although there are no agreements to do so, Chase Securities Inc., and
others, may act as a broker or dealer in connection with the sale of notes
contemplated by this prospectus and may receive fees or commissions in
connection with sales.
We have agreed to indemnify Chase Securities Inc. against some liabilities
under the Securities Act or to contribute to payments that Chase Securities
Inc. may have to make in respect of such liabilities.
A-6
<PAGE>
[ALTERNATIVE SECTION]
AVAILABLE INFORMATION
We are filing with the SEC this registration statement on Form S-4 under the
Securities Act with respect to the notes. As permitted by the rules and
regulations of the SEC, this prospectus omits some information, exhibits and
undertakings contained in the registration statement. For further information
with respect to us and the notes, you should review this registration
statement, including the exhibits and the financial statements to this
registration statement, notes and schedules filed as a part of this
registration statement. The registration statement of which this prospectus is
a part incorporates important business and financial information about the
Company that is not included or delivered with this prospectus. This
registration statement and the exhibits and schedules to the registration
statement, as well as the periodic reports, proxy statements and other
information filed with the SEC, may be inspected and copied at the Public
Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
NW, Washington, DC 20549 and at the regional offices of the SEC located at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of these
materials may be obtained from the Public Reference Section of the SEC, Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington DC 20549, and its
public reference facilities in New York, New York at the prescribed rates. You
may obtain information as to the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains a website at
http://www.sec.gov that contains periodic reports, proxy and information
statements and other information regarding registrants that file documents
electronically with the SEC. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of contract or document filed as an
exhibit to the registration statement, each statement being qualified in all
respects by reference. Under the indenture, we have agreed to file with the SEC
and provide to the holders of the notes annual reports and the information,
documents and other reports which are specified in the disclosure and reporting
provisions of the Exchange Act. In addition, under the indenture, we have
agreed to file with the Securities and Exchange Commission and provide to the
holders of the notes each of the documents and reports specified in the
previous sentence, adjusted to exclude the operations of Tritel, Inc. and its
subsidiaries and all adjustments related to the merger between TeleCorp and
Tritel, Inc. other than the AT&T Wireless Services Contributions and the AT&T
Wireless Exchange (in each case allocable to the TeleCorp).
The information with respect to Tritel included in this prospectus has not
been independently verified and we make no representation or warranty as to the
accuracy or completeness of this information.
A-7
<PAGE>
[ALTERNATIVE PAGE]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus
does not constitute an offer to sell or buy any securities in any jurisdiction
where it is unlawful. The information in this prospectus is current only as of
[ ], 2000.
Until [ ], 2000, all dealers that effect transactions in these
securities may be required to deliver a prospectus in connection with this
offering. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
TeleCorp PCS, Inc.
$450,000,000
10 5/8% Senior Subordinated Notes
due 2010
----------------
PROSPECTUS
----------------
[ ], 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 (a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), because the person is or
was a director or officer of the corporation. Such indemnity may be against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
Section 145 (b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145 (g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against
any liability asserted against the person in any such capacity, or arising out
of the person's status as such, whether or not the corporation would have the
power to indemnify the person against such liability under the provisions of
the law.
Section 102 (b) (7) of the Delaware Corporation Law permits a corporation to
include in its certificate of incorporation a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that the
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174
of the Delaware Corporation Law (relating to unlawful payment of dividends and
unlawful stock purchase and redemption); or (iv) for any transaction from which
the director derived an improper personal benefit.
Article VI of the Registrant's by-laws together with Article VII of the
Registrant's certificate of incorporation provide for indemnification, to the
fullest extent permitted under Delaware law for any person who is or was a
director or officer of the Registrant who is or was involved or threatened to
be made so involved in any proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was serving as a
director, officer, employee or agent of the Registrant or was serving at the
request of the Registrant as a director, officer, employee or agent of any
other enterprise. The Registrant 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. Such indemnification is provided only if the director, officer,
employee or agent acted in good faith and in a manner
II-1
<PAGE>
that the director, officer, employee or agent reasonably believed to be in, or
not opposed to, the best interests of the Registrant, and with respect to any
criminal proceeding, had no reasonable cause to believe that the conduct was
unlawful.
The foregoing statements are subject to the detailed provisions of Section
145 of the Delaware Corporation Law, Article VI of the by-laws of the
Registrant and Article VII of the Registrant's certificate of incorporation.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1+++ Agreement and Plan of Reorganization and Contribution (included as
Annex A to the joint proxy statement-prospectus forming a part of
the TeleCorp-Tritel Holding Company Registration Statement), dated
February 28, 2000, by and between TeleCorp PCS, Tritel, Inc. and
AT&T Wireless Services, Inc.
2.2+++ Amendment No. 1 to the Agreement and Plan of Reorganization and
Contribution (included as Annex B to the joint proxy statement-
prospectus forming a part of the TeleCorp-Tritel Holding Company
Registration Statement), dated May 4, 2000, by and between TeleCorp
PCS, Tritel, Inc. and AT&T Wireless Services, Inc.
2.3+++ Amendment No. 2 to the Agreement and Plan of Reorganization and
Contribution (included as Annex C to the joint proxy statement-
prospectus forming a part of the TeleCorp-Tritel Holding Company
Registration Statement), dated June 12, 2000 by and between TeleCorp
PCS, Tritel, Inc. and AT&T Wireless Services, Inc.
3.1*** Fifth Amended and Restated Certificate of Incorporation of TeleCorp
PCS, Inc.
3.2*** Second Amended and Restated Bylaws of TeleCorp PCS, Inc.
4.1**** Indenture, dated as of July 14, 2000, by and among TeleCorp PCS,
Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as
Trustee.
4.2++++ Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as Trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes.
5 Opinion of Cadwalader, Wickersham & Taft regarding the legality of
the notes.
8 Opinion of Cadwalader, Wickersham & Taft regarding certain U.S. tax
matters related to the notes (included in Exhibit 5).
10.1+++ TeleCorp PCS, Inc. Voting Agreement, dated February 28, 2000.
10.2+++ Tritel, Inc. Voting Agreement, dated February 28, 2000.
10.3+++ Side Letter Agreement regarding Milwaukee Option, dated February 28,
2000, by and between AT&T Wireless Services, Inc. and TeleCorp PCS,
Inc.
10.4+++ Asset Exchange Agreement, dated as of February 28, 2000, by and
among AT&T Wireless PCS, LLC, TeleCorp PCS, Inc., TeleCorp PCS, LLC,
TeleCorp Holding Corp, Inc., TeleCorp Communications, Inc., TeleCorp
Equipment Leasing, L.P., and TeleCorp Realty, LLC.
10.5+++ Side Letter regarding Additional Mutual Rights and Obligations in
Connection with the Asset Exchange Agreement and the Agreement and
Plan of Reconstruction and Contribution, dated as of February 28,
2000, by and between AT&T Wireless PCS, LLC and TeleCorp PCS, Inc.
10.6.1+++ License Acquisition Agreement, between Polycell Communications, Inc.
and ABC Wireless, LLC, dated as of February 28, 2000.
10.6.2+++ Amended and Restated License Acquisition Agreement among Polycell
Communications, Inc., Clinton Communications, Inc. and ABC Wireless,
LLC, dated as of May 3, 2000.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.7+++ License Acquisition Agreement, between ABC Wireless, LLC and AT&T
Wireless PCS, LLC, dated as of February 28, 2000.
10.8+++ Form of Intermediary Agreement, among AT&T Wireless PCS, LLC,
TeleCorp PCS, Inc., TeleCorp PCS, LLC, TeleCorp Holding Corp, Inc.,
TeleCorp Communications, Inc., TeleCorp Equipment Leasing, L.P.,
TeleCorp Realty, LLC and the Intermediary.
10.9+++ Transition Services Agreement, dated as of February 28, 2000, by and
between AT&T Wireless PCS, LLC and TeleCorp PCS, Inc.
10.10+++ Form of Assignment and Assumption Agreement, by and between Milwaukee
PCS, LLC, Milwaukee Acquisition Subsidiary, Inc., and TeleCorp PCS,
Inc.
10.11+++ Agreement and Plan of Merger, dated February 27, 2000, by and among
Milwaukee PCS LLC, Milwaukee Acquisition Subsidiary, Inc., Kailas J.
Rao, and Indus, Inc.
10.12+++ Airadigm Letter of Intent, dated January 24, 2000.
10.13.1* General Agreement for Purchase of PCS Systems and Services, dated as
of May 12, 1998, by and between TeleCorp PCS, Inc. and Lucent
Technologies Inc.
10.13.2 Amendment No. 1 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of November 20, 1998, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.3 Amendment No. 2 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of September 18, 1998,
by and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.4 Amendment No. 3 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of November 10, 1998, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc. (the
Amendment No. 5 to the General Agreement follows Amendment No. 3).
10.13.5 Amendment No. 5 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of January 27, 1999, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.6 Amendment No. 6 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of August 9, 1999, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.7 Amendment No. 7 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 1999 , by and
between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.8 Amendment No. 8 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 2000, by and
between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.14* Securities Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS Inc., TWR Cellular, Inc. and certain Initial investors
other than AT&T Wireless, TeleCorp Investors and Management
Stockholders identified, dated as of January 23, 1998.
10.15.1* Network Membership License Agreement, by and among AT&T Corp.,
including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc., dated
as of July 17, 1998.
10.15.2* Amendment No. 1 to Network Membership License Agreement, dated March
30, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.16+++ Form of Network Membership License Agreement by and between AT&T
Corp., including AT&T Wireless Services, Inc., and Holding
Company.
10.17.1* Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.17.2* Amendment No. 1 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999.
10.17.3** Amendment No. 2 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of October 18,
1999.
10.18.1* Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998.
10.18.2* Amendment No. 1 to Intercarrier Roamer Service Agreement, dated
May 25, 1999.
10.19+++ Form of Intercarrier Roamer Service Agreement, by and between AT&T
Wireless Services, Inc. and Holding Company.
10.20* Roaming Administration Service Agreement by and between AT&T
Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July
17, 1998.
10.21+++ Form of Roaming Administration Service Agreement, by and between
AT&T Wireless Services, Inc., and Holding Company.
10.22.1++++ Credit Agreement by and among TeleCorp PCS, Inc., the Lenders
party to, and the Chase Manhattan Bank, as Administrative Agent
and Issuing Bank, TD Securities (USA) Inc., as Syndication Agent,
and Bankers Trust Company, as Documentation Agent, dated as of
July 17, 1998.
10.22.2* First Amendment, Consent, and Waiver to the TeleCorp Credit
Agreement, dated as of December 18, 1998.
10.22.3* Second Amendment and Waiver to the TeleCorp Credit Agreement,
dated as of March 1, 1999.
10.22.4* Third Amendment to the TeleCorp Credit Agreement, dated as of
March 30, 1999.
10.22.5* Fourth Amendment to the TeleCorp Credit Agreement, dated as of
March 31, 1999.
10.22.6* Fifth Amendment and Acceptance to the TeleCorp Credit Agreement,
dated as of April 7, 1999.
10.22.7* Sixth Amendment to the TeleCorp Credit Agreement, dated as of
April 7, 1999.
10.22.8* Seventh Amendment to the TeleCorp Credit Agreement, dated as of
May 21, 1999.
10.22.9** Eighth Amendment to the TeleCorp Credit Agreement, dated as of
October 25, 1999.
10.22.10** Ninth Amendment to the TeleCorp Credit Agreement, dated as of
October 26, 1999.
10.22.11 Tenth Amendment to the TeleCorp Credit Agreement, dated as of July
17, 2000.
10.22.12 Eleventh Amendment to the TeleCorp Credit Agreement, dated as of
June 28, 2000.
10.23.1* Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS, Inc. and certain Initial investors other than AT&T
Wireless identified in, dated as of March 22, 1999.
10.23.2* Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of March 30, 1999.
10.23.3* Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of April 6, 1999.
10.23.4* Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of May 14, 1999.
10.23.5* Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of July 15, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.24* Stock Purchase Agreement by and among Viper Wireless, Inc., TeleCorp
Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of March 1,
1999.
10.25* Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS,
Inc., Puerto Rico Acquisition Corp. and certain Management
Stockholders and Initial investors other than AT&T Wireless, dated
as of March 30, 1999.
10.26*** Stock Purchase Agreement, dated as of October 18, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Holding Corp., Inc., Gerald T. Vento,
Thomas H. Sullivan, OneLiberty Fund IV, L.P., Northwood Ventures
LLC, and Northwood Capital Partners LLC.
10.27* Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.28* Preferred Stock Purchase Agreement, dated May 24, 1999, by and
between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
10.29* License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.30* License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
10.31.1* Stockholders' Agreement, dated as of July 17, 1998, by and among
AT&T Wireless PCS, Inc., TWR Cellular, Inc., Initial investors other
than AT&T Wireless, Management Stockholders, and TeleCorp PCS, Inc.
10.31.2* Amendment No. 1 to Stockholders' Agreement dated May 25, 1999.
10.31.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 1999.
10.32+++ Form of Stockholders' Agreement by and among AT&T Wireless PCS, LLC,
Initial investors other than AT&T Wireless, Management Stockholders,
Other Stockholders, and Holding Company, Inc.
10.33++++ Purchase Agreement, dated April 20, 1999, by and among Chase
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.34* Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Initial investors other than AT&T
Wireless, the TeleCorp Investors and the Management Stockholders.
10.35* Employment Agreement, dated as of July 17, 1998, by and between
TeleCorp PCS, Inc. and Julie A. Dobson.
10.36+++ Amendment to Employment Agreement, dated February 28, 2000, by and
between TeleCorp PCS, Inc. and Julie A. Dobson.
10.37* Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie A. Dobson.
10.38* Separation Agreement, dated as of March 8, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.39* Agreement among the Parties, dated as of June 30, 1999, by and among
TeleCorp PCS, Inc., the Initial investors other than AT&T Wireless,
Entergy Technology Holding Company, AT&T Wireless PCS, Inc., TWR
Cellular Inc. and other stockholders.
10.40* Amended and Restated Agreement, dated April 16, 1999, by and among
TeleCorp Communications, Inc., Triton PCS, Inc., Tritel
Communications, Inc. and Affiliate License Co, L.L.C.
10.41* TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.42** TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as
amended.
10.43** Form of Indemnification Agreement to be entered into between
TeleCorp PCS, Inc. and its directors and executive officers.
10.44.1++ Stockholders' Agreement by and among AT&T Wireless PCS Inc., Initial
investors other than AT&T Wireless, Management Stockholders, and
Tritel, Inc. dated January 7, 1999.
10.44.2++ First Amendment to Tritel's Stockholders' Agreement, dated August
27, 1999.
10.44.3++ Second Amendment to Tritel's Stockholders' Agreement, dated as of
September 1, 1999.
10.44.4+ Third Amendment to Tritel's Stockholders' Agreement, dated November
18, 1999.
10.44.5+ Fourth Amendment to Tritel's Stockholders' Agreement, dated December
10, 1999.
10.45++ Investors Stockholders' Agreement by and among Tritel, Inc.,
Washington National Insurance Company, United Presidential Life
Insurance Company, Dresdner Kleinwort Benson Private Equity Partners
LP, Toronto Dominion Investments, Inc., Entergy Wireless
Corporation, General Electric Capital Corporation, Triune PCS, LLC,
FCA Venture Partners II, L.P., Clayton Associates LLC, Trillium PCS,
LLC, Airwave Communications, LLC, Digital PCS, LLC, and The
Stockholders Named Herein dated January 7, 1999.
10.46+++ Form of Investors Stockholder Agreement, by and among Holding
Company, Inc. and AT&T Wireless PCS, Inc. CB Capital Investors,
L.P., Private Equity Investors III, Equity-Linked Investors-II,
Whitney III, L.P., Whitney Strategic Partners III, L.P.,
Media/Communications Investors Limited Partnership,
Media/Communications Partners III Limited Partnership, Toronto
Dominion Investments, Inc., Northwood Capital Partners LLC,
OneLiberty Fund III, L.P., Hoak Communications Partners, L.P., HCP
Capital Fund, L.P., Cich, Incorporated LP, Dresdner Kleinworth
Benson Private Equity Partners LP, Toronto Dominion Investments,
Inc., Entergy Wireless Capital Corporation, General Electric Capital
Corporation, Triune PCS, LLC, FCA Venture Partners II, LP, Clayton
Associates LLC, Trillium PCS, LLC, Airwave Communications, LLC,
Digital PCS, LLC, and The Manufacturers Life Insurance Company.
10.47++ AT&T Wireless Services, Inc. Network Membership License Agreement
between AT&T Corp. and Tritel, Inc. dated January 7, 1999.
10.48++ Intercarrier Roamer Service Agreement between AT&T Wireless
Services, Inc. and Tritel, Inc. dated January 7, 1999.
10.49++ Amended and Restated Agreement between TeleCorp Communications,
Inc., Triton PCS, Inc., Tritel Communications, Inc. and Affiliate
License Co., L.L.C. dated April 16, 1999.
10.50+++ Form of Employment Agreement, by and between Holding Company and
William M. Mounger, II.
10.51+++ Form of Employment Agreement, by and between Holding Company and
E.B. Martin, Jr.
10.52+++ Letter Agreement, dated February 28, 2000, by and among William
Mounger, II, TeleCorp PCS, Inc., Tritel, Inc., Thomas Sullivan, and
Gerald Vento.
10.53+++ Letter Agreement, dated February 28, 2000, by and among E.B. Martin,
Jr., TeleCorp PCS, Inc., Tritel, Inc., Thomas Sullivan, and Gerald
Vento.
10.54+++ Form of Amended and Restated Restricted Stock Agreement pursuant to
the Tritel, Inc. Amended and Restated 1999 Stock Option Plan.
10.55+ Tritel, Inc. Amended and Restated 1999 Stock Option Plan for Non-
employee Directors, effective January 7, 1999.
10.56++ Amended and Restated Loan Agreement among Tritel Holding Corp.,
Tritel, Inc., The Financial Institutions Signatory Hereto, and
Toronto Dominion (Texas), Inc. dated March 31, 1999.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.57++ First Amendment to Amended and Restated Loan Agreement among Tritel
Holding Corp., Tritel, Inc., The Financial Institutions Signatory
Thereto, and Toronto Dominion (Texas), Inc. dated April 21, 1999.
10.58++ Master Lease Agreement between Tritel Communications, Inc. and
Crown Communication Inc. dated October 30, 1998.
10.59++ Master Lease Agreement between Signal One, LLC and Tritel
Communications, Inc. dated December 31, 1998.
10.60.1++ Management Agreement between Tritel Management, LLC and Tritel,
Inc. dated January 1, 1999.
10.60.2++ First Amendment to Management Agreement, dated as of September 1,
1999.
10.60.3+++ Agreement to Terminate Tritel Management Agreement, dated as of
February 28, 2000, by and between Tritel Management, LLC.
10.61++ Master Antenna Site Lease No. D41 between Pinnacle Towers Inc. and
Tritel Communications, Inc. dated October 23, 1998.
10.62++ Installment Payment Plan Note made by Mercury PCS, LLC in favor of
the Federal Communications Commission in the amount of
$42,525,211.95, dated October 9, 1996.
10.63++ First Modification of Installment Payment Plan Note for Broadband
PCS F Block by and between Mercury PCS II, L.L.C. and the Federal
Communications Commission, dated July 2, 1998, effective as of July
31, 1998.
10.64++ Letter Agreement by and between Tritel Communications, Inc. and
H.S.I. GeoTrans Wireless, dated July 2, 1998, referring to a
service agreement covering certain Site Acquisition Services
applicable to certain Federal Communications Commission licenses
owned or to be acquired by Tritel.
10.65.1++ Services Agreement by and between Tritel Communications, Inc. and
Galaxy Personal Communications Services, Inc., which is a wholly
owned subsidiary of World Access, Inc., dated as of June 1, 1998.
10.65.2++ Addendum to June 1, 1998 Services Agreement, dated as of March 23,
1999.
10.66++ Services Agreement by and between Tritel Communications, Inc. and
Galaxy Personal Communications Services, Inc., which is a wholly-
owned subsidiary of World Access, Inc., dated as of August 27,
1998.
10.67++ Agreement by and between BellSouth Telecommunications, Inc. and
Tritel Communications, Inc., effective as of March 16, 1999.
10.68++ Agreement for Project and Construction Management Services between
Tritel Communications, Inc. and Tritel Finance, Inc. and Bechtel
Corporation, dated November 24, 1998.
10.69++ Services Agreement by and between Tritel Communications, Inc. and
Spectrasite Communications, Inc., dated as of July 28, 1998.
10.70++ Acquisition Agreement Ericsson CMS 8800 Cellular Mobile Telephone
System by and between Tritel Finance, Inc. and Tritel
Communications, Inc. and Ericsson Inc., made and effective as of
December 30, 1998.
10.71++ Securities Purchase Agreement by and among AT&T Wireless PCS Inc.,
TWR Cellular, Inc., Initial investors other than AT&T Wireless,
Mercury PCS, LLC, Mercury PCS II, LLC, Management Stockholders and
Tritel, Inc., dated as of May 20, 1998.
10.72++ Closing Agreement by and among AT&T Wireless PCS, Inc., TWR
Cellular, Inc., Initial investors other than AT&T Wireless, Airwave
Communications, LLC, Digital PCS, LLC, Management Stockholders,
Mercury Investor Indemnitors and Tritel, Inc., dated as of January
7, 1999.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.73++ Master Build To Suit And Lease Agreement between Tritel
Communications, Inc., a Delaware corporation and American Tower,
L.P., a Delaware limited partnership.
10.74++ Master Build To Suit And Lease Agreement between Tritel
Communications, Inc. and SpectraSite Communications, Inc.
10.75++ Master Build To Suit Services And License Agreement between Tritel
Communications, Inc. and Crown Communication Inc.
10.76++ Master Build To Suit And Lease Agreement by and between Tritel
Communications, Inc. and SBA Towers, Inc.
10.77++ Master Site Agreement between Tritel Communications, Inc. and
BellSouth Mobility Inc., dated July 2, 1999.
10.78++ Master Site Agreement between Tritel Communications, Inc. and
BellSouth Mobility PCS, dated March 10, 1999.
10.79++ Consent to Exercise of Option between Tritel, Inc., AT&T Wireless
PCS, Inc., TWR Cellular, Inc. and Management Stockholders dated May
20, 1999.
10.80++ License Purchase Agreement between Digital PCS, LLC and Tritel,
Inc. dated as of May 20, 1999.
10.81++ Amended and Restated Employment Agreement of Jerry M. Sullivan,
Jr., dated as of September 1, 1999.
10.82++ Stock Purchase Agreement, dated as of September 1, 1999.
10.83++ Mutual Release and Termination Agreement, dated as of September 1,
1999.
10.84+++ Form of Management Agreement between TeleCorp Management Corp, Inc.
and TeleCorp PCS, Inc.
10.85+++ Asset Purchase Agreement, dated as of June 2, 2000, between
Airadigm Communications, Inc. and RW Acquisition L.L.C.
10.86+++ Contingent Supplement to Asset Purchase Agreement, dated as of June
2, 2000, by and between Airadigm Communications, Inc. and RW
Acquisition L.L.C.
10.87+++ Letter Agreement by and between RW Acquisition, L.L.C. and Airadigm
Communications, Inc. regarding Working Capital Loan, dated June 2,
2000.
10.88+++ Construction Management Agreement, dated as of June 2, 2000, by and
between TeleCorp Communications, Inc. and Airadigm Communications,
Inc.
10.89+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TeleCorp-
Tritel Holding Company.
10.90+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TTHC First
Merger Sub, Inc.
10.91+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TTHC Second
Merger Sub, Inc.
10.92+++++ Purchase Agreement, dated July 11, 2000, by and among Chase
Securities Inc., Lehman Brothers Inc., Deutsche Banc Securities,
Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.93 Consent Pursuant to Section 6.2(a) of the Agreement and Plan of
Reorganization and Contribution, dated as of July 10, 2000, by
Tritel, Inc. to TeleCorp PCS, Inc.
10.94 Exchange and Registration Rights Agreement, dated as of July 14,
2000, by and among Chase Securities Inc., Lehman Brothers Inc.,
Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp
Communications, Inc. and Bankers Trust Company, as Trustee.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.95++++ Exchange and Registration Rights Agreement, dated April 23, 1999,
by and among Chase Securities Inc., BT Alex. Brown Incorporated,
Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp
Communications, Inc.
10.96**** Credit Agreement, dated as of July 14, 2000, by and among Black
Label Wireless, Inc., as Borrower, the financial institutions from
time to time parties thereto, as Lenders and Lucent Technologies
Inc., as Agent for the Lenders.
10.97**** Letter Agreement, dated July 14, 2000, by and among Black Label
Wireless, Inc., as Borrower, Lucent Technologies Inc., as Agent and
Lucent Technologies Inc., as Lender.
10.98**** Commitment Letter, dated July 14, 2000, by and between TeleCorp-
Tritel Holding Company and Lucent Technologies Inc.
10.99**** Form of Indenture related to the sale of notes by TeleCorp PCS,
Inc. (formerly known as TeleCorp-Tritel Holding Company) to Lucent
Technologies Inc.
10.100**** Form of Securities Purchase Agreement by and between TeleCorp PCS,
Inc. (formerly known as TeleCorp-Tritel Holding Company) and Lucent
Technologies Inc.
21 Subsidiaries of TeleCorp PCS, Inc.
23.1 Consent of KPMG LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Cadwalader, Wickersham & Taft (included in exhibit 5).
24 Powers of Attorney (included in signature page).
25 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
--------
* Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-89393) of TeleCorp PCS, Inc.
** Incorporated by reference to the Form 10-Q filed on November 15, 1999
(File No. 333-81313-01) of TeleCorp PCS, Inc.
*** Incorporated by reference to the Form 10-K filed on March 30, 2000 (File
No. 000-27901) of TeleCorp PCS, Inc.
**** Incorporated by reference to the Form 10-Q filed on August 11, 2000 (File
No. 000-27901) of TeleCorp PCS, Inc.
+ Incorporated by reference to the Registration Statement on Form S-1 (File
No. 333-91207) of Tritel, Inc.
++ Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-82509) of Tritel PCS, Inc.
+++ Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-36954) of TeleCorp-Tritel Holding Company.
++++ Incorporated by reference to the Registration Statement on Form S-4 (File
No. 333-81313, 333-81313-01) of TeleCorp PCS, Inc. and TeleCorp
Communications, Inc.
+++++ Incorporated by reference to the Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-81313, 333-81313-01) of
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
Item 22. Undertakings
The undersigned Registrants hereby undertake:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or
II-9
<PAGE>
in the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrants' annual reports pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(4) that every prospectus (i) that is filed pursuant to paragraph (3)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective;
(6) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This undertaking also includes information in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request; and
(7) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described in Item 20 above, or
otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable. If a claim of indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in a successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Arlington, Commonwealth
of Virginia, on August 11, 2000.
<TABLE>
<S> <C>
TeleCorp PCS, Inc.
/s/ Gerald T. Vento
By: _______________________________________
Gerald T. Vento
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
TeleCorp PCS, Inc. and each person whose signature appears below (1)
constitutes and appoints Thomas H. Sullivan and Gerald T. Vento, and each of
them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for each such person and in such person's name,
in any and all capacities, (A) to sign all amendments (including pre-effective
and post-effective amendments) to this registration statement (and any
registration statement filed under Rule 462(b) of the Securities Act); (B) to
file such amendments with all exhibits and other related documents with the
Securities and Exchange Commission; and (C) to perform every act necessary in
connection with (A) or (B); and (2) ratifies and confirms everything that such
attorneys-in-fact and agents, or any or them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue of this appointment.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald T. Vento Chief Executive Officer August 11, 2000
___________________________________________ and Chairman(Principal
Gerald T. Vento Executive Officer)
/s/ Thomas H. Sullivan Executive Vice President, August 11, 2000
___________________________________________ Chief Financial Officer
Thomas H. Sullivan and Director (Principal
Financial and Accounting
Officer)
/s/ Michael R. Hannon Director August 11, 2000
___________________________________________
Michael R. Hannon
/s/ Scott Anderson Director August 11, 2000
___________________________________________
Scott Anderson
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James M. Hoak Director August 11, 2000
___________________________________________
James M. Hoak
/s/ William Kussell Director August 11, 2000
___________________________________________
William Kussell
/s/ Michael Schwartz Director August 11, 2000
___________________________________________
Michael Schwartz
/s/ Rohit M. Desai Director August 11, 2000
___________________________________________
Rohit M. Desai
/s/ William W. Hague Director August 11, 2000
___________________________________________
William W. Hague
</TABLE>
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Arlington, Commonwealth
of Virginia, on August 11, 2000.
<TABLE>
<S> <C>
TeleCorp Communications, Inc.
/s/ Gerald T. Vento
By: _______________________________________
Gerald T. Vento
Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
TeleCorp Communications, Inc. and each person whose signature appears below
(1) constitutes and appoints Thomas H. Sullivan and Gerald T. Vento, and each
of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for each such person and in such person's name,
in any and all capacities, (A) to sign all amendments (including pre-effective
and post-effective amendments) to this registration statement (and any
registration statement filed under Rule 462(b) of the Securities Act); (B) to
file such amendments with all exhibits and other related documents with the
Securities and Exchange Commission; and (C) to perform every act necessary in
connection with (A) or (B); and (2) ratifies and confirms everything that such
attorneys-in-fact and agents, or any or them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue of this appointment.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald T. Vento Chief Executive Officer August 11, 2000
___________________________________________ and Director (Principal
Gerald T. Vento Executive Officer)
/s/ Thomas H. Sullivan President, Secretary, August 11, 2000
___________________________________________ Treasurer and Director
Thomas H. Sullivan (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
2.1+++ Agreement and Plan of Reorganization and Contribution (included as
Annex A to the joint proxy statement-prospectus forming a part of
the TeleCorp-Tritel Holding Company Registration Statement), dated
February 28, 2000, by and between TeleCorp PCS, Tritel, Inc. and
AT&T Wireless Services, Inc.
2.2+++ Amendment No. 1 to the Agreement and Plan of Reorganization and
Contribution (included as Annex B to the joint proxy statement-
prospectus forming a part of the TeleCorp-Tritel Holding Company
Registration Statement), dated May 4, 2000, by and between TeleCorp
PCS, Tritel, Inc. and AT&T Wireless Services, Inc.
2.3+++ Amendment No. 2 to the Agreement and Plan of Reorganization and
Contribution (included as Annex C to the joint proxy statement-
prospectus forming a part of the TeleCorp-Tritel Holding Company
Registration Statement), dated June 12, 2000 by and between TeleCorp
PCS, Tritel, Inc. and AT&T Wireless Services, Inc.
3.1*** Fifth Amended and Restated Certificate of Incorporation of TeleCorp
PCS, Inc.
3.2*** Second Amended and Restated Bylaws of TeleCorp PCS, Inc.
4.1**** Indenture, dated as of July 14, 2000, by and among TeleCorp PCS,
Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as
Trustee.
4.2++++ Indenture, dated as of April 23, 1999, by and between Bankers Trust
Company, as Trustee, and TeleCorp PCS, Inc. relating to the 11 5/8%
Senior Subordinated Discount Notes.
5 Opinion of Cadwalader, Wickersham & Taft regarding the legality of
the notes.
8 Opinion of Cadwalader, Wickersham & Taft regarding certain U.S. tax
matters related to the notes (included in Exhibit 5).
10.1+++ TeleCorp PCS, Inc. Voting Agreement, dated February 28, 2000.
10.2+++ Tritel, Inc. Voting Agreement, dated February 28, 2000.
10.3+++ Side Letter Agreement regarding Milwaukee Option, dated February 28,
2000, by and between AT&T Wireless Services, Inc. and TeleCorp PCS,
Inc.
10.4+++ Asset Exchange Agreement, dated as of February 28, 2000, by and
among AT&T Wireless PCS, LLC, TeleCorp PCS, Inc., TeleCorp PCS, LLC,
TeleCorp Holding Corp, Inc., TeleCorp Communications, Inc., TeleCorp
Equipment Leasing, L.P., and TeleCorp Realty, LLC.
10.5+++ Side Letter regarding Additional Mutual Rights and Obligations in
Connection with the Asset Exchange Agreement and the Agreement and
Plan of Reconstruction and Contribution, dated as of February 28,
2000, by and between AT&T Wireless PCS, LLC and TeleCorp PCS, Inc.
10.6.1+++ License Acquisition Agreement, between Polycell Communications, Inc.
and ABC Wireless, LLC, dated as of February 28, 2000.
10.6.2+++ Amended and Restated License Acquisition Agreement among Polycell
Communications, Inc., Clinton Communications, Inc. and ABC Wireless,
LLC, dated as of May 3, 2000.
10.7+++ License Acquisition Agreement, between ABC Wireless, LLC and AT&T
Wireless PCS, LLC, dated as of February 28, 2000.
10.8+++ Form of Intermediary Agreement, among AT&T Wireless PCS, LLC,
TeleCorp PCS, Inc., TeleCorp PCS, LLC, TeleCorp Holding Corp, Inc.,
TeleCorp Communications, Inc., TeleCorp Equipment Leasing, L.P.,
TeleCorp Realty, LLC and the Intermediary.
10.9+++ Transition Services Agreement, dated as of February 28, 2000, by and
between AT&T Wireless PCS, LLC and TeleCorp PCS, Inc.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.10+++ Form of Assignment and Assumption Agreement, by and between
Milwaukee PCS, LLC, Milwaukee Acquisition Subsidiary, Inc., and
TeleCorp PCS, Inc.
10.11+++ Agreement and Plan of Merger, dated February 27, 2000, by and
among Milwaukee PCS LLC, Milwaukee Acquisition Subsidiary, Inc.,
Kailas J. Rao, and Indus, Inc.
10.12+++ Airadigm Letter of Intent, dated January 24, 2000.
10.13.1* General Agreement for Purchase of PCS Systems and Services, dated
as of May 12, 1998, by and between TeleCorp PCS, Inc. and Lucent
Technologies Inc.
10.13.2 Amendment No. 1 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of November 20, 1998,
by and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.3 Amendment No. 2 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of September 18,
1998, by and between TeleCorp PCS, Inc. and Lucent Technologies
Inc.
10.13.4 Amendment No. 3 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of November 10, 1998,
by and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.5 Amendment No. 5 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of January 27, 1999,
by and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
(the Amendment No. 5 to the General Agreement follows Amendment
No. 3).
10.13.6 Amendment No. 6 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of August 9, 1999, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.7 Amendment No. 7 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 1999, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.13.8 Amendment No. 8 to the General Agreement for Purchase of Personal
Communication Systems and Services, dated as of July 1, 2000, by
and between TeleCorp PCS, Inc. and Lucent Technologies Inc.
10.14* Securities Purchase Agreement by and among TeleCorp PCS, Inc.,
AT&T Wireless PCS Inc., TWR Cellular, Inc. and certain Initial
investors other than AT&T Wireless, TeleCorp Investors and
Management Stockholders identified, dated as of January 23, 1998.
10.15.1* Network Membership License Agreement, by and among AT&T Corp.,
including AT&T Wireless Services, Inc., and TeleCorp PCS, Inc.,
dated as of July 17, 1998.
10.15.2* Amendment No. 1 to Network Membership License Agreement, dated
March 30, 1999.
10.16+++ Form of Network Membership License Agreement by and between AT&T
Corp., including AT&T Wireless Services, Inc., and Holding
Company.
10.17.1* Management Agreement by and between TeleCorp Management Corp. and
TeleCorp PCS, Inc., dated as of July 17, 1998
10.17.2* Amendment No. 1 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of May 25, 1999.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.17.3** Amendment No. 2 to the Management Agreement between TeleCorp
Management Corp. and TeleCorp PCS, Inc., dated as of October 18,
1999.
10.18.1* Intercarrier Roamer Service Agreement by and between AT&T Wireless
Services, Inc. and TeleCorp PCS, Inc., dated as of July 17, 1998.
10.18.2* Amendment No. 1 to Intercarrier Roamer Service Agreement, dated
May 25, 1999.
10.19+++ Form of Intercarrier Roamer Service Agreement, by and between AT&T
Wireless Services, Inc. and Holding Company.
10.20* Roaming Administration Service Agreement by and between AT&T
Wireless Services, Inc. and TeleCorp PCS, Inc., dated as of July
17, 1998.
10.21+++ Form of Roaming Administration Service Agreement, by and between
AT&T Wireless Services, Inc., and Holding Company.
10.22.1++++ Credit Agreement by and among TeleCorp PCS, Inc., the Lenders
party to, and the Chase Manhattan Bank, as Administrative Agent
and Issuing Bank, TD Securities (USA) Inc., as Syndication Agent,
and Bankers Trust Company, as Documentation Agent, dated as of
July 17, 1998.
10.22.2* First Amendment, Consent, and Waiver to the TeleCorp Credit
Agreement, dated as of December 18, 1998.
10.22.3* Second Amendment and Waiver to the TeleCorp Credit Agreement,
dated as of March 1, 1999.
10.22.4* Third Amendment to the TeleCorp Credit Agreement, dated as of
March 30, 1999.
10.22.5* Fourth Amendment to the TeleCorp Credit Agreement, dated as of
March 31, 1999.
10.22.6* Fifth Amendment and Acceptance to the TeleCorp Credit Agreement,
dated as of April 7, 1999.
10.22.7* Sixth Amendment to the TeleCorp Credit Agreement, dated as of
April 7, 1999.
10.22.8* Seventh Amendment to the TeleCorp Credit Agreement, dated as of
May 21, 1999.
10.22.9** Eighth Amendment to the TeleCorp Credit Agreement, dated as of
October 25, 1999.
10.22.10** Ninth Amendment to the TeleCorp Credit Agreement, dated as of
October 26, 1999.
10.22.11 Tenth Amendment to the TeleCorp Credit Agreement, dated as of July
17, 2000.
10.22.12 Eleventh Amendment to the TeleCorp Credit Agreement, dated as of
June 28, 2000.
10.23.1* Stock Purchase Agreement by and among TeleCorp PCS, Inc., AT&T
Wireless PCS, Inc. and certain Initial investors other than AT&T
Wireless identified in, dated as of March 22, 1999.
10.23.2* Amendment No. 1 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of March 30, 1999.
10.23.3* Amendment No. 2 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of April 6, 1999.
10.23.4* Amendment No. 3 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of May 14, 1999.
10.23.5* Amendment No. 4 to Stock Purchase Agreement by and among TeleCorp
PCS, Inc., AT&T Wireless PCS, Inc. and Initial investors other
than AT&T Wireless, dated as of July 15, 1999.
10.24* Stock Purchase Agreement by and among Viper Wireless, Inc.,
TeleCorp Holding Corp., Inc. and TeleCorp PCS, Inc., dated as of
March 1, 1999.
10.25* Puerto Rico Stock Purchase Agreement by and among TeleCorp PCS,
Inc., Puerto Rico Acquisition Corp. and certain Management
Stockholders and Initial investors other than AT&T Wireless, dated
as of March 30, 1999.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.26*** Stock Purchase Agreement, dated as of October 18, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Holding Corp., Inc., Gerald T. Vento,
Thomas H. Sullivan, OneLiberty Fund IV, L.P., Northwood Ventures
LLC, and Northwood Capital Partners LLC.
10.27* Asset Purchase Agreement, dated May 25, 1999, by and between AT&T
Wireless PCS Inc. and TeleCorp PCS, Inc.
10.28* Preferred Stock Purchase Agreement, dated May 24, 1999, by and
between AT&T Wireless PCS Inc. and TeleCorp PCS, Inc.
10.29* License Acquisition Agreement, dated May 15, 1998, by and between
Mercury PCS II, LLC and TeleCorp PCS, Inc.
10.30* License Acquisition Agreement, dated May 15, 1998, by and between
Wireless 2000, Inc. and TeleCorp PCS, Inc.
10.31.1* Stockholders' Agreement, dated as of July 17, 1998, by and among
AT&T Wireless PCS, Inc., TWR Cellular, Inc., Initial investors other
than AT&T Wireless, Management Stockholders, and TeleCorp PCS, Inc.
10.31.2* Amendment No. 1 to Stockholders' Agreement dated May 25, 1999.
10.31.3* Amendment No. 2 to Stockholders' Agreement dated November 1, 1999.
10.32+++ Form of Stockholders' Agreement by and among AT&T Wireless PCS, LLC,
Initial investors other than AT&T Wireless, Management Stockholders,
Other Stockholders, and Holding Company, Inc.
10.33++++ Purchase Agreement, dated April 20, 1999, by and among Chase
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.,
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.34* Agreement, dated as of July 17, 1998, by and among AT&T Wireless PCS
Inc., TWR Cellular, Inc., the Initial investors other than AT&T
Wireless, the TeleCorp Investors and the Management Stockholders.
10.35* Employment Agreement, dated as of July 17, 1998, by and between
TeleCorp PCS, Inc. and Julie A. Dobson.
10.36+++ Amendment to Employment Agreement, dated February 28, 2000, by and
between TeleCorp PCS, Inc. and Julie A. Dobson.
10.37* Share Grant Agreement, dated July 16, 1998, by and between TeleCorp
PCS, Inc. and Julie A. Dobson.
10.38* Separation Agreement, dated as of March 8, 1999, by and among
TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Robert Dowski.
10.39* Agreement among the Parties, dated as of June 30, 1999, by and among
TeleCorp PCS, Inc., the Initial investors other than AT&T Wireless,
Entergy Technology Holding Company, AT&T Wireless PCS, Inc., TWR
Cellular Inc. and other stockholders.
10.40* Amended and Restated Agreement, dated April 16, 1999, by and among
TeleCorp Communications, Inc., Triton PCS, Inc., Tritel
Communications, Inc. and Affiliate License Co, L.L.C.
10.41* TeleCorp PCS, Inc. 1998 Restricted Stock Plan, as amended May 20,
1999.
10.42** TeleCorp PCS, Inc. 1999 Stock Option Plan, dated June 23, 1999, as
amended.
10.43** Form of Indemnification Agreement to be entered into between
TeleCorp PCS, Inc. and its directors and executive officers.
10.44.1++ Stockholders' Agreement by and among AT&T Wireless PCS Inc., Initial
investors other than AT&T Wireless, Management Stockholders, and
Tritel, Inc. dated January 7, 1999.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.44.2++ First Amendment to Tritel's Stockholders' Agreement, dated August
27, 1999.
10.44.3++ Second Amendment to Tritel's Stockholders' Agreement, dated as of
September 1, 1999.
10.44.4+ Third Amendment to Tritel's Stockholders' Agreement, dated November
18, 1999.
10.44.5+ Fourth Amendment to Tritel's Stockholders' Agreement, dated December
10, 1999.
10.45++ Investors Stockholders' Agreement by and among Tritel, Inc.,
Washington National Insurance Company, United Presidential Life
Insurance Company, Dresdner Kleinwort Benson Private Equity Partners
LP, Toronto Dominion Investments, Inc., Entergy Wireless
Corporation, General Electric Capital Corporation, Triune PCS, LLC,
FCA Venture Partners II, L.P., Clayton Associates LLC, Trillium PCS,
LLC, Airwave Communications, LLC, Digital PCS, LLC, and The
Stockholders Named Herein dated January 7, 1999.
10.46+++ Form of Investors Stockholder Agreement, by and among Holding
Company, Inc. and AT&T Wireless PCS, Inc. CB Capital Investors,
L.P., Private Equity Investors III, Equity-Linked Investors-II,
Whitney III, L.P., Whitney Strategic Partners III, L.P.,
Media/Communications Investors Limited Partnership,
Media/Communications Partners III Limited Partnership, Toronto
Dominion Investments, Inc., Northwood Capital Partners LLC,
OneLiberty Fund III, L.P., Hoak Communications Partners, L.P., HCP
Capital Fund, L.P., Cich, Incorporated LP, Dresdner Kleinworth
Benson Private Equity Partners LP, Toronto Dominion Investments,
Inc., Entergy Wireless Capital Corporation, General Electric Capital
Corporation, Triune PCS, LLC, FCA Venture Partners II, LP, Clayton
Associates LLC, Trillium PCS, LLC, Airwave Communications, LLC,
Digital PCS, LLC, and The Manufacturers Life Insurance Company.
10.47++ AT&T Wireless Services, Inc. Network Membership License Agreement
between AT&T Corp. and Tritel, Inc. dated January 7, 1999.
10.48++ Intercarrier Roamer Service Agreement between AT&T Wireless
Services, Inc. and Tritel, Inc. dated January 7, 1999.
10.49++ Amended and Restated Agreement between TeleCorp Communications,
Inc., Triton PCS, Inc., Tritel Communications, Inc. and Affiliate
License Co., L.L.C. dated April 16, 1999.
10.50+++ Form of Employment Agreement, by and between Holding Company and
William M. Mounger, II.
10.51+++ Form of Employment Agreement, by and between Holding Company and
E.B. Martin, Jr.
10.52+++ Letter Agreement, dated February 28, 2000, by and among William
Mounger, II, TeleCorp PCS, Inc., Tritel, Inc., Thomas Sullivan, and
Gerald Vento.
10.53+++ Letter Agreement, dated February 28, 2000, by and among E.B. Martin,
Jr., TeleCorp PCS, Inc., Tritel, Inc., Thomas Sullivan, and Gerald
Vento.
10.54+++ Form of Amended and Restated Restricted Stock Agreement pursuant to
the Tritel, Inc. Amended and Restated 1999 Stock Option Plan.
10.55+ Tritel, Inc. Amended and Restated 1999 Stock Option Plan for Non-
employee Directors, effective January 7, 1999.
10.56++ Amended and Restated Loan Agreement among Tritel Holding Corp.,
Tritel, Inc., The Financial Institutions Signatory Hereto, and
Toronto Dominion (Texas), Inc. dated March 31, 1999.
10.57++ First Amendment to Amended and Restated Loan Agreement among Tritel
Holding Corp., Tritel, Inc., The Financial Institutions Signatory
Thereto, and Toronto Dominion (Texas), Inc. dated April 21, 1999.
10.58++ Master Lease Agreement between Tritel Communications, Inc. and Crown
Communication Inc. dated October 30, 1998.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.59++ Master Lease Agreement between Signal One, LLC and Tritel
Communications, Inc. dated December 31, 1998.
10.60.1++ Management Agreement between Tritel Management, LLC and Tritel,
Inc. dated January 1, 1999.
10.60.2++ First Amendment to Management Agreement, dated as of September 1,
1999.
10.60.3+++ Agreement to Terminate Tritel Management Agreement, dated as of
February 28, 2000, by and between Tritel Management, LLC.
10.61++ Master Antenna Site Lease No. D41 between Pinnacle Towers Inc. and
Tritel Communications, Inc. dated October 23, 1998.
10.62++ Installment Payment Plan Note made by Mercury PCS, LLC in favor of
the Federal Communications Commission in the amount of
$42,525,211.95, dated October 9, 1996.
10.63++ First Modification of Installment Payment Plan Note for Broadband
PCS F Block by and between Mercury PCS II, L.L.C. and the Federal
Communications Commission, dated July 2, 1998, effective as of July
31, 1998.
10.64++ Letter Agreement by and between Tritel Communications, Inc. and
H.S.I. GeoTrans Wireless, dated July 2, 1998, referring to a
service agreement covering certain Site Acquisition Services
applicable to certain Federal Communications Commission licenses
owned or to be acquired by Tritel.
10.65.1++ Services Agreement by and between Tritel Communications, Inc. and
Galaxy Personal Communications Services, Inc., which is a wholly
owned subsidiary of World Access, Inc., dated as of June 1, 1998.
10.65.2++ Addendum to June 1, 1998 Services Agreement, dated as of March 23,
1999.
10.66++ Services Agreement by and between Tritel Communications, Inc. and
Galaxy Personal Communications Services, Inc., which is a wholly-
owned subsidiary of World Access, Inc., dated as of August 27,
1998.
10.67++ Agreement by and between BellSouth Telecommunications, Inc. and
Tritel Communications, Inc., effective as of March 16, 1999.
10.68++ Agreement for Project and Construction Management Services between
Tritel Communications, Inc. and Tritel Finance, Inc. and Bechtel
Corporation, dated November 24, 1998.
10.69++ Services Agreement by and between Tritel Communications, Inc. and
Spectrasite Communications, Inc., dated as of July 28, 1998.
10.70++ Acquisition Agreement Ericsson CMS 8800 Cellular Mobile Telephone
System by and between Tritel Finance, Inc. and Tritel
Communications, Inc. and Ericsson Inc., made and effective as of
December 30, 1998.
10.71++ Securities Purchase Agreement by and among AT&T Wireless PCS Inc.,
TWR Cellular, Inc., Initial investors other than AT&T Wireless,
Mercury PCS, LLC, Mercury PCS II, LLC, Management Stockholders and
Tritel, Inc., dated as of May 20, 1998.
10.72++ Closing Agreement by and among AT&T Wireless PCS, Inc., TWR
Cellular, Inc., Initial investors other than AT&T Wireless, Airwave
Communications, LLC, Digital PCS, LLC, Management Stockholders,
Mercury Investor Indemnitors and Tritel, Inc., dated as of January
7, 1999.
10.73++ Master Build To Suit And Lease Agreement between Tritel
Communications, Inc., a Delaware corporation and American Tower,
L.P., a Delaware limited partnership.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.74++ Master Build To Suit And Lease Agreement between Tritel
Communications, Inc. and SpectraSite Communications, Inc.
10.75++ Master Build To Suit Services And License Agreement between Tritel
Communications, Inc. and Crown Communication Inc.
10.76++ Master Build To Suit And Lease Agreement by and between Tritel
Communications, Inc. and SBA Towers, Inc.
10.77++ Master Site Agreement between Tritel Communications, Inc. and
BellSouth Mobility Inc., dated July 2, 1999.
10.78++ Master Site Agreement between Tritel Communications, Inc. and
BellSouth Mobility PCS, dated March 10, 1999.
10.79++ Consent to Exercise of Option between Tritel, Inc., AT&T Wireless
PCS, Inc., TWR Cellular, Inc. and Management Stockholders dated May
20, 1999.
10.80++ License Purchase Agreement between Digital PCS, LLC and Tritel,
Inc. dated as of May 20, 1999.
10.81++ Amended and Restated Employment Agreement of Jerry M. Sullivan,
Jr., dated as of September 1, 1999.
10.82++ Stock Purchase Agreement, dated as of September 1, 1999.
10.83++ Mutual Release and Termination Agreement, dated as of September 1,
1999.
10.84+++ Form of Management Agreement between TeleCorp Management Corp, Inc.
and TeleCorp PCS, Inc.
10.85+++ Asset Purchase Agreement, dated as of June 2, 2000, between
Airadigm Communications, Inc. and RW Acquisition L.L.C.
10.86+++ Contingent Supplement to Asset Purchase Agreement, dated as of June
2, 2000, by and between Airadigm Communications, Inc. and RW
Acquisition L.L.C.
10.87+++ Letter Agreement by and between RW Acquisition, L.L.C. and Airadigm
Communications, Inc. regarding Working Capital Loan, dated June 2,
2000.
10.88+++ Construction Management Agreement, dated as of June 2, 2000, by and
between TeleCorp Communications, Inc. and Airadigm Communications,
Inc.
10.89+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TeleCorp-
Tritel Holding Company.
10.90+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TTHC First
Merger Sub, Inc.
10.91+++ Counterpart Signature Page and Joinder to the Agreement and Plan of
Reorganization and Contribution, dated May 31, 2000 by TTHC Second
Merger Sub, Inc.
10.92+++++ Purchase Agreement, dated July 11, 2000, by and among Chase
Securities Inc., Lehman Brothers Inc., Deutsche Banc Securities,
Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
10.93 Consent Pursuant to Section 6.2(a) of the Agreement and Plan of
Reorganization and Contribution, dated as of July 10, 2000, by
Tritel, Inc. to TeleCorp PCS, Inc.
10.94 Exchange and Registration Rights Agreement, dated as of July 14,
2000, by and among Chase Securities Inc., Lehman Brothers Inc.,
Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp
Communications, Inc. and Bankers Trust Company, as Trustee.
10.95++++ Exchange and Registration Rights Agreement, dated April 23, 1999,
by and among Chase Securities Inc., BT Alex. Brown Incorporated,
Lehman Brothers Inc., TeleCorp PCS, Inc. and TeleCorp
Communications, Inc.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.96**** Credit Agreement, dated as of July 14, 2000, by and among Black
Label Wireless, Inc., as Borrower, the financial institutions from
time to time parties thereto, as Lenders and Lucent Technologies
Inc., as Agent for the Lenders.
10.97**** Letter Agreement, dated July 14, 2000, by and among Black Label
Wireless, Inc., as Borrower, Lucent Technologies Inc., as Agent and
Lucent Technologies Inc., as Lender.
10.98**** Commitment Letter, dated July 14, 2000, by and between TeleCorp-
Tritel Holding Company and Lucent Technologies Inc.
10.99**** Form of Indenture related to the sale of notes by TeleCorp PCS,
Inc. (formerly known as TeleCorp-Tritel Holding Company) to Lucent
Technologies Inc.
10.100**** Form of Securities Purchase Agreement by and between TeleCorp PCS,
Inc. (formerly known as TeleCorp-Tritel Holding Company) and Lucent
Technologies Inc.
21 Subsidiaries of TeleCorp PCS, Inc.
23.1 Consent of KPMG LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5).
24 Powers of Attorney (included in signature page).
25 Statement of Eligibility of Trustee on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
--------
* Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-89393) of TeleCorp PCS, Inc.
** Incorporated by reference to the Form 10-Q filed on November 15, 1999
(File No. 333-81313-01) of TeleCorp PCS, Inc.
*** Incorporated by reference to the Form 10-K filed on March 30, 2000 (File
No. 000-27901) of TeleCorp PCS, Inc.
**** Incorporated by reference to the Form 10-Q filed on August 11, 2000
(File No. 000-27901) of TeleCorp PCS, Inc.
+ Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-91207) of Tritel, Inc.
++ Incorporated by reference to the Registration Statement on Form S-4
(File No. 333-82509) of Tritel PCS, Inc.
+++ Incorporated by reference to the Registration Statement on Form S-4
(File No. 333-36954) of TeleCorp-Tritel Holding Company.
++++ Incorporated by reference to the Registration Statement on Form S-4
(File No. 333-81313, 333-81313-01) of TeleCorp PCS, Inc. and TeleCorp
Communications, Inc.
+++++ Incorporated by reference to the Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 333-81313, 333-81313-01) of
TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
8
