-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UU6LYaxjUFyW42fQtT7d59mHG+CVBymqOb/E21p47+95TR8QwE+c97OE1nTN8PXK IfX2GzU+dtP1nREMIRsizw== /in/edgar/work/0000928385-00-003132/0000928385-00-003132.txt : 20001115 0000928385-00-003132.hdr.sgml : 20001115 ACCESSION NUMBER: 0000928385-00-003132 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP PCS INC CENTRAL INDEX KEY: 0001089341 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 541872248 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27901 FILM NUMBER: 767578 BUSINESS ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 BUSINESS PHONE: 7032361100 MAIL ADDRESS: STREET 1: 1010 N GLEBE ROAD STREET 2: SUITE 800 CITY: ARLINGTON STATE: VA ZIP: 22201 10-Q 1 0001.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q (Mark One) [X]Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2000 or [_]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to . ---------------- Commission File number: 000-27901 TeleCorp Wireless, Inc. (Exact name of registrant as specified in its charter) Delaware TeleCorp PCS, Inc. 54-1988007 (State or other jurisdiction of (Former Name or Former Address, (I.R.S. Employer of incorporation or organization) if Changed Since Last Report) Identification No.)
and the following former subsidiary: Commission file number: 333-36154 TeleCorp PCS, Inc. (Exact name of registrant as specified in its charter) Delaware TeleCorp-Tritel Holding Company 54-1872248 (State or other jurisdiction of (Former Name or Former Address, I.R.S. Employer incorporation or organization) if Changed Since Last Report) Identification No.)
and the following subsidiary of Telecorp Wireless, Inc.: Commission file number: 333-43596 TeleCorp Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 52-2105807 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (703) 236-1100 (Address of principal executive offices) ---------------- The former name of TeleCorp Wireless, Inc. was TeleCorp PCS, Inc. The former name of TeleCorp PCS, Inc. was TeleCorp-Tritel Holding Company. For the quarterly period ended September 30, 2000, TeleCorp PCS, Inc. was a wholly- owned subsidiary of TeleCorp Wireless, Inc. Currently, TeleCorp Wireless, Inc. is a wholly-owned subsidiary of TeleCorp PCS, Inc. The Registrants meet the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [X] No [_] . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 9, 2000, the outstanding shares of each class of Telecorp Wireless, Inc. common stock are as follows: Class A Common Stock, $.01 par value per share................. 87,778,618 Class C Common Stock, $.01 par value per share................. 283,813 Class D Common Stock, $.01 par value per share................. 851,429 Voting Preference Common Stock, $.01 par value per share....... 3,090
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Page ---- PART I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited)................................ 1 Consolidated Statements of Operations for the three months ended September 30, 1999 (unaudited) and 2000 (unaudited) and for the nine months ended September 30, 1999 and 2000 (unaudited)................................................... 2 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 2000 (unaudited)....................... 3 Notes to Consolidated Financial Statements..................... 4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations..................................... 22 Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 28 PART II Other Information Item 6. Exhibits....................................................... 30
i Part I--Financial Information Item 1. Financial Statements TELECORP WIRELESS, INC. CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share data)
December 31, September 30, 1999 2000 ------------ ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents......................... $ 182,330 $ 317,503 Short-term investments............................ -- 127,464 Accounts receivable, net.......................... 23,581 48,871 Inventory......................................... 15,802 15,856 Prepaid expenses and other current assets......... 3,828 6,817 --------- ----------- Total current assets............................ 225,541 516,511 Property and equipment, net......................... 400,450 641,585 PCS licenses and microwave relocation costs, net.... 267,682 276,124 Intangible assets--AT&T agreements, net............. 37,908 32,542 Deferred financing costs, net....................... 19,577 32,044 Other assets........................................ 1,044 34,780 --------- ----------- Total assets.................................... $ 952,202 $ 1,533,586 ========= =========== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................................. $ 38,903 $ 40,379 Accrued expenses.................................. 51,977 134,154 Long-term debt, current portion................... 1,361 31,093 Microwave relocation obligation, current portion.. 36,122 21,025 Accrued interest.................................. 1,387 12,745 Deferred revenue.................................. 1,709 2,231 --------- ----------- Total current liabilities....................... 131,459 241,627 Long-term debt...................................... 639,210 1,224,769 Microwave relocation obligation..................... 2,365 16,576 Accrued expenses and other liabilities.............. 6,541 13,136 --------- ----------- Total liabilities............................... 779,575 1,496,108 --------- ----------- Mandatorily redeemable preferred stock, issued 382,539 and 383,339 shares, respectively; and outstanding, 382,539 and 383,173 shares, respectively, (liquidation preference $412,390 as of September 30, 2000, unaudited).................. 360,182 384,421 Preferred stock subscriptions receivable............ (97,001) (59,542) --------- ----------- Total mandatorily redeemable preferred stock, net............................................ 263,181 324,879 --------- ----------- Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock, par value $.01 per share, 14,912,778 shares issued and outstanding (liquidation preference $1 as of September 30, 2000, unaudited)................................. 149 149 Common stock, par value $.01 per share issued 85,592,221 and 89,083,691 shares, respectively; and outstanding 85,592,221 and 88,979,103 shares, respectively..................................... 856 890 Additional paid-in capital........................ 267,442 304,783 Deferred compensation............................. (42,811) (29,038) Common stock subscriptions receivable............. (191) -- Accumulated other comprehensive income............ -- 1,679 Accumulated deficit............................... (315,999) (565,864) --------- ----------- Total stockholders' equity (deficit)............ (90,554) (287,401) --------- ----------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)............................... $ 952,202 $ 1,533,586 ========= ===========
The accompanying notes are an integral part of these consolidated financial statements 1 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per share data)
For the three months For the nine months ended September 30, ended September 30, ------------------------ ----------------------- 1999 2000 1999 2000 ----------- ----------- ---------- ----------- (unaudited) (unaudited) (unaudited) Revenue: Service.................... $ 12,705 $ 64,272 $ 18,937 $ 152,328 Roaming.................... 9,455 18,307 18,942 44,458 Equipment.................. 4,673 9,312 10,322 22,562 ---------- ----------- ---------- ----------- Total revenue............ 26,833 91,891 48,201 219,348 ---------- ----------- ---------- ----------- Operating expenses: Cost of revenue............ 12,980 27,473 23,087 67,906 Operations and development (including non-cash stock compensation of $0, $302, $0 and $1,073)............ 10,427 14,043 25,925 39,578 Selling and marketing (including non-cash stock compensation of $0, $413, $0 and $972).............. 18,795 43,689 39,720 118,455 General and administrative (including non-cash stock compensation of $0, $3,214, $0 and $28,767)... 16,502 31,429 38,943 105,776 Depreciation and amortization.............. 18,308 32,387 34,799 82,770 ---------- ----------- ---------- ----------- Total operating expenses................ 77,012 149,021 162,474 414,485 ---------- ----------- ---------- ----------- Operating loss........... (50,179) (57,130) (114,273) (195,137) Other (income) expense: Interest expense........... 17,340 29,726 34,447 63,989 Interest income and other.. (1,727) (5,364) (4,645) (9,261) ---------- ----------- ---------- ----------- Net loss................. (65,792) (81,492) (144,075) (249,865) Accretion of mandatorily re- deemable preferred stock.... (7,064) (8,292) (16,960) (24,181) ---------- ----------- ---------- ----------- Net loss attributable to com- mon equity.................. $ (72,856) $ (89,784) $ (161,035) $ (274,046) ========== =========== ========== =========== Net loss attributable to common equity per share-- basic and diluted........... $ (0.88) $ (0.88) $ (2.30) $ (2.72) ========== =========== ========== =========== Weighted average common equity shares outstanding-- basic and diluted........... 82,331,434 101,532,484 70,089,141 100,789,980 ========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 TELECORP WIRELESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)
For the nine months ended September 30, ----------------------- 1999 2000 ---------- ----------- (unaudited) Cash flows from operating activities: Net loss................................................ $ (144,075) $ (249,865) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization......................... 34,799 82,770 Non-cash compensation expense related to stock option grants and restricted stock awards................... -- 30,812 Non-cash interest expense............................. 20,995 36,510 Bad debt expense...................................... 1,022 8,482 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable................................... (17,924) (25,290) Inventory............................................. (11,347) (54) Prepaid expenses and other current assets............. 914 (2,989) Other assets.......................................... (423) (339) Accounts payable...................................... 11,138 (12,905) Accrued expenses and other liabilities................ 16,001 21,931 Accrued interest...................................... (947) 11,358 Deferred revenue...................................... 1,133 522 ---------- ---------- Net cash used in operating activities............... (88,714) (99,057) ---------- ---------- Cash flows from investing activities: Expenditures for property and equipment................. (245,528) (234,058) Expenditures for property and equipment; Black Label Wireless, Inc. ........................................ -- (15,752) Purchase of short-term investments...................... -- (130,740) Proceeds from the sale of short-term investments........ -- 5,001 Expenditures for acquisition of PCS licenses; Black Label Wireless, Inc. .................................. -- (12,166) Capitalized interest on network under development and PCS licenses........................................... (4,478) (2,712) Expenditures for microwave relocation................... (5,679) (5,398) Purchase of PCS licenses................................ (72,390) (733) Deposit on PCS licenses................................. (43,647) (12,368) Partial refund of deposit on PCS licenses............... 11,361 9,607 Purchase of intangibles--AT&T agreements................ (16,145) -- Capitalized Tritel acquisition costs.................... -- (10,214) ---------- ---------- Net cash used in investing activities............... (376,506) (409,533) ---------- ---------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock.................................................. 64,521 -- Receipt of preferred stock subscriptions receivable..... 3,740 37,650 Direct issuance costs from sale of mandatorily redeemable preferred stock............................. (2,500) -- Proceeds from sale of common stock and series F preferred stock........................................ 21,724 41,869 Proceeds from long-term debt............................ 397,635 550,000 Proceeds from long-term debt; Black Label Wireless, Inc. ........................................ -- 29,422 Payments of deferred financing costs.................... (10,999) (14,159) Payments on long term debt.............................. (40,224) (1,019) ---------- ---------- Net cash provided by financing activities........... 433,897 643,763 ---------- ---------- Net (decrease) increase in cash and cash equivalents...... (31,323) 135,173 Cash and cash equivalents at the beginning of period...... 111,733 182,330 ---------- ---------- Cash and cash equivalents at the end of period............ $ 80,410 $ 317,503 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 3 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ in thousands) 1. Organization and Business TeleCorp Holding Corp., Inc. was incorporated in the State of Delaware on July 29, 1996 (date of inception). TeleCorp Holding Corp., Inc. was formed to participate in the Federal Communications Commission's (FCC) Auction of F-Block Personal Communications Services licenses in April 1997. TeleCorp Holding Corp., Inc. successfully obtained licenses in the New Orleans, Memphis, Beaumont and Little Rock Basic Trading Areas (BTAs). TeleCorp Holding Corp., Inc. qualified as a Designated Entity and Very Small Business under Part 24 of the rules of the FCC applicable to broadband PCS. TeleCorp PCS, Inc. was incorporated in the State of Delaware on November 14, 1997 by the controlling stockholders of TeleCorp Holding Corp., Inc. Upon completion of the 1998 AT&T transaction, TeleCorp Holding Corp., Inc. became a wholly-owned subsidiary of TeleCorp PCS, Inc. The Company is the largest AT&T Wireless PCS, LLC (AT&T Wireless) affiliate in the United States, in terms of licensed population, with licenses covering markets where approximately 17 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. Merger with Tritel, Inc. In anticipation of the merger of TeleCorp PCS, Inc. and Tritel, Inc. (Tritel), a new holding company, TeleCorp-Tritel Holding Company (Holding Company), was formed in accordance with that certain Agreement and Plan of Reorganization and Contribution, as amended, dated as of February 28, 2000, among TeleCorp PCS, Inc., Tritel and AT&T Wireless Services, Inc (see Note 14). The merger was consummated on November 13, 2000. Each of TeleCorp PCS, Inc. and Tritel merged with newly formed subsidiaries of Holding Company. Holding Company was renamed TeleCorp PCS, Inc. and the newly formed subsidiary formerly known as TeleCorp PCS, Inc. was renamed TeleCorp Wireless, Inc. TeleCorp Wireless Inc. is hereafter referred to as the Company. 3. Black Label Wireless, Inc. 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 Technologies, Inc. (Lucent), under which Lucent agreed to lend Black Label up to $175,000. Black Label intends to use the proceeds of loans under the credit agreement to develop the network related to the licenses being acquired by the Company in the contribution and the exchange agreement with AT&T Wireless (see Note 14). Upon consummation of the merger, Black Label intends to transfer its assets to the Company and the Company intends to satisfy Black Label's indebtedness to Lucent. Black Label is considered by the Company to be a special purpose entity and the Company has included all of Black Label's activities in its consolidated financial statements. The obligations under the Black Label credit agreement must be repaid by July 14, 2001. Additionally, if the obligations under the credit agreement are assumed by the Company, the commitments under credit agreement shall immediately terminate and all obligations due under the credit agreement shall immediately become due and payable. 4 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 4. Basis of Presentation Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements and related footnotes have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of results that may be expected for the year ending December 31, 2000. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries and special purposes entity acting on the Company's behalf. All significant inter-company accounts and transactions have been eliminated in consolidation. Short-term Investments Short-term investments consist of high grade commercial paper with original maturities greater than three months but less than one year. Management determines the appropriate classification of its investments at the time of purchase. Investments for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a component of accumulated other comprehensive income in stockholders' equity. Cost of securities sold is determined on a specific identification basis. 5. Accounts Receivable Accounts receivable consists of the following:
December 31, September 30, 1999 2000 ------------ ------------- (unaudited) Accounts receivable............................... $26,203 $51,799 Allowance for doubtful accounts................... (2,622) (2,928) ------- ------- $23,581 $48,871 ======= =======
6. Inventory Inventory consists of the following:
December 31, September 30, 1999 2000 ------------ ------------- (unaudited) Handsets.......................................... $15,090 $14,538 Accessories....................................... 712 1,318 ------- ------- $15,802 $15,856 ======= =======
5 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ($ IN THOUSANDS) 7. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------- (UNAUDITED) Wireless network........ $364,491 $604,479 Network under development............ 21,758 71,214 Computer equipment...... 16,888 25,051 Internal use software... 21,648 27,274 Leasehold improvements.. 12,011 17,207 Furniture, fixtures, office equipment and other.................. 10,904 16,761 -------- -------- 447,700 761,986 Accumulated depreciation........... (47,250) (120,401) -------- -------- $400,450 $641,585 ======== ========
Depreciation expense for the three months ended September 30, 1999 and 2000 was $15,938 and $29,075, respectively. Depreciation expense for the nine months ended September 30, 1999 and 2000 was $29,179 and $73,151, respectively. 8. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------- (UNAUDITED) Senior subordinated notes........................ $ -- $ 450,000 Senior subordinated discount notes............... 354,291 385,510 Senior credit facilities......................... 225,000 325,000 Lucent notes payable............................. 43,504 46,584 Black Label Wireless, Inc. credit agreement...... -- 29,657 U.S. Government financing........................ 17,776 19,111 -------- ---------- 640,571 1,255,862 Less: current portion............................ 1,361 31,093 -------- ---------- $639,210 $1,224,769 ======== ==========
Senior Credit Facility On June 5, 2000, the Company borrowed $65,000 on the Tranche A term loan. 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 September 30, 2000. Interest on the Tranche A loan was 8.84% at September 30, 2000. 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 $13,000 which have been recorded as deferred finance costs and will be amortized over the life of the Subordinated Notes. 6 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 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 110.625% 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 after July 15, 2005, the note holders may require the Company to make an offer to repurchase all of the Subordinated Notes, 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, TeleCorp Communications, Inc. Lucent Senior Subordinated Notes On July 14, 2000, TeleCorp PCS, Inc. (formerly TeleCorp-Tritel Holding Company or 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 with subsidiaries of TeleCorp PCS, Inc., Lucent will purchase from TeleCorp PCS, Inc., should TeleCorp PCS, Inc. issue, senior subordinated discount notes (Lucent Notes) with gross proceeds up to $350,000. The gross proceeds borrowed on the Lucent Notes plus any amount outstanding under the Black Label Wireless, Inc. Credit Agreement (see below) cannot at any time exceed $350,000. If issued, the Lucent Notes will mature 10 years from the date of issuance, unless previously redeemed by TeleCorp PCS, Inc. 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 will not be collaterized. The Lucent Notes would be senior subordinated unsecured obligations of TeleCorp PCS, Inc., ranking equivalent in right of payment to all of the TeleCorp PCS, Inc.'s future senior subordinated debt. The Lucent Notes would be subordinate in right of payment to any future senior debt incurred by TeleCorp PCS, Inc. or its guarantor subsidiaries but senior in right of payment to any future subordinated debt incurred by TeleCorp PCS, Inc. or any of its guarantor subsidiaries. Black Label Wireless, Inc. Credit Agreement On July 14, 2000, 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 $175,000. Black Label intends to use the proceeds of loans under the credit agreement to develop the network related to the licenses being acquired by the Company in the contribution and the exchange agreements (see Note 14). The obligations under the Black Label credit agreement must be repaid by July 14, 2001. Additionally, if the obligations under the credit agreement are assumed by the Company, the commitments under the credit agreement shall immediately terminate and all obligations due under the credit agreement shall immediately become due and payable. 7 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) As of September 30, 2000, $29,657 was included in current portion of long- term debt related to the Black Label credit agreement including $235 of accrued interest. Interest accrues at a weighted average rate based on LIBOR plus 2% on the date each tranche is drawn. The weighted average interest rate was 8.62% at September 30, 2000. 9. Preferred Stock Subscriptions Receivable On July 17, 2000, the Company received $37,650 from certain of its initial institutional investors related to the preferred stock subscriptions receivable. 10. Concurrent Offering In an offering concurrent with the Company's initial public offering, the Company issued 2,245,000 shares of Class A common stock to AT&T Wireless Services, Inc. (AT&T Wireless) for $18.65 per share. The Company's proceeds for the concurrent offering of $41,869 were received on January 18, 2000. 11. 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. 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 mandatorily redeemable 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 the acquired licenses. On May 10, 2000, the Company was notified by the FCC that it was the high bidder on certain FCC licenses offered in the FCC's 39 GHz Band Auction. As consideration for the licenses, the Company paid the FCC $12,368. Each of the licenses purchased exists within areas where the Company and Tritel currently hold licenses or where the Company will hold licenses after the completion of the contribution and exchange with AT&T Wireless. 8 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 12. TeleCorp PCS, Inc. (formerly known as Telecorp-Tritel Holding Company) TeleCorp PCS, Inc. was formed on April 28, 2000 in connection with the Tritel merger with the Company and the AT&T exchange and contribution. Prior to the consummation of the merger on November 13, 2000 TeleCorp PCS, Inc. was a wholly-owned subsidiary of the Company. To date, TeleCorp PCS, Inc. has not conducted any activities other than those incident to its formation. The business of TeleCorp PCS, Inc. will be the combined businesses currently conducted by the Company and Tritel. Summarized financial statements of TeleCorp PCS, Inc. as of September 30, 2000 are as follows: TELECORP PCS, INC. BALANCE SHEET ($ in thousands, excepts per share data)
September 30, 2000 ------------------ ASSETS Total current assets......................................... $ -- --------- Total assets................................................. -- ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Total current liabilities.................................... -- --------- Total liabilities............................................ -- --------- Stockholders equity (deficit): Common stock, par value $.01 per share 1,000 shares authorized, issued and outstanding........................ -- Total stockholders' equity (deficit)......................... -- --------- Total liabilities and stockholders' equity (deficit)......... $ -- =========
TELECORP PCS, INC. STATEMENTS OF OPERATIONS
For the period For the three April 28, 2000 months ended, (date of inception) September 30, 2000 to September 30, 2000 ------------------ --------------------- Total revenue.......................... $ -- $ -- --------- ---------- Total operating expenses............... -- -- --------- ---------- Operating loss......................... -- -- --------- ---------- Net loss............................... $ -- $ -- ========= ==========
9 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) TELECORP PCS, INC. STATEMENT OF CASH FLOWS
For the period April 28, 2000 (date of inception) to September 30, 2000 --------------------- Net cash used in operating activities.................... $ -- --------- Net cash used in investing activities.................... -- --------- Net cash used in financing activities.................... -- --------- Cash and cash equivalents at the beginning of period..... -- --------- Cash and cash equivalents at the end of period........... $ -- =========
13. 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. (TCI), one of the Company's wholly-owned subsidiaries. On July 14, 2000, the Company completed the issuance and sale of the 10 5/8% Subordinated Notes. The Subordinated Notes are fully and unconditionally guaranteed on a joint and several basis by TCI. Consolidating financial statements of TeleCorp Wireless, Inc., TCI, the guarantor, the non-guarantor subsidiaries of TCI, non-guarantor subsidiaries of TeleCorp Wireless, Inc. and Black Label as of December 31, 1999 and September 30, 2000 and for the three and nine months ended September 30, 1999 and 2000 have been included on the following pages. The special purpose entity, Black Label, and all its activities are presented separately in the following consolidating financial statements. Certain amounts in the 1999 consolidating financial statements have been reclassified to conform with the presentations of the consolidating financial statements as of September 30, 2000 and for the three and nine months ended September 30, 2000. These reclassifications are eliminated upon consolidation and do not impact the Company's consolidated financial statements. 10 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of December 31, 1999:
TeleCorp Communications, Inc. --------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents..... $ 182,330 $ -- $ -- $ -- $ -- Short-term investments..... -- -- -- -- -- Accounts receivable, net............. -- 23,581 -- -- 23,581 Inventory....... -- 15,802 -- -- 15,802 Prepaid expenses and other current assets.. -- 1,608 2,220 -- 3,828 ----------- --------- --------- -------- --------- Total current assets.......... 182,330 40,991 2,220 -- 43,211 Property and equipment, net... -- 182,235 218,215 -- 400,450 PCS licenses and microwave relocation costs, net.............. -- -- -- -- -- Intangible assets--AT&T agreements, net.. 37,908 -- -- -- -- Deferred financing costs, net.............. 19,577 -- -- -- -- Other assets..... -- 1,044 -- -- 1,044 Intercompany receivables...... 858,279 -- 42,970 (42,970) -- ----------- --------- --------- -------- --------- Total assets.... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 =========== ========= ========= ======== ========= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......... $ -- $ 12,318 $ 26,585 $ -- $ 38,903 Accrued expenses........ -- 48,960 3,017 -- 51,977 Long-term debt, current portion......... -- -- -- -- -- Microwave relocation obligation, current portion......... -- -- -- -- -- Accrued interest........ 521 -- -- -- -- Deferred revenue......... -- 1,709 -- -- 1,709 ----------- --------- --------- -------- --------- Total current liabilities..... 521 62,987 29,602 -- 92,589 Long-term debt... 622,795 -- -- -- -- Microwave relocation obligation....... -- -- -- -- -- Accrued expenses and other liabilities...... -- -- 6,541 -- 6,541 Intercompany payables......... -- 463,434 227,262 (42,970) 647,726 ----------- --------- --------- -------- --------- Total liabilities..... 623,316 526,421 263,405 (42,970) 746,856 ----------- --------- --------- -------- --------- Mandatorily redeemable preferred stock.. 360,182 -- -- -- -- Preferred stock subscriptions receivable....... (97,001) -- -- -- -- ----------- --------- --------- -------- --------- Total mandatorily redeemable preferred stock, net............. 263,181 -- -- -- -- ----------- --------- --------- -------- --------- Commitments and contingencies TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents..... $ -- $ -- $ -- $ 182,330 Short-term investments..... -- -- -- -- Accounts receivable, net............. -- -- -- 23,581 Inventory....... -- -- -- 15,802 Prepaid expenses and other current assets.. -- -- -- 3,828 ------------- ------ ------------ ------------ Total current assets.......... -- -- -- 225,541 Property and equipment, net... -- -- -- 400,450 PCS licenses and microwave relocation costs, net.............. 267,682 -- -- 267,682 Intangible assets--AT&T agreements, net.. -- -- -- 37,908 Deferred financing costs, net.............. -- -- -- 19,577 Other assets..... -- -- -- 1,044 Intercompany receivables...... 5,702 -- (863,981) -- ------------- ------ ------------ ------------ Total assets.... $273,384 $ -- $(863,981) $ 952,202 ============= ====== ============ ============ LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......... $ -- $ -- $ -- $ 38,903 Accrued expenses........ -- -- -- 51,977 Long-term debt, current portion......... 1,361 -- -- 1,361 Microwave relocation obligation, current portion......... 36,122 -- -- 36,122 Accrued interest........ 866 -- -- 1,387 Deferred revenue......... -- -- -- 1,709 ------------- ------ ------------ ------------ Total current liabilities..... 38,349 -- -- 131,459 Long-term debt... 16,415 -- -- 639,210 Microwave relocation obligation....... 2,365 -- -- 2,365 Accrued expenses and other liabilities...... -- -- -- 6,541 Intercompany payables......... 216,255 -- (863,981) -- ------------- ------ ------------ ------------ Total liabilities..... 273,384 -- (863,981) 779,575 ------------- ------ ------------ ------------ Mandatorily redeemable preferred stock.. -- -- -- 360,182 Preferred stock subscriptions receivable....... -- -- -- (97,001) ------------- ------ ------------ ------------ Total mandatorily redeemable preferred stock, net............. -- -- -- 263,181 ------------- ------ ------------ ------------ Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock........... 149 -- -- -- -- Common stock.... 856 -- -- -- -- Additional paid- in capital...... 267,442 -- -- -- -- Deferred compensation.... (42,811) -- -- -- -- Common stock subscriptions receivable...... (191) -- -- -- -- Accumulated other comprehensive income.......... -- -- -- -- -- Accumulated deficit......... (13,848) (302,151) -- -- (302,151) ----------- --------- --------- -------- --------- Total stockholders' equity (deficit)....... 211,597 (302,151) -- -- (302,151) ----------- --------- --------- -------- --------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)....... $ 1,098,094 $ 224,270 $ 263,405 $(42,970) $ 444,705 =========== ========= ========= ======== ========= Stockholders' equity (deficit): Series F preferred stock........... -- -- -- 149 Common stock.... -- -- -- 856 Additional paid- in capital...... -- -- -- 267,442 Deferred compensation.... -- -- -- (42,811) Common stock subscriptions receivable...... -- -- -- (191) Accumulated other comprehensive income.......... -- -- -- -- Accumulated deficit......... -- -- -- (315,999) ------------- ------ ------------ ------------ Total stockholders' equity (deficit)....... -- -- -- (90,554) ------------- ------ ------------ ------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)....... $273,384 $ -- $(863,981) $ 952,202 ============= ====== ============ ============
11 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Balance Sheet as of September 30, 2000 (unaudited):
TeleCorp Communications, Inc. -------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents.... $ 315,979 $ -- $ -- $ -- $ -- Short-term investments.... 127,464 -- -- -- -- Accounts receivable, net............ -- 48,871 -- -- 48,871 Inventory...... -- 15,856 -- -- 15,856 Prepaid expenses and other current assets......... -- 4,227 2,590 -- 6,817 ---------- -------- -------- --------- --------- Total current assets...... .. 443,443 68,954 2,590 -- 71,544 Property and equipment, net.. -- 281,557 319,383 -- 600,940 PCS licenses and microwave relocation costs, net...... -- -- -- -- -- Intangible assets--AT&T agreements, net............. 32,542 -- -- -- -- Deferred financing costs, net............. 32,044 -- -- -- -- Intercompany receivables..... 1,300,115 -- 106,233 (106,233) -- Other assets.... 618 40 725 -- 765 ---------- -------- -------- --------- --------- Total assets .. $1,808,762 $350,551 $428,931 $(106,233) $ 673,249 ========== ======== ======== ========= ========= LIABILITIES, MANDATORILY REDEEMBLEAPREFERRED STOCK AND SOCKHOLDERS'TEQUITY (DEFICIT) Current liabilities: Accounts payable........ $ -- $ 10,110 $ 8,480 $ -- $ 18,590 Accrued expenses....... -- 84,619 34,247 -- 118,866 Long-term debt, current portion........ -- -- -- -- -- Microwave relocation obligation, current portion........ -- -- -- -- -- Accrued interest....... 12,398 -- -- -- -- Deferred revenue........ -- 2,231 -- -- 2,231 ---------- -------- -------- --------- --------- Total current liabilities. .. 12,398 96,960 42,727 -- 139,687 Long-term debt.. 1,206,870 -- -- -- -- Microwave relocation obligation...... -- -- -- -- -- Intercompany payables........ -- 805,607 373,068 (106,233) 1,072,442 Accrued expenses and other liabilities..... -- -- 13,136 -- 13,136 ---------- -------- -------- --------- --------- Total liabilities. .. 1,219,268 902,567 428,931 (106,233) 1,225,265 ---------- -------- -------- --------- --------- Mandatorily redeemable preferred stock........... 384,421 -- -- -- -- Preferred stock subscriptions receivable...... (59,542) -- -- -- -- ---------- -------- -------- --------- --------- Total mandatorily redeemable preferred stock, net.. .. 324,879 -- -- -- -- ---------- -------- -------- --------- --------- Commitments and contingencies TeleCorp Wireless, Inc. ------------------------------------------------ Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------- ------------- ------------ ASSETS Current assets: Cash and cash equivalents.... $ -- $ 1,524 $ -- $ 317,503 Short-term investments.... -- -- -- 127,464 Accounts receivable, net............ -- -- -- 48,871 Inventory...... -- -- -- 15,856 Prepaid expenses and other current assets......... -- -- -- 6,817 ------------- ------- ------------- ------------ Total current assets...... .. -- 1,524 -- 516,511 Property and equipment, net.. -- 40,645 -- 641,585 PCS licenses and microwave relocation costs, net...... 276,124 -- -- 276,124 Intangible assets--AT&T agreements, net............. -- -- -- 32,542 Deferred financing costs, net............. -- -- -- 32,044 Intercompany receivables..... -- -- (1,300,115) -- Other assets.... 10,214 23,183 -- 34,780 ------------- ------- ------------- ------------ Total assets .. $286,338 $65,352 $(1,300,115) $1,533,586 ============= ======= ============= ============ LIABILITIES, MANDATORILY REDEEMBLEAPREFERRED STOCK AND SOCKHOLDERS'TEQUITY (DEFICIT) Current liabilities: Accounts payable........ $ -- $21,789 $ -- $ 40,379 Accrued expenses....... 9,894 5,394 -- 134,154 Long-term debt, current portion........ 1,436 29,657 -- 31,093 Microwave relocation obligation, current portion........ 12,513 8,512 -- 21,025 Accrued interest....... 347 -- -- 12,745 Deferred revenue........ -- -- -- 2,231 ------------- ------- ------------- ------------ Total current liabilities. .. 24,190 65,352 -- 241,627 Long-term debt.. 17,899 -- -- 1,224,769 Microwave relocation obligation...... 16,576 -- -- 16,576 Intercompany payables........ 227,673 -- (1,300,115) -- Accrued expenses and other liabilities..... -- -- -- 13,136 ------------- ------- ------------- ------------ Total liabilities. .. 286,338 65,352 (1,300,115) 1,496,108 ------------- ------- ------------- ------------ Mandatorily redeemable preferred stock........... -- -- -- 384,421 Preferred stock subscriptions receivable...... -- -- -- (59,542) ------------- ------- ------------- ------------ Total mandatorily redeemable preferred stock, net.. .. -- -- -- 324,879 ------------- ------- ------------- ------------ Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock.......... 149 -- -- -- -- Common stock... 890 -- -- -- -- Additional paid-in capital........ 304,783 -- -- -- -- Deferred compensation... (29,038) -- -- -- -- Common stock subscriptions receivable..... -- -- -- -- -- Accumulated other comprehensive income......... 1,679 -- -- -- -- Accumulated deficit........ (13,848) (552,016) -- -- (552,016) ---------- -------- -------- --------- --------- Total stockholders' equity (deficit)...... 264,615 (552,016) -- -- (552,016) ---------- -------- -------- --------- --------- Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)...... $1,808,762 $350,551 $428,931 $(106,233) $ 673,249 ========== ======== ======== ========= ========= Stockholders' equity (deficit): Series F preferred stock.......... -- -- -- 149 Common stock... -- -- -- 890 Additional paid-in capital........ -- -- -- 304,783 Deferred compensation... -- -- -- (29,038) Common stock subscriptions receivable..... -- -- -- -- Accumulated other comprehensive income......... -- -- -- 1,679 Accumulated deficit........ -- -- -- (565,864) ------------- ------- ------------- ------------ Total stockholders' equity (deficit)...... -- -- -- (287,401) ------------- ------- ------------- ------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)...... $286,338 $65,352 $(1,300,115) $1,533,586 ============= ======= ============= ============
12 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 1999 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations -------------- ---------- ------------- ------------ ------------ ------------- ------ ------------ Revenue: Service........... $ -- $ 12,705 $ -- $ -- $ 12,705 $ -- $ -- $ -- Roaming........... -- 9,455 -- -- 9,455 -- -- -- Equipment......... -- 4,673 -- -- 4,673 -- -- -- Intercompany...... 1,818 -- 12,830 (12,830) -- 2,072 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Total revenue... 1,818 26,833 12,830 (12,830) 26,833 2,072 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Operating expenses: -- Cost of revenue... -- 29,700 -- (12,830) 16,870 -- -- (3,890) Operations and development....... -- 6,393 4,034 -- 10,427 -- -- -- Selling and marketing......... -- 18,795 -- -- 18,795 -- -- -- General and administrative.... -- 16,502 -- -- 16,502 -- -- -- Depreciation and amortization...... 1,818 6,757 8,796 -- 15,553 937 -- -- -------- --------- ------ ------- --------- ----- ------ ------- Total operating expenses........ 1,818 78,147 12,830 (12,830) 78,147 937 -- (3,890) -------- --------- ------ ------- --------- ----- ------ ------- Operating income (loss).......... -- (51,314) -- -- (51,314) 1,135 -- -- Other (income) expense: Interest expense........... 16,205 14,478 -- -- 14,478 1,135 -- (14,478) Interest income and other......... (16,205) -- -- -- -- -- -- 14,478 -------- --------- ------ ------- --------- ----- ------ ------- Net loss........ -- (65,792) -- -- (65,792) -- -- -- Accretion of mandatorily redeemable preferred stock.... (7,064) -- -- -- -- -- -- -- -------- --------- ------ ------- --------- ----- ------ ------- Net loss attributable to common equity...... $ (7,064) $ (65,792) $ -- $ -- $ (65,792) $ -- $ -- $ -- ======== ========= ====== ======= ========= ===== ====== ======= Consolidated ------------ Revenue: Service........... $ 12,705 Roaming........... 9,455 Equipment......... 4,673 Intercompany...... -- ------------ Total revenue... 26,833 ------------ Operating expenses: Cost of revenue... 12,980 Operations and development....... 10,427 Selling and marketing......... 18,795 General and administrative.... 16,502 Depreciation and amortization...... 18,308 ------------ Total operating expenses........ 77,012 ------------ Operating income (loss).......... (50,179) Other (income) expense: Interest expense........... 17,340 Interest income and other......... (1,727) ------------ Net loss........ (65,792) Accretion of mandatorily redeemable preferred stock.... (7,064) ------------ Net loss attributable to common equity...... $(72,856) ============
13 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the three months ended September 30, 2000 (unaudited):
TeleCorp Communications, Inc. -------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ Revenue: Service........... $ -- $ 64,272 $ -- $ -- $ 64,272 Roaming........... -- 18,307 -- -- 18,307 Equipment......... -- 9,312 -- -- 9,312 Intercompany...... 5,718 -- 26,325 (26,325) -- -------- -------- ------- -------- -------- Total revenue... 5,718 91,891 26,325 (26,325) 91,891 -------- -------- ------- -------- -------- Operating expenses: Cost of revenue... -- 57,313 -- (26,325) 30,988 Operations and development....... 302 7,794 6,249 -- 14,043 Selling and marketing......... 413 43,689 -- -- 43,689 General and administrative.... 3,214 31,429 -- -- 31,429 Depreciation and amortization...... 1,789 9,208 20,076 -- 29,284 -------- -------- ------- -------- -------- Total operating expenses........ 5,718 149,433 26,325 (26,325) 149,433 -------- -------- ------- -------- -------- Operating income (loss).......... -- (57,542) -- -- (57,542) Other (income) expense: Interest expense........... 29,314 23,950 -- -- 23,950 Interest income and other......... (29,314) -- -- -- -- -------- -------- ------- -------- -------- Net loss........ -- (81,492) -- -- (81,492) Accretion of mandatorily redeemable preferred stock.... (8,292) -- -- -- -- -------- -------- ------- -------- -------- Net loss attributable to common equity...... $ (8,292) $(81,492) $ -- $ -- $(81,492) ======== ======== ======= ======== ======== TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ Revenue: Service........... $ -- $ -- $ -- $ 64,272 Roaming........... -- -- -- 18,307 Equipment......... -- -- -- 9,312 Intercompany...... 1,726 -- (7,444) -- ------------- ------ ------------ ------------ Total revenue... 1,726 -- (7,444) 91,891 ------------- ------ ------------ ------------ Operating expenses: Cost of revenue... -- -- (3,515) 27,473 Operations and development....... -- -- (302) 14,043 Selling and marketing......... -- -- (413) 43,689 General and administrative.... -- -- (3,214) 31,429 Depreciation and amortization...... 1,314 -- -- 32,387 ------------- ------ ------------ ------------ Total operating expenses........ 1,314 -- (7,444) 149,021 ------------- ------ ------------ ------------ Operating income (loss).......... 412 -- -- (57,130) Other (income) expense: Interest expense........... 412 -- (23,950) 29,726 Interest income and other......... -- -- 23,950 (5,364) ------------- ------ ------------ ------------ Net loss........ -- -- -- (81,492) Accretion of mandatorily redeemable preferred stock.... -- -- -- (8,292) ------------- ------ ------------ ------------ Net loss attributable to common equity...... $ -- $ -- $ -- $(89,784) ============= ====== ============ ============
14 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 1999 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. --------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated Subsidiaries Label Eliminations -------------- ---------- ------------- ------------ ------------ ------------- ------ ------------ Revenue: Service........... $ -- $ 18,937 $ -- $ -- $ 18,937 $ -- $ -- $ -- Roaming........... -- 18,942 -- -- 18,942 -- -- -- Equipment......... -- 10,322 -- -- 10,322 -- -- -- Intercompany...... 3,899 -- 26,008 (26,008) -- 3,408 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Total revenue... 3,899 48,201 26,008 (26,008) 48,201 3,408 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Operating expenses: Cost of revenue... -- 56,402 -- (26,008) 30,394 -- -- (7,307) Operations and development...... -- 16,108 9,817 -- 25,925 -- -- -- Selling and marketing........ -- 39,720 -- -- 39,720 -- -- -- General and administrative... -- 38,943 -- -- 38,943 -- -- -- Depreciation and amortization..... 3,899 13,134 16,191 -- 29,325 1,575 -- -- -------- --------- ------- -------- --------- ------ ------ -------- Total operating expenses....... 3,899 164,307 26,008 (26,008) 164,307 1,575 -- (7,307) -------- --------- ------- -------- --------- ------ ------ -------- Operating income (loss)......... -- (116,106) -- -- (116,106) 1,833 -- -- Other (income) expense: Interest expense.. 32,614 27,969 -- -- 27,969 1,833 -- (27,969) Interest income and other........ (32,614) -- -- -- -- -- -- 27,969 -------- --------- ------- -------- --------- ------ ------ -------- Net loss........ -- (144,075) -- -- (144,075) -- -- -- Accretion of mandatorily redeemable preferred stock.... (16,960) -- -- -- -- -- -- -- -------- --------- ------- -------- --------- ------ ------ -------- Net loss attributable to common equity...... $(16,960) $(144,075) $ -- $ -- $(144,075) $ -- $ -- $ -- ======== ========= ======= ======== ========= ====== ====== ======== Consolidated ------------ Revenue: Service........... $ 18,937 Roaming........... 18,942 Equipment......... 10,322 Intercompany...... -- ------------ Total revenue... 48,201 ------------ Operating expenses: Cost of revenue... 23,087 Operations and development...... 25,925 Selling and marketing........ 39,720 General and administrative... 38,943 Depreciation and amortization..... 34,799 ------------ Total operating expenses....... 162,474 ------------ Operating income (loss)......... (114,273) Other (income) expense: Interest expense.. 34,447 Interest income and other........ (4,645) ------------ Net loss........ (144,075) Accretion of mandatorily redeemable preferred stock.... (16,960) ------------ Net loss attributable to common equity...... $(161,035) ============
15 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Operations for the nine months ended September 30, 2000 (unaudited):
TeleCorp Communications, Inc. --------------------------------------------------- TeleCorp Guarantor Non-Guarantor Wireless, Inc. Subsidiary Subsidiaries Eliminations Consolidated -------------- ---------- ------------- ------------ ------------ Revenue: Service........... $ -- $ 152,328 $ -- $ -- $ 152,328 Roaming........... -- 44,458 -- -- 44,458 Equipment......... -- 22,562 -- -- 22,562 Intercompany...... 36,178 -- 63,273 (63,273) -- -------- --------- ------ -------- --------- Total revenue... 36,178 219,348 63,273 (63,273) 219,348 -------- --------- ------ -------- --------- Operating expenses: Cost of revenue... -- 141,655 -- (63,273) 78,382 Operations and development...... 1,073 21,520 18,058 -- 39,578 Selling and marketing........ 972 118,455 -- -- 118,455 General and administrative... 28,767 105,776 -- -- 105,776 Depreciation and amortization..... 5,366 28,734 45,215 -- 73,949 -------- --------- ------ -------- --------- Total operating expenses....... 36,178 416,140 63,273 (63,273) 416,140 -------- --------- ------ -------- --------- Operating income (loss)......... -- (196,792) -- -- (196,792) Other (income) expense: Interest expense.. 62,334 53,073 -- -- 53,073 Interest income and other........ (62,334) -- -- -- -- -------- --------- ------ -------- --------- Net loss........ -- (249,865) -- -- (249,865) Accretion of mandatorily redeemable preferred stock.... (24,181) -- -- -- -- -------- --------- ------ -------- --------- Net loss attributable to common equity...... $(24,181) $(249,865) $ -- $ -- $(249,865) ======== ========= ====== ======== ========= TeleCorp Wireless, Inc. ---------------------------------------------- Non-Guarantor Black Subsidiaries Label Eliminations Consolidated ------------- ------ ------------ ------------ Revenue: Service........... $ -- $ -- $ -- $ 152,328 Roaming........... -- -- -- 44,458 Equipment......... -- -- -- 22,562 Intercompany...... 5,110 -- (41,288) -- ------------- ------ ------------ ------------ Total revenue... 5,110 -- (41,288) 219,348 ------------- ------ ------------ ------------ Operating expenses: Cost of revenue... -- -- (10,476) 67,906 Operations and development...... -- -- (1,073) 39,578 Selling and marketing........ -- -- (972) 118,455 General and administrative... -- -- (28,767) 105,776 Depreciation and amortization..... 3,455 -- -- 82,770 ------------- ------ ------------ ------------ Total operating expenses....... 3,455 -- (41,288) 414,485 ------------- ------ ------------ ------------ Operating income (loss)......... 1,655 -- -- (195,137) Other (income) expense: Interest expense.. 1,655 -- (53,073) 63,989 Interest income and other........ -- -- 53,073 (9,261) ------------- ------ ------------ ------------ Net loss........ -- -- -- (249,865) Accretion of mandatorily redeemable preferred stock.... -- -- -- (24,181) ------------- ------ ------------ ------------ Net loss attributable to common equity...... $ -- $ -- $ -- $(274,046) ============= ====== ============ ============
16 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Cash Flows for the nine months ended September 30, 1999 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------------- --------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated -------------- ---------- ------------- ------------ ------------- ------ ------------ ------------- Cash flows from operating activities: Net loss........... $ -- $(144,075) $ -- $(144,075) $ -- $ -- $ -- $(144,075) Adjustment to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization...... 3,899 13,134 16,191 29,325 1,575 -- -- 34,799 Non-cash compensation expense related to stock option grants and restricted stock awards............ -- -- -- -- -- -- -- -- Non-cash interest expense........... -- 20,735 -- 20,735 260 -- -- 20,995 Bad debt expense.. -- 1,022 -- 1,022 -- -- -- 1,022 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable........ -- (17,924) -- (17,924) -- -- -- (17,924) Intercompany receivables....... (452,084) -- -- -- -- -- 452,084 -- Inventory......... -- (11,347) -- (11,347) -- -- -- (11,347) Prepaid expenses and other current assets............ -- 878 36 914 -- -- -- 914 Other assets...... -- (706) 283 (423) -- -- -- (423) Accounts payable.. -- 4,456 6,682 11,138 -- -- -- 11,138 Accrued expenses and other liabilities....... -- 7,680 8,321 16,001 -- -- -- 16,001 Accrued interest.. (1,114) -- -- -- 167 -- -- (947) Deferred revenue.. -- 1,133 -- 1,133 -- -- -- 1,133 Intercompany payables.......... -- 232,613 110,894 343,507 108,577 -- (452,084) -- --------- --------- --------- --------- -------- ------ --------- --------- Net cash (used in) provided by operating activities........ (449,299) 107,599 142,407 250,006 110,579 -- -- (88,714) --------- --------- --------- --------- -------- ------ --------- --------- Cash flows from investing activities: Expenditures for property and equipment......... -- (103,121) (142,407) (245,528) -- -- -- (245,528) Expenditures for property and equipment; Black Label Wireless, Inc. ............. -- -- -- -- -- -- -- -- Purchase of short- term investments.. -- -- -- -- -- -- -- -- Proceeds from the sale of short-term investments....... -- -- -- -- -- -- -- -- Expenditures for acquisition of PCS licenses; Black Label Wireless.... -- -- -- -- -- -- -- -- Capitalized interest on network under development and PCS licenses...... -- (4,478) -- (4,478) -- -- -- (4,478) Expenditures for microwave relocation........ -- -- -- -- (5,679) -- -- (5,679) Purchase of PCS licenses.......... -- -- -- -- (72,390) -- -- (72,390) Deposit on PCS licenses.......... -- -- -- -- (43,647) -- -- (43,647) 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) (107,599) (142,407) (250,006) (110,355) -- -- (376,506) --------- --------- --------- --------- -------- ------ --------- --------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock... 64,521 -- -- -- -- -- -- 64,521 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... 21,724 -- -- -- -- -- -- 21,724 Proceeds from long-term debt.... 397,635 -- -- -- -- -- -- 397,635 Proceeds from long-term debt, Black Label Wireless, Inc. ... -- -- -- -- -- -- -- -- Payments of deferred financing costs............. (10,999) -- -- -- -- -- -- (10,999) Payments on long- term debt......... (40,000) -- -- -- (224) -- -- (40,224) --------- --------- --------- --------- -------- ------ --------- --------- Net cash provided by (used in) financing activities........ 434,121 -- -- -- (224) -- -- 433,897 --------- --------- --------- --------- -------- ------ --------- --------- Net decrease in cash and cash equivalents........ (31,323) -- -- -- -- -- -- (31,323) Cash and cash equivalents at the beginning of period............. 111,733 -- -- -- -- -- -- 111,733 --------- --------- --------- --------- -------- ------ --------- --------- Cash and cash equivalents at the end of period...... $ 80,410 $ -- $ -- $ -- $ -- $ -- $ -- $ 80,410 ========= ========= ========= ========= ======== ====== ========= =========
17 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consolidating Statement of Cash Flows for the nine months ended September 30, 2000 (unaudited):
TeleCorp Communications, Inc. TeleCorp Wireless, Inc. ---------------------------------------------------- ----------------------------------- TeleCorp Guarantor Non-Guarantor Non-Guarantor Black Wireless, Inc. Subsidiary Subsidiaries Consolidated Subsidiaries Label Eliminations Consolidated -------------- ---------- ------------- ------------ ------------- ------- ------------ ------------- Cash flows from operating activities: Net loss......... $ -- $ (249,865) $ -- $ (249,865) $ -- $ -- $ -- $ (249,865) Adjustment to reconcile net loss to cash (used in) provided by operating activities: Depreciation and amortization.... 5,366 28,734 45,215 73,949 3,455 -- -- 82,770 Noncash compensation expense related to stock option grants and restricted stock awards.......... -- 30,812 -- 30,812 -- -- -- 30,812 Noncash interest expense......... -- 36,120 -- 36,120 390 -- -- 36,510 Bad debt expense......... -- 8,482 -- 8,482 -- -- -- 8,482 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable...... -- (25,290) -- (25,290) -- -- -- (25,290) Inventory....... -- (54) -- (54) -- -- -- (54) Intercompany receivables..... (371,559) -- -- - -- -- 371,559 -- Prepaid expenses and other current assets.. -- (2,619) (370) (2,989) -- -- -- (2,989) Other assets.... (618) 1,004 (725) 279 -- -- -- (339) Accounts payable......... -- (5,408) (7,497) (12,905) -- -- -- (12,905) Accrued expenses and other liabilities..... -- 9,487 12,444 21,931 -- -- -- 21,931 Accrued interest........ 10,839 -- -- -- 519 -- -- 11,358 Deferred revenue......... -- 522 -- 522 -- -- -- 522 Intercompany payables........ -- 276,113 79,665 355,778 15,761 20 (371,559) -- -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash (used in) provided by operating activities...... (355,972) 108,038 128,732 236,770 20,125 20 -- (99,057) -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash flows from investing activities: Expenditures for property and equipment....... -- (105,326) (128,732) (234,058) -- -- -- (234,058) Expenditures for property and equipment; Black Label Wireless, Inc............. -- -- -- -- -- (15,752) -- (15,752) Purchase of short-term investments..... (130,740) -- -- -- -- -- -- (130,740) Proceeds from the sale of short-term investments..... 5,001 -- -- -- -- -- -- 5,001 Expenditures for the acquisition of PCS licenses; Black Label Wireless, Inc... -- -- -- -- -- (12,166) -- (12,166) Capitalized interest on network under development and PCS licenses.... -- (2,712) -- -- -- -- -- (2,712) Expenditures for microwave relocation...... -- -- -- -- (5,398) -- -- (5,398) Purchase of PCS licenses........ -- -- -- -- (733) -- -- (733) Deposit on PCS licenses........ -- -- -- -- (12,368) -- -- (12,368) Partial refund of deposit on PCS licenses.... -- -- -- -- 9,607 -- -- 9,607 Purchase of intangibles -- AT&T agreements...... -- -- -- -- -- -- -- -- Capitalized Tritel acquisition costs........... -- -- -- -- (10,214) -- -- (10,214) -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash used in investing activities...... (125,739) (108,038) (128,732) (236,770) (19,106) (27,918) -- (409,533) -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock........... -- -- -- -- -- -- -- -- Receipt of preferred stock subscription receivable...... 37,650 -- -- -- -- -- -- 37,650 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.. 550,000 -- -- -- -- -- -- 550,000 Proceeds from long-term debt, Black Label Wireless, Inc... -- -- -- -- -- 29,422 -- 29,422 Payments of deferred financing costs........... (14,159) -- -- -- -- -- -- (14,159) Payments on long-term debt.. -- -- -- -- (1,019) -- -- (1,019) -------- ---------- --------- ---------- ------- ------- --------- ---------- Net cash provided by (used in) financing activities...... 615,360 -- -- -- (1,019) 29,422 -- 643,763 -------- ---------- --------- ---------- ------- ------- --------- ---------- Net increase in cash and cash equivalents...... 133,649 -- -- -- -- 1,524 -- 135,173 Cash and cash equivalents at the beginning of period........... 182,330 -- -- -- -- -- -- 182,330 -------- ---------- --------- ---------- ------- ------- --------- ---------- Cash and cash equivalents at the end of period........... $315,979 $ -- $ -- $ -- $ -- $ 1,524 $ -- $ 317,503 ======== ========== ========= ========== ======= ======= ========= ==========
18 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) 14. Subsequent Events Tritel Merger and Contribution and Exchange with AT&T Wireless On February 28, 2000, the Company agreed to merge with Tritel through a merger of each of the Company and Tritel with wholly-owned subsidiaries of TeleCorp PCS, Inc. The Company and Tritel are the surviving entities of the merger. The merger was consummated on November 13, 2000. The merger resulted in the exchange of 100% of the outstanding common and preferred stock of the Company and Tritel for common and preferred stock of TeleCorp PCS, Inc. TeleCorp PCS, Inc. is controlled by its voting preference common stockholders. Both the Company and Tritel are subsidiaries of TeleCorp PCS, Inc. This transaction will be accounted for using the purchase method of accounting. The purchase price for Tritel has been determined based on the fair value of the shares of TeleCorp PCS, Inc. issued to the former shareholders of Tritel plus cash, the fair value associated with the conversion of outstanding Tritel options and warrants to TeleCorp PCS, Inc. options and warrants, liabilities assumed, and merger related costs. The fair value of the shares issued have been determined based on the existing market price for 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. In connection with the Company's merger with Tritel, AT&T agreed to contribute certain assets and rights to the Company. This contribution resulted in the Company acquiring various assets in exchange for the consideration issued as follows: The Company acquired: . $20,000 cash from AT&T Wireless Services Inc. (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 TeleCorp PCS, Inc.'s markets. Consideration issued: . 9,272,740 shares of class A common stock of TeleCorp PCS, Inc. to AT&T Wireless Services. Separately, AT&T Wireless and the Company consummated on November 13, 2000, the Asset Exchange Agreement pursuant to which the Company agreed to exchange certain assets with AT&T Wireless, among other consideration. The Company received certain consideration in exchange for assets as follows: The Company acquired: . $80,000 in cash from AT&T Wireless. . AT&T Wireless's existing 10 MHZ PCS licenses in the areas covering part of the Wisconsin market, in addition to adjacent licenses. . AT&T Wireless's existing 10 MHZ PCS licenses in Fort Dodge and Waterloo, Iowa. . The right to acquire additional wireless properties from Polycell Communications, Inc. (Polycell) and ABC Wireless, L.L.C. (ABC Wireless). 19 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) Consideration issued: . The Company's New England market segment to AT&T Wireless. . Cash to Polycell and cash to ABC Wireless. Further, AT&T agreed to extend the term of the roaming agreement and to expand the geographic coverage of the AT&T operating agreements with the Company to include the new markets, either through amending the Company's existing agreements or by entering into new agreements with TeleCorp PCS, Inc. on substantially the same terms as the Company's existing agreements. In addition, the Company 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 will be recognized as the difference between the fair value of the New England assets disposed and their net book value. Pending Licenses Acquisition from Airadigm Communications, Inc. In connection with the right attained from AT&T Wireless Services, Inc. (see Note above), the Company and Telephone Data Systems (TDS) have entered into an agreement to collectively purchase the assets of Airadigm Communications, Inc. Airadigm is a wireless provider based in Little Chute, Wisconsin and owns C- block FCC licenses in Wisconsin and Iowa. Airadigm filed for Chapter 11 bankruptcy protection in July 1999. Under the terms of the collective plan of financial reorganization approved by the U.S. Bankruptcy Court on November 1, 2000, the Company and TDS plan to provide the funding to meet Airadigm's debt obligations. The Company will receive disaggregated licenses for its consideration. The sale of Airadigm's licenses is contingent upon reinstatement of those licenses by the FCC and receipt of FCC approval for the transfer of the licenses to the Company designee. Pending Licenses Acquisition from Pegasus PCS Partners, L.L.C. On September 20, 2000, the Company agreed to purchase from Pegasus PCS Partners,L.L.C. a 15 MHz C Block PCS license in the Mayaguez, Puerto Rico basic trading area for $18,000. Pending Licenses Acquisition from Lewis and Clark Communications, L.L.C. On November 1, 2000, the Company agreed to purchase from Lewis and Clark Communications, L.L.C. a 20 MHz C Block PCS license in each of the Burlington, IA; Marshalltown, IA; Mason City, IA; Ottumwa, IA and Fort Dodge, IA basic trading areas for an aggregate purchase price of $10,920. Tower Sale-Lease-Back and Build-to-Suit Agreements On September 15, 2000 the Company entered into a purchase agreement, pursuant to which the Company will sell and transfer to SBA Communications Corporation (SBA) 275 of its towers and related assets. The purchase price is approximately $90,100, reflecting a price of approximately $328 per site. At closing, the Company has agreed to provide SBA with an additional 200 towers under a separate master design build-to-suit agreement. 20 TELECORP WIRELESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ($ in thousands) At closing, the Company also has agreed to enter into a master lease agreement with SBA under which the Company has agreed to pay monthly rent of $1.2 per tower for the continued use of the space that the Company occupied on the towers prior to the sale and $1.3 per tower for space obtained under the build-to-suit agreement. The initial term of the lease is for five years and the monthly rental amount is subject to certain escalation clauses after the initial term. The Company anticipates that these agreements will close in 2001. Black Label Wireless, Inc. Credit Agreement Subsequent to September 30, 2000, Black Label borrowed an additional $34,555 as of October 31, 2000 under its $175,000 credit agreement. 21 Item 2. 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 The Company is the largest AT&T Wireless affiliate in the United States in terms of licensed population, with licenses covering approximately 17 million people. It 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. Commencing with the launch of operations in the New Orleans market in February 1999, TeleCorp successfully launched its services in 37 markets by September 30, 2000. As of September 30, 2000, the Company had more than 405,000 customers and its networks covered approximately 81% of the population where it held licenses. Under the terms of the strategic alliance the Company has with 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. TeleCorp PCS, Inc., currently the Company's parent and prior to November 14, 2000, the Company's wholly-owned subsidiary, has not conducted any activities other than those incident to its formation. Revenue The Company derives its revenue from the following sources: Service. The Company sells wireless personal communications services. The various types of service revenue associated with personal communications services for the Company's 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. The Company's 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 the Company's prepaid customers and non-recurring activation and de-activation service charges. Roaming. The Company charges monthly, non-recurring, per minute fees to other wireless companies whose customers use its network facilities to place and receive wireless calls. Equipment. The Company sells wireless PCS handsets and accessories that are used by its customers in connection with its wireless services. Service revenue constituted the Company's largest component of revenue during the nine months ended September 30, 2000 at 70%. Roaming revenue and equipment revenue represented 20% and 10% of total revenue, respectively. The Company expects that as its customer base grows, service revenue will become an even larger percentage of revenue, while roaming revenue and equipment revenue are expected to decline as a percentage of total revenue. Roaming minutes on the Company's network are expected to increase as AT&T and other carriers increase the number of customers on their networks. Under the Company's reciprocal 22 roaming agreement with AT&T Wireless, its largest roaming partner, the amount the Company 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. The Company has autonomy in determining its pricing plans. The Company has developed its pricing plans to be competitive and to emphasize the advantages of its service. The Company may discount its 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 The Company's operating expenses consist of the following: Cost of revenue . Equipment. The Company purchases PCS handsets and accessories from third party vendors to resell to its customers for use in connection with its services. The cost of handsets is, and is expected to remain, higher than the resale price to the customer. The Company records as cost of revenue an amount approximately equal to its revenue on equipment sales. The Company records the excess cost of handsets as a selling and marketing expense. The Company does not manufacture any of this equipment. . Roaming. The Company pays fees to other wireless communications companies based on airtime usage of its customers on other communications networks. It is expected that reciprocal roaming rates charged between the Company and other carriers will decrease. The Company does not have any significant minimum purchase requirements other than its 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 the Company's coverage area. The Company believes it will be able to meet this minimum requirement. . Clearinghouse. The Company pays fees to an independent clearinghouse for processing its call data records and performing monthly inter-carrier financial settlements for all charges that the Company pays to other wireless companies when the Company's customers use other companies' networks, and that other wireless companies pay to the Company when their customers use its network. The Company does not have any significant minimum purchase requirements. These fees are based on the number of call data records processed in a month. . Variable interconnect. The Company pays monthly charges associated with the connection of the Company's network with other carriers' networks. These fees are based on minutes of use by the Company's customers. These fees are known as interconnection. The Company does not have any significant minimum purchase requirements. . Variable long distance. The Company pays monthly usage charges to other communications companies for long distance service provided to its 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. The Company's operations and development expense includes engineering operations and support, field technicians, network implementation support, product development, engineering management and non- cash stock compensation related to employees whose salaries are recorded within operations and development. This expense also includes monthly recurring charges directly associated with the maintenance and operations of the network facilities and equipment. Operations and development expense is expected to increase as the Company expands its coverage and operations and adds customers. In future periods, the Company expects that this expense will decrease as a percentage of total revenue. 23 Selling and marketing. The Company's 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 non-cash stock compensation related to employees whose salaries are included within selling and marketing. The Company also records 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 the Company expands its coverage and adds customers. In future periods, the Company expects that this expense will decrease as a percentage of total revenue. General and administrative. The Company's general and administrative expense includes customer support, billing, information technology, finance, accounting and legal services and non-cash stock compensation related to employees whose salaries are included within general and administrative. Although the Company expects general and administrative expense to increase in future periods, the Company expects this expense will decrease as a percentage of total revenues. Depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method, generally over three to fifteen 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. The Company 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 its 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 the Company's 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 the Company's customers. Amortization of the network membership license agreement began on July 17, 1998, the date of the finalization of the initial AT&T transaction. Non-cash 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 nine months ended September 30, 2000, we recorded $3.9 million and $30.8 million, respectively, of non-cash 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 the Company's senior credit facilities, senior subordinated discount notes, senior subordinated notes, vendor financing, and debt owed to the U.S. government related to its licenses, net of amounts capitalized. Interest income and other. Interest income consists of interest earned on the Company's cash and cash equivalents and short-term investments. Results of operations Nine months ended September 30, 2000 compared to nine months ended September 30, 1999 Subscribers. Net additions were 263,213 and 75,723 for the nine months ended September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444 and 75,723 as of September 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 20 additional markets from the period October 1, 1999 to September 30, 2000. 24 Revenue. Revenue for the nine months ended September 30, 2000 and 1999 was $219.3 million and $48.2 million, respectively. Service revenue was $152.3 million and $18.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in service revenue of $133.4 million was due primarily to the addition of approximately 330,000 subscribers from October 1, 1999 to September 30, 2000 and the launch of 20 additional markets. Roaming revenue was $44.5 million and $18.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in roaming revenue of $25.6 million was due primarily to the construction of 608 cell sites in conjunction with the launching of 20 additional markets between October 1, 1999 and September 30, 2000. Equipment revenue was $22.6 million and $10.3 million for the nine months ended September 30, 2000 and 1999, respectively. The equipment revenue increase of $12.3 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 nine months of 2000. Costs of revenue. Cost of revenue was $67.9 million and $23.1 million for the nine months ended September 30, 2000 and 1999, respectively. The increase in cost of revenue of $44.8 million over the same period in 1999 was due primarily to additional roaming expenses in connection with the Company's increased subscriber base and increases in equipment costs due to significantly increased gross additions in the first nine months of 2000. Operations and development. Operations and development costs were $39.6 million and $25.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $13.7 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 $118.5 million and $39.7 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $78.8 million over the same period in 1999 was primarily due to the cost of acquiring the significantly increased gross additions in the first nine months of 2000 associated with the increased market base in 2000, including advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative. General and administrative expenses were $105.8 million and $38.9 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $66.9 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, as well as $28.8 million in non-cash stock compensation. Depreciation and amortization. Depreciation and amortization expenses were $82.8 million and $34.8 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $48.0 million over the same period in 1999 relates primarily to depreciation of the Company's fixed assets as well as the amortization on its PCS licenses and the AT&T operating agreements related to the Company's markets launched between October 1, 1999 and September 30, 2000. Interest Expense. Interest expense was $64.0 million, net of capitalized interest of $2.7 million, for the nine months ended September 30, 2000. Interest expense was $34.4 million, net of capitalized interest of $4.5 million, for the nine months ended September 30, 1999. The increase of $29.6 million over the same period in 1999 relates primarily to a full nine months of interest expense on the Company's senior subordinated discount notes which were issued in April of 1999, interest expense on the Company's 10 5/8% senior subordinated notes issued in July of 2000, additional Lucent and FCC debt issued throughout the first nine months of 1999, and $100 million of additional senior credit facility drawn in June and July of 2000. Interest Income. Interest income was $9.3 million and $4.6 million for the nine months ended September 30, 2000 and 1999, respectively. The increase of $4.7 million over the same period in 1999 was due primarily to larger cash and cash equivalents and short-term investment balances due to the $450 million senior subordinated notes offering in July of 2000. 25 Three months ended September 30, 2000 compared to three months ended September 30, 1999 Subscribers. Net additions were 85,562 and 44,753 for the three months ended September 30, 2000 and 1999, respectively. Total PCS subscribers were 405,444 and 75,723 as of September 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 20 additional markets from the period October 1, 1999 to September 30, 2000. Revenue. Revenue for the quarter ended September 30, 2000 was $91.9 million compared to $26.8 million. Service revenue was $64.3 million and $12.7 million for the three months ended September 30, 2000 and 1999, respectively. The increase in service revenue of $51.6 million was due primarily to the addition of approximately 330,000 subscribers from October 1, 1999 to September 30, 2000 and the launch of 20 additional markets. Roaming revenue was $18.3 million and $9.5 million for the three months ended September 30, 2000 and 1999, respectively. The increase in roaming revenue of $8.8 million was due primarily to the construction of 608 cell sites in conjunction with the launching of 20 additional markets between October 1, 1999 and September 30, 2000. Equipment revenue was $9.3 million and $4.7 million for the three months ended September 30, 2000 and 1999, respectively. The equipment revenue increase of $4.6 million over the same period in 1999 was due primarily to the sale of handsets and related accessories in connection with the significantly increased gross additions in the three month period ended September 30, 2000. Costs of revenue. Cost of revenue was $27.5 million and $13.0 million for the three months ended September 30, 2000 and 1999, respectively. The increase in cost of revenue of $14.5 million over the same period in 1999 was due primarily to additional roaming expenses in connection with the Company's increased subscriber base and increases in equipment costs due to significantly increased gross additions in the first nine months of 2000. Operations and development. Operations and development costs were $14.0 million and $10.4 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $3.6 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 $43.7 million and $18.8 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $24.9 million over the same period in 1999 was primarily due to the cost of acquiring the significantly increased gross additions in the three months ended September 30, 2000 associated with the increased market base in 2000, including advertising and promotion costs, commissions and the excess cost of handsets over the retail price. General and administrative. General and administrative expenses were $31.4 million and $16.5 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $14.9 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, as well as $3.0 million in non-cash stock compensation. Depreciation and amortization. Depreciation and amortization expenses were $32.4 million and $18.3 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $14.1 million over the same period in 1999 relates primarily to depreciation of the Company's fixed assets as well as the amortization on its PCS licenses and the AT&T operating agreements related to the Company's markets launched between October 1, 1999 and September 30, 2000. Interest expense. Interest expense was $29.7 million, net of capitalized interest of $0.9 million, for the three months ended September 30, 2000. Interest expense was $17.3 million, net of capitalized interest of $0.3 million, for the three months ended September 30, 1999. The increase of $12.4 million over the same period in 1999 relates primarily to interest expense on the Company's $450 million 10 5/8 senior subordinated notes which were issued in July of 2000 and an additional $100 million traunche A term loan of the senior credit facility borrowed in June and July of 2000. 26 Interest income. Interest income was $5.4 million and $1.7 million for the three months ended September 30, 2000 and 1999, respectively. The increase of $3.7 million over the same period in 1999 was due primarily to larger cash and cash equivalents and short-term investment balances due to the $450 million senior subordinated notes offering in July of 2000. Liquidity and capital resources
December 31, September 30, 1999 2000 ------------ ------------- ($ in thousands) Cash and cash equivalents and short-term investments................................... $182,330 $444,967 Working capital................................ $ 94,082 $274 884 Current assets to current liabilities.......... 1.72 2.14 Debt to total capitalization................... 0.79 0.97
Cash and cash equivalents totaled approximately $317.5 million at September 30, 2000, as compared to approximately $182.3 million at December 31, 1999. This net increase was the result of $99.1 million of cash used in operating activities and $409.5 million of cash used in investing activities, offset by cash provided by financing activities of $643.8 million during the nine months ended September 30, 2000. Cash used in operating activities resulted from a net loss of $249.9 million that was partially offset by non- cash charges of $158.6 million. Cash used in investing activities resulted primarily from cash outlays for capital expenditures, required for the development and construction of our network, of $234.1 million, purchases of short term investments of $130.7 million, and Black Label Wireless, Inc. costs of $27.9 million. Cash provided by financing activities consisted primarily of proceeds from long term debt of $550.0 million, proceeds from the sale of common stock to AT&T of $41.9 million, and receipt of preferred stock subscriptions receivable of $37.7 million. At September 30, 2000, the Company had available bank and vendor credit facilities of $456 million. During the same period ended September 30, 1999, the Company had a net decrease in cash of $31.3 million as a result of $88.7 million of cash used in operating activities and $376.5 million of cash used in investing activities, offset by cash provided by financing activities of $433.9 million. Cash used in operating activities resulted from a net loss of $144.1 million that was partially offset by non-cash charges of $56.8 million. Cash used in investing activities resulted primarily from cash outlays for capital expenditures required for the development and construction of our network of $245.5 million, purchases on PCS licenses of $72.4 million and deposits of PCS licenses of $43.6 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 $64.5 million, respectively, offset partially by payments on long term debt of $40.2 million. 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 currently evaluating the full impact of this statement to determine the impact on its financial position and results of operations. 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. 27 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates which could impact results of operations. The Company manages interest rate risk through a combination of fixed and variable rate debt. At September 30, 2000 the Company had the following debt instruments outstanding: . $450.0 million of 10 5/8% senior subordinated notes, due 2010; . $100 million of tranche A and $225 million of tranche B notes under the Company's Senior Credit facility, which carried a weighted average rate of 8.84% and 9.12%, respectively; . $385.5 million carrying value ($575 million at maturity) of the 11 5/8% senior subordinated discount notes, due 2009; . $21.6 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% ($19.1 million discounted); . $46.6 million of vendor financing debt which carried a rate of 8.5%. . $29.7 million of debt under the Black Label Wireless, Inc. credit agreement which carried a rate of 8.6%. The Company's senior subordinated notes, 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, the Company's tranche A and tranche B term loans outstanding under the senior credit facility and other amounts available to the Company under its senior credit facility agreements and the Black Label Wireless, Inc. credit agreement are variable interest rate debt securities. The Company uses interest rate swaps to hedge the effects of fluctuations in interest rates on its senior credit facilities. These transactions meet the requirements for hedge accounting, including designation and correlation. These interest rate swaps are managed in accordance with the Company's policies and procedures. The Company 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 September 30, 2000, the Company had entered into six interest rate swap agreements totaling $225 million to convert the Company's variable rate debt to fixed rate debt. The interest rate swaps had no material impact on the Company's consolidated financial statements as of and for the year ended December 31, 1999 or as of and for the nine months ended September 30, 2000. 28 The following table provides information about our market risk exposure associated with the company's variable rate debt at maturity value of the debt and the market risk exposure associated the interest rate swaps at September 30, 2000:
EXPECTED MATURITY ------------------------------------------------------ FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ----- ----- ---- ----- ----- ---------- -------- ------ ($ IN MILLIONS) LIABILITIES: Long-Term Debt: Face value of long-term fixed rate debt (a)... $ 0.3 $ 1.4 $1.6 $ 3.9 $ 4.1 $1,108(b) $1,119.3 $906.9(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.... $ -- $ -- $5.0 $10.0 $25.0 $ 60.0 $ 100.0 $100.0(f) Average interest rate (e)................... 0.0% 0.0% 8.8% 8.8% 8.8% 8.8% Face value of tranche B variable rate debt.... $ -- $ -- $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% Face value of Black La- bel variable rate debt.................. $29.7 $ -- $-- $ -- $ -- $ -- $ 29.7 $ -- Average interest rate.. 8.6% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 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% -- --
- -------- (a) Fixed rate debt consists of the FCC government debt, 11 5/8% senior subordinated discount notes, 10 5/8% senior subordinated notes, and vendor financing. (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, the Company assumes 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 million of 11 5/8% senior subordinated discount notes in 2009, $450 million of 10 5/8% senior subordinated notes in 2010 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 $19.1 million, (2) the carrying value of the vendor financing of $46.6 million, (3) the $386.7 million market value of the 11 5/8% senior subordinated discount notes as of September 30, 2000 priced at 11.6%, and (4) the $454.5 million market value of the 10 5/8 senior subordinated notes priced at a 1% premium on September 30, 2000. (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 September 30, 2000. (f) The fair value of variable rate debt instruments is expected to approximate carrying value. (g) Represents the total notional amount of the six swap agreements related to the tranche B senior credit facility. (h) The average pay rate and average receive rate are based on the September 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. The Company is 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. The Company believes that the impact of a 10% increase or decline in current interest rates would not be material to its investment income. The Company is not exposed to fluctuations in currency exchange rates since its operations are entirely within the United States and its territories and all of the Company's services are invoiced in U.S. dollars. 29 Part II--Other Information Item 6. Exhibits
Exhibit No. Description ----------- ----------- 3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.1.2 Certificate of Amendment of Certificate of Incorporation of TeleCorp PCS, Inc. changing the name of TeleCorp PCS, Inc. to TeleCorp Wireless, Inc. 3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc. 3.1.4* Certificate of Amendment of the Certificate of Incorporation of TeleCorp Operating Company, Inc. changing the name of TeleCorp Operating Company, Inc. to TeleCorp Communications, Inc. 3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company. 3.1.6*** Certificate of Amendment of Certificate of Incorporation of TeleCorp-Tritel Holding Company changing the name of TeleCorp- Tritel Holding Company to TeleCorp PCS, Inc. 3.2.1 By-Laws of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). 3.2.3* By-Laws of TeleCorp Communications, Inc. 4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T Wireless, PCS, LLC, Cash Equity Investors, Management Stockholders, Other Stockholders and TeleCorp PCS, Inc. 10.1**** Commitment Letter, dated July 14, 2000, between Lucent Technologies Inc. and TeleCorp-Tritel Holding Company related to Senior Subordinated Discount Notes Due 2010. 10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., the financial institutions from time to time parties thereto, as Lenders, and Lucent Technologies Inc., as Agent for the Lenders. 10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent Technologies Inc., as Lender. 10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal Communication Systems and Services, dated as of July 1, 2000, between TeleCorp PCS, Inc. and Lucent Technologies Inc. 10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase Manhattan Bank. 10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc.
30
Exhibit No. Description ----------- ----------- 10.7***** 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. 10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 27.1 Financial Data Schedule
- -------- * Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. ** Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). *** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp-Tritel Holding Company) Current Report on Form 8-K filed on November 13, 2000. **** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000. ***** Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TeleCorp Wireless, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, President, Treasurer, and Secretary (as a duly authorized officer and principal financial officer) Former Subsidiary TeleCorp PCS, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, Executive Vice President-Chief Financial Officer (as a duly authorized officer and principal financial officer) Subsidiary TeleCorp Communications, Inc. /s/ Thomas H. Sullivan Dated: November 14, 2000 By: _________________________________ Thomas H. Sullivan, President, Secretary and Treasurer (as a duly authorized officer and principal financial officer) 32 EXHIBIT INDEX - ------------- Exhibit No. Description - ----------- ----------- 3.1.1 Amended and Restated Certificate of Incorporation of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.1.2 Certificate of Amendment of Certificate of Incorporation of TeleCorp PCS, Inc. changing the name of TeleCorp PCS, Inc. to TeleCorp Wireless, Inc. 3.1.3* Certificate of Incorporation of TeleCorp Operating Company, Inc. 3.1.4* Certificate of Amendment of the Certificate of Incorporation of TeleCorp Operating Company, Inc. changing the name of TeleCorp Operating Company, Inc. to TeleCorp Communications, Inc. 3.1.5** Certificate of Incorporation of TeleCorp-Tritel Holding Company. 3.1.6*** Certificate of Amendment of Certificate of Incorporation of TeleCorp- Tritel Holding Company changing the name of TeleCorp-Tritel Holding Company to TeleCorp PCS, Inc. 3.2.1 Third Amended and Restated By-Laws of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.). 3.2.2** Amended and Restated By-Laws of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). 3.2.3* By-Laws of TeleCorp Communications, Inc. 4.1**** Indenture, dated as of July 14, 2000, among TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 4.2*** Stockholders' Agreement, dated as of November 13, 2000, among AT&T Wireless, PCS, LLC, Cash Equity Investors, Management Stockholders, Other Stockholders and TeleCorp PCS, Inc. 10.1**** Commitment Letter, dated July 14, 2000, between Lucent Technologies Inc. and TeleCorp-Tritel Holding Company related to Senior Subordinated Discount Notes Due 2010. 10.2**** Credit Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., the financial institutions from time to time parties thereto, as Lenders, and Lucent Technologies Inc., as Agent for the Lenders. 10.3**** Letter Agreement, dated as of July 14, 2000, among Black Label Wireless, Inc., Lucent Technologies Inc., as Agent and Lucent Technologies Inc., as Lender. 10.4***** Amendment No. 8 to the General Agreement for Purchase of Personal Communication Systems and Services, dated as of July 1, 2000, between TeleCorp PCS, Inc. and Lucent Technologies Inc. 10.5***** Tenth Amendment, dated as of July 17, 2000, to the TeleCorp Credit Agreement, among TeleCorp PCS, Inc., the Lenders and The Chase Manhattan Bank. 10.6* Purchase Agreement, dated July 11, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc. and TeleCorp Communications, Inc. 10.7***** 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. 10.8***** Exchange and Registration Rights Agreement, dated July 14, 2000, among Chase Securities, Inc., Lehman Brothers Inc., Deutsche Banc Securities, Inc., TeleCorp PCS, Inc., TeleCorp Communications, Inc. and Bankers Trust Company, as Trustee. 27.1 Financial Data Schedule. _______________________________________________________ * Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-81313) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. ** Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-49792) of TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.). *** Incorporated by reference to the TeleCorp PCS, Inc. (f/k/a TeleCorp- Tritel Holding Company) Current Report on Form 8-K filed on November 13, 2000. **** Incorporated by reference to the TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp-Tritel Holding Company (renamed TeleCorp PCS, Inc.) Quarterly Report filed on Form 10-Q on August 11, 2000. ***** Incorporated by reference to the Registration Statement on Form S-4 (File No. 333-43596) of TeleCorp PCS, Inc. (renamed TeleCorp Wireless, Inc.) and TeleCorp Communications, Inc. EX-3.1.1 2 0002.txt EXHIBIT 3.1.1 Exhibit 3.1.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TELECORP PCS, INC. _____________________________________________ ARTICLE I The name of the Corporation is TeleCorp PCS, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801, in the County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. Without limiting in any manner the scope and generality of the foregoing, it is hereby provided that the Corporation shall have the following purposes, objects and powers: A. To develop, own and operate telecommunications networks. B. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. C. To do any and all things necessary, suitable or proper for the accomplishment or attainment of any of the purposes, objects or powers hereinbefore set forth, either alone or in association or partnership with other corporations, partnerships, firms or individuals, and to do -4- every other act or acts, and thing or things incidental or appurtenant to or growing out of or connected with the aforesaid businesses or powers or any part or parts thereof, provided the same be not inconsistent with the laws under which the Corporation is organized. The business or purpose of the Corporation is from time to time to do any one or more of the acts or things hereinabove set forth, and it shall have the power to conduct and carry on its said business, or any part thereof, and to have one or more offices and to exercise any or all the corporate powers and rights, in the State of Delaware, and in the various other states, territories, possessions and dependencies of the United States and the District of Columbia, and in all other or any foreign countries. The enumeration herein of the objects or purposes of the Corporation shall be construed as powers as well as objects and purposes and shall not be deemed to exclude by inference any powers, objects or purposes which the Corporation has the power to exercise, whether expressly or by force under the laws of the State of Delaware now or hereafter in effect, or impliedly by the reasonable construction of said laws. ARTICLE IV The total number of shares of stock which this Corporation shall have authority to issue is 3,000 shares of Common Stock par value $0.01 per share. Each share of Common Stock of the Corporation shall have one vote for all corporate purposes, with no cumulative voting rights, and shall have equal rights on liquidation, corporate dividends and distributions and for all other corporate purposes. ARTICLE V The number of directors of the Corporation shall be fixed and may be increased or decreased from time to time by the Board of Directors, but in no case shall the number be less than one nor more than fifteen. -5- ARTICLE VI A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: (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 General Corporation Law of Delaware; or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law of Delaware is amended after the filing of this Certificate of Incorporation to authorize corporate action eliminating or limiting the personal liability of directors, then the liability of the directors of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. A director or a former director of the Corporation shall be entitled to indemnification to the fullest extent provided by the laws of the State of Delaware as amended from time-to-time. Any repeal or modification of the foregoing paragraphs by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE VII Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of the General Corporation Law of Delaware, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the General Corporation Law of Delaware order a meeting of the creditors or class of creditors, and/or of the stockholders of this Corporation, as the case may be, to be summoned in such manner as said -6- court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors and/or on all the stockholders of this Corporation, as the case may be, and also on this Corporation. -7- EX-3.1.2 3 0003.txt EXHIBIT 3.1.2 Exhibit 3.1.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TELECORP PCS, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is TeleCorp PCS, Inc. 2. Article FIRST is hereby amended to change the name of the Corporation to TeleCorp Wireless, Inc. by striking out Article FIRST thereof and by substituting in lieu of said Article the following new Article: "ARTICLE I The name of the Corporation is TeleCorp Wireless, Inc." 3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. 4. This Certificate of Amendment of Certificate of Incorporation shall be effective as of 4:03 p.m. Eastern Standard Time, on November 13, 2000. Signed this 31st day of October, 2000. TELECORP PCS, INC. ________________________________ By: Thomas H. Sullivan Its: Executive Vice President EX-3.2.1 4 0004.txt EXHIBIT 3.2.1 Exhibit 3.2.1 ================================================================================ BYLAWS OF TTHC FIRST MERGER SUB, INC. ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I OFFICES Section 1.1 Registered Office........................................... 1 Section 1.2 Other Offices............................................... 1 ARTICLE II MEETING OF STOCKHOLDERS Section 2.1 Time and Place.............................................. 1 Section 2.2 Annual Meeting.............................................. 2 Section 2.3 Special Meetings of Stockholders............................ 2 Section 2.4 Notice of Meetings.......................................... 2 Section 2.5 Quorum and Adjournment of Meetings.......................... 2 Section 2.6 Vote Required............................................... 3 Section 2.7 Voting...................................................... 3 Section 2.8 Proxies..................................................... 4 Section 2.9 Consents.................................................... 4 ARTICLE III DIRECTORS Section 3.1 Board of Directors.......................................... 5 Section 3.2 Number, Terms and Election of Directors..................... 5 Section 3.3 Resignation and Removal..................................... 5 Section 3.4 Vacancies................................................... 6 Section 3.5 Compensation................................................ 6 ARTICLE IV MEETINGS OF THE BOARD Section 4.1 Time and Place.............................................. 6 Section 4.2 Annual Meeting.............................................. 6 Section 4.3 Regular Meetings............................................ 7 Section 4.4 Special Meetings............................................ 7 -i- Section 4.5 Quorum and Voting........................................... 7 Section 4.6 Consents.................................................... 7 Section 4.7 Telephonic Meetings of Directors............................ 8 ARTICLE V COMMITTEES OF THE BOARD Section 5.1 Designation and Powers...................................... 8 ARTICLE VI NOTICES Section 6.1 Delivery of Notices......................................... 8 Section 6.2 Waiver of Notice............................................ 9 ARTICLE VII OFFICERS Section 7.1 Executive Officers.......................................... 9 Section 7.2 Other Officers and Agents................................... 9 Section 7.3 Tenure; Resignation; Removal; Vacancies..................... 10 Section 7.4 Compensation................................................ 10 Section 7.5 Authority and Duties........................................ 10 Section 7.6 Chairman of the Board....................................... 11 Section 7.7 President................................................... 11 Section 7.8 The Vice President(s)....................................... 11 Section 7.9 The Treasurer............................................... 12 Section 7.10 The Secretary............................................... 12 ARTICLE VIII CERTIFICATES OF STOCK Section 8.1 Form and Signature.......................................... 13 Section 8.2 Lost or Destroyed Certificates.............................. 13 Section 8.3 Registration of Transfer.................................... 14 ARTICLE IX GENERAL PROVISIONS Section 9.1 Record Date................................................. 14 Section 9.2 Registered Stockholders..................................... 14 -ii- Section 9.3 Dividends................................................... 15 Section 9.4 Checks and Notes............................................ 15 Section 9.5 Fiscal Year................................................. 15 Section 9.6 Voting of Securities of Other Corporations.................. 15 Section 9.7 Transfer Agent.............................................. 15 Section 9.8 Corporate Seal.............................................. 16 ARTICLE X INDEMNIFICATION Section 10.1 Indemnification............................................. 16 ARTICLE XI AMENDMENTS Section 11.1 By the Stockholders........................................ 20 Section 11.2 By the Board of Directors.................................. 20 -iii- BY-LAWS OF TTHC FIRST MERGER SUB, INC. Article I. OFFICES Section 1.1 Registered Office. The registered office of TeleCorp- ----------------- Tritel Holding Company (hereinafter called the "Corporation") in the State of Delaware shall be The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801, and the registered agent in charge thereof shall be The Corporation Trust Company. Section 1.2 Other Offices. In addition to its registered office in ------------- the State of Delaware, the Corporation may have an office or offices in such other places as the Board of Directors (the "Board") may from time to time designate or the business of the Corporation may require. The corporate headquarters of the Corporation shall be initially located in Arlington, Virginia. Article II. MEETING OF STOCKHOLDERS ----------------------- Section 2.1 Time and Place. All meetings of the stockholders of the -------------- Corporation shall be held at such time and place, either within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2 Annual Meeting. The annual meeting of stockholders of the -------------- Corporation shall be held at such date, time and place, either within or without the State of Delaware, as shall be determined by the Board and stated in the notice of meeting. Section 2.3 Special Meetings of Stockholders. Special meetings of -------------------------------- stockholders for any purpose or purposes if not otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Board, the Chairman of the Board, or the Secretary and shall be called by the President or Secretary at the request of stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at a meeting of stockholders. Such request shall state the purpose or purposes of the proposed meeting. The time of any such special meeting shall be fixed by the officer calling the meeting and shall be stated in the notice of such meeting, which notice shall specify the purpose or purposes thereof. Business transacted at any special meeting shall be confined to the purposes stated in the notice of meeting and matters germane thereto. Section 2.4 Notice of Meetings. Notice of the time and place of ------------------ every annual or special meeting of the stockholders shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting, in the manner prescribed by Section 6.1 of these By-Laws, except that where the matter to be acted upon is a merger or consolidation of the Corporation, or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty nor more than sixty days prior to such meeting. Section 2.5 Quorum and Adjournment of Meetings. The holders of a ---------------------------------- majority of the shares of capital stock issued and outstanding and entitled to vote thereat, present -2- in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by the Certificate of Incorporation. If a majority shall not be present in person or represented by proxy at any meeting of the stockholders at which action is to be taken by the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time without notice other than announcement at the meeting, until holders of the requisite number of shares of stock entitled to vote shall be present or represented by proxy. At such adjourned meeting at which such holders of the requisite number of shares of capital stock shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 2.6 Vote Required. At any meeting of stockholders, directors ------------- shall be elected by a plurality of votes, and all other matters shall be decided by a majority of votes, cast by the stockholders present in person or represented by proxy and entitled to vote, unless the matter is one for which, by express provisions of statute, of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the determination of such matter. Section 2.7 Voting. At any meeting of the stockholders, each ------ stockholder having the right to vote shall be entitled to vote in person or by proxy. To determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board may fix, in advance, a record date which shall be not more than -3- sixty days nor less than ten days before the date of such meeting. Except as otherwise provided by the Certificate of Incorporation or by statute, each stockholder of record shall be entitled to one vote for each outstanding share of capital stock standing in his or her name on the books of the Corporation as of the record date. A complete list of the stockholders entitled to vote at any meeting of stockholders arranged in alphabetical order with the address of each and the number of shares held by each, shall be prepared by the Secretary. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting during ordinary business hours for a period of at least ten days prior to the meeting, at the locations specified by the Delaware General Corporation Law. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.8 Proxies. Each proxy shall be in writing executed by the ------- stockholder giving the proxy or his or her duly authorized attorney. No proxy shall be valid after the expiration of three years from its date, unless a longer period is provided for in the proxy. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or his or her legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given. Section 2.9 Consents. The provision of these By-Laws covering notices -------- and meetings to the contrary notwithstanding, any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would have been necessary to authorize or take such action at a meeting at which all shares of stock entitled to -4- vote thereon were present and voted. Where corporate action is taken in such manner by less than unanimous written consent, prompt written notice of the taking of such action shall be given to all stockholders who have not consented in writing thereto and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting. Article III. DIRECTORS --------- Section 3.1 Board of Directors. The business and affairs of the ------------------ Corporation shall be managed by a Board of Directors. The Board may exercise all such powers of the Corporation and do all such lawful acts and things on its behalf as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 3.2 Number, Election and Tenure. The number of directors --------------------------- shall be fixed initially by the incorporator of the Corporation and thereafter such number may be increased from time to time by the stockholders or by the Board or may be decreased by the stockholders, provided that no decrease in the -------- number of directors shall shorten the term of any incumbent director. Except as provided by law or these By-Laws, directors shall be elected each year at the annual meeting of stockholders next succeeding his or her election until his or her successor is elected and has qualified or until his or her earlier resignation or removal. Section 3.3 Resignation and Removal. A director may resign at any ----------------------- time by giving written notice to the Board or to the President of the Corporation. Such resignation shall take effect upon receipt thereof by the Board or by the President, unless otherwise specified therein. Any one or more of the directors may be removed, either with or without cause, at any -5- time by the affirmative vote of a majority of the stockholders at any special meeting of the stockholders called for such purpose. Section 3.4 Vacancies. A vacancy occurring for any reason and newly --------- created directorships resulting from an increase in the authorized number of directors may be filled by the vote of a majority of the directors then in office, although less than a quorum, or by the sole remaining director, or by the stockholders. Section 3.5 Compensation. Each director shall receive for services ------------ rendered as a director of the Corporation such compensation as may be fixed by the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Article IV. MEETINGS OF THE BOARD --------------------- Section 4.1 Time and Place. Meetings of the Board shall be held at -------------- such places, within or without the State of Delaware, and within or without the United States of America, as shall be determined in accordance with these By- Laws. Section 4.2 Annual Meeting. Immediately after and at the place of the -------------- annual meeting of the stockholders, or at such other place as the Board may designate, a meeting of the newly elected Board for the purpose of organization and the election of officers and otherwise may be held. Such meeting may be held without notice. -6- Section 4.3 Regular Meetings. Regular meetings of the Board may be ---------------- held without notice, at such time and place as shall, from time to time, be determined by the Board of Directors. Section 4.4 Special Meetings. Special meetings of the Board of ---------------- Directors may be held at any time and place as shall be determined by resolution of the Board or upon the call of the Chairman, the President, the Secretary, or any member of the Board on two days' notice to each director by mail or on one day's notice personally or by telecopy, telephone or telegraph. Meetings of the Board may be held at any time without notice if all the directors are present, or if those not present waive notice of the meeting in writing, either before or after the meeting. Section 4.5 Quorum and Voting. A majority of the entire Board shall ----------------- constitute a quorum at any meeting of the Board of Directors and the act of a majority of the directors shall be the act of the Board, except as may otherwise be specifically provided by law, the Certificate of Incorporation or by these By-Laws. If at any meeting of the Board there shall be less than a quorum present, the director or directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall have been obtained. Section 4.6 Consents. Any action required or permitted to be taken at -------- any meeting of the Board may be taken without a meeting if all members of the Board consent to such action in writing, and such writing or writings are filed with the minutes of the proceedings of the Board. -7- Section 4.7 Telephonic Meetings of Directors. The Board may -------------------------------- participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at such meeting. Article V. COMMITTEES OF THE BOARD ----------------------- Section 5.1 Designation and Powers. The Board may in its discretion ---------------------- designate one or more committees. Each committee shall consist of one or more of the directors of the Corporation. Such committee or committees shall have duties and powers not inconsistent with the laws of the State of Delaware, the Certificate of Incorporation, these By-Laws, and the respective resolution or resolutions of the Board. Article VI. NOTICES ------- Section 6.1 Delivery of Notices. Notices to directors and ------------------- stockholders shall be in writing and may be delivered personally or by mail. Notice by mail shall be deemed to be given at the time when deposited in the United States mail, postage prepaid, and addressed to directors or stockholders at their respective addresses appearing on the books of the Corporation, unless any such director or stockholder shall have filed with the Secretary of the Corporation a written request that notices intended for him or her be mailed or delivered to some other address, in which case the notice shall be mailed to or delivered at the address designated in such request. Notice to directors may also be given by telegram or by telecopy. -8- Section 6.2 Waiver of Notice. Whenever notice is required to be given ---------------- by statute, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a person at a meeting of stockholders, directors or any committee of directors, as the case may be, shall constitute a waiver of notice of such meeting, except where the person is attending for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders, directors or committee of directors need be specified in any written waiver of notice. Article VII. OFFICERS -------- Section 7.1 Executive Officers. At the annual meeting of directors ------------------ the Board shall elect a Chairman of the Board, President, Secretary and Treasurer and may elect one or more Vice Presidents, Assistant Secretaries or Assistant Treasurers and such other officers as the Board may from time to time designate or the business of the Corporation may require. Except for the Chairman of the Board, no executive officer need be a member of the Board. Any number of offices may be held by the same person, except that the office of Secretary may not be held by the Chairman of the Board or the President. Section 7.2 Other Officers and Agents. The Board may also elect such ------------------------- other officers and agents as the Board of Directors may at any time or from time to time determine to -9- be advisable, such officers and such agents to serve for such terms and to exercise such powers and perform such duties as shall be specified at any time or from time to time by the Board. Section 7.3 Tenure; Resignation; Removal; Vacancies. Each officer of --------------------------------------- the Corporation shall hold office until his or her successor is elected and qualified, or until his or her earlier resignation or removal; provided, that if -------- the term of office of any officer elected or appointed pursuant to Section 7.2 of these By-Laws shall have been fixed by the Board, he or she shall cease to hold such office no later than the date of expiration of such term regardless of whether any other person shall have been elected or appointed to succeed him or her. Any officer elected by the Board may be removed at any time, with or without cause, by the Board, provided, that any such removal shall be without -------- prejudice to the rights, if any, of the officer so employed under any employment contract or other agreement with the Corporation. An officer may resign at any time upon written notice to the Board. If the office of any officer becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the Board may choose a successor or successors to hold office for such term as may be specified by the Board. Section 7.4 Compensation. Except as otherwise provided by these ------------ By-Laws, the salaries of all officers and agents of the Corporation appointed by the Board shall be fixed by the Board. Section 7.5 Authority and Duties. All officers as between themselves -------------------- and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these By-Laws. In addition to the powers and duties hereinafter specifically prescribed for the respective officers, the Board may from time to time -10- impose or confer upon any of the officers such additional duties and powers as the Board may see fit, and the Board may from time to time impose or confer any or all of the duties and powers hereinafter specifically prescribed for any officer upon any other officer or officers. Section 7.6 Chairman of the Board. The Chairman of the Board, who --------------------- shall be a director, shall preside at all meetings of the stockholders and at all meetings of the Board. As director, he or she shall perform such other duties as may be assigned from time to time by the Board. Section 7.7 President. The President shall be the chief executive --------- officer of the Corporation. He or she shall perform such duties as may be assigned to him or her by the Board, and in the event of disability or absence of the Chairman of the Board, perform the duties of the Chairman of the Board, including presiding at meetings of stockholders and directors. He or she shall from time to time report to the Board all matters within his or her knowledge which the interest of the Corporation may require to be brought to their notice, and shall also have such other powers and perform such other duties as may be specifically assigned to him or her from time to time by the Board. The President shall see that all resolutions and orders of the Board are carried into effect, and in connection with the foregoing, shall be authorized to delegate to the Vice President and the other officers such of his or her powers and such of his or her duties as he or she may deem to be advisable. Section 7.8 The Vice President(s). The Vice President, or if there --------------------- be more than one, the Vice Presidents, shall perform such duties as may be assigned to them from time to time by the Board or as may be designated by the President. In case of the absence or disability of the President the duties of the office shall, if the Board or the President has so authorized, be -11- performed by the Vice President, or if there be more than one Vice President, by such Vice President as the Board or President shall designate. Section 7.9 The Treasurer. The Treasurer shall have the custody of the ------------- corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board or by any officer of the Corporation authorized by the Board to make such designation. The Treasurer shall exercise such powers and perform such duties as generally pertain or are necessarily incident to his or her office and shall perform such other duties as may be specifically assigned to him or her from time to time by the Board or by the President or any Vice President. Section 7.10 The Secretary. The Secretary shall attend all meetings ------------- of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for any committee when required. He or she shall give, or cause to be given, notice of all meetings of the stockholders and, when necessary, of the Board. The Secretary shall exercise such powers and perform such duties as generally pertain or are necessarily incident to his or her office and he or she shall perform such other duties as may be assigned to him or her from time to time by the Board, the President or by any Vice President. -12- Article VIII. CERTIFICATES OF STOCK --------------------- Section 8.1 Form and Signature. The certificates of stock of the ------------------ Corporation shall be in such form or forms not inconsistent with the Certificate of Incorporation as the Board shall approve. They shall be numbered, the certificates for the shares of stock of each class to be numbered consecutively, and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman of the Board, the President or a Vice President and the Treasurer (or any Assistant Treasurer) or the Secretary (or any Assistant Secretary); provided, however, that where any such certificate is signed by a transfer agent - -------- or an assistant transfer agent, or by a transfer clerk acting on behalf of the Corporation, and registered by a registrar, the signature of any such President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, may be a facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on any such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation, removal or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, had not ceased to be such officer or officers of the Corporation. Section 8.2 Lost or Destroyed Certificates. The Board may direct a new ------------------------------ certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate or stock to be lost or destroyed. When authorizing -13- such issue of a new certificate or certificates, the Board may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representatives, to advertise the same in such manner as it shall require, and to give a bond in such sum as the Board may direct, indemnifying the Corporation, any transfer agent and any registrar against any claim that may be made against them or any of them with respect to the certificate alleged to have been lost or destroyed. Section 8.3 Registration of Transfer. Upon surrender to the ------------------------ Corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction on its books. Article IX. GENERAL PROVISIONS ------------------ Section 9.1 Record Date. In order that the Corporation may determine ----------- the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Section 9.2 Registered Stockholders. The Corporation shall be ----------------------- entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and -14- accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. Section 9.3 Dividends. Dividends upon the capital stock of the --------- Corporation shall in the discretion of the Board from time to time be declared by the Board out of funds legally available therefor after setting aside of proper reserves. Section 9.4 Checks and Notes. All checks and drafts on the bank ---------------- accounts of the Corporation, all bills of exchange and promissory notes of the Corporation, and all acceptances, obligations and other instruments for the payment of money drawn, signed or accepted by the Corporation, shall be signed or accepted, as the case may be, by such officer or officers, agent or agents as shall be thereunto authorized from time to time by the Board or by officers of the Corporation designated by the Board to make such authorization. Section 9.5 Fiscal Year. The fiscal year of the Corporation shall be ----------- fixed by the Board. Section 9.6 Voting of Securities of Other Corporations. In the event ------------------------------------------ that the Corporation shall at any time own and have power to vote any securities (including but not limited to shares of stock) of any other issuer, such securities shall be voted by such person or persons, to such extent and in such manner, as may be determined by the Board. Section 9.7 Transfer Agent. The Board may make such rules and -------------- regulations as it may deem expedient concerning the issue, transfer and registration of stock. It may appoint -15- one or more transfer agents and one or more registrars and may require all stock certificates to bear the signature of either or both. Section 9.8 Corporate Seal. The corporate seal shall have inscribed -------------- thereon the name of the Corporation and the words "Corporate Seal, Delaware". Article X. INDEMNIFICATION --------------- Section 10.1 Indemnification. --------------- (a) Actions, Suits or Proceedings Other Than by or in the Right of -------------------------------------------------------------- the Corporation. The Corporation shall indemnify any current or former ----------- director or officer of the Corporation and may, at the discretion of the Board, indemnify any current or former employee or agent of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise (including employee benefit plans) (funds paid or required to be paid to any person as a result of the provisions of this Section 10.1 shall be returned to the Corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permissible under Delaware law, as then in effect, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement -16- actually and reasonably incurred by such person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of ---- ---------- itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful. (b) Actions or Suits by or in the Right of the Corporation. The ------------------------------------------------------ Corporation shall indemnify any current or former director or officer of the Corporation and may, at the discretion of the Board, indemnify any current or former employee or agent of the Corporation 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 by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, joint venture, trust or other enterprise (including employee benefit plans) (funds paid or required to be paid to any person as a result of the provisions of this Section 10.1 shall be returned to the Corporation or reduced, as the case may be, to the extent that such person receives funds pursuant to an indemnification from any such other corporation, partnership, joint venture, trust or enterprise) to the fullest extent permitted under Delaware law, as then in -17- effect, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if he or she acted in good faith and in a manner he or she 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 of the State of Delaware 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 indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) Indemnification for Expenses of Successful Party. To the ------------------------------------------------ extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraph (a) or (b) of this Section 10.1, or in defense of any claim, issue or matter therein, such person shall be indemnified by the Corporation against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. (d) Determination of Right to Indemnification. Any indemnification ----------------------------------------- under paragraph (a) or (b) of this Section 10.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in paragraphs (a) and (b) of this Section 10.1. Such determination shall be made (1) by the Board by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum or (2) if -18- there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the holders of a majority of the shares of capital stock of the Corporation entitled to vote thereon. (e) Advancement of Expenses. Expenses (including attorneys' fees) ----------------------- incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Section 10.1. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. (f) Other Rights. The indemnification and advancement of expenses ------------ provided by, or granted pursuant to, the other paragraphs of this Section 10.1 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. (g) Insurance. By action of the Board, notwithstanding an interest --------- of the directors in the action, the Corporation may purchase and maintain insurance, in such amounts as the Board deems appropriate, on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent (including trustee) of another corporation, partnership, -19- joint venture, trust or other enterprise (including employee benefit plans), against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation shall have the power to indemnify such person against such liability under the provisions of this Section 10.l. (h) Continuation of Rights to Indemnification. The indemnification ----------------------------------------- and advancement of expenses provided by, or granted pursuant to, this Section 10.1 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (i) Protection of Rights Existing at Time of Repeal or Modification. --------------------------------------------------------------- Any repeal or modification of this Section 10.1 shall not adversely affect any right or protection of an indemnified person existing at the time of such repeal or modification. Article XI. AMENDMENTS ---------- Section 11.1 By the Stockholders. These By-Laws may be altered, ------------------- amended or repealed in whole or in part, and new By-Laws may be adopted, by the affirmative vote of the holders of a majority of the shares of capital stock issued and outstanding and entitled to vote at any annual or special meeting of the stockholders, if notice thereof shall be contained in the notice of the meeting. Section 11.2 By the Board of Directors. These By-Laws may be altered, ------------------------- amended or repealed by the Board at any regular or special meeting of the Board if notice thereof shall be contained in the notice of the meeting. -20- EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. ($ IN '000'S EXCEPT PER SHARE DATA.) 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.00 0.00
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