-----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, G6sn/KBmt085wjngxj72vzG9pnlpd4Rym6b/37ROByMi37vY/wLfSAMpfJ00Qvly /OJKyqdm+nOqgr15vUWyGQ== 0000950130-99-006530.txt : 19991117 0000950130-99-006530.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950130-99-006530 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP PCS INC CENTRAL INDEX KEY: 0001089341 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [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: 99756822 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELECORP COMMUNICATIONS INC CENTRAL INDEX KEY: 0001092935 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 522105807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-81313-01 FILM NUMBER: 99756823 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ________ TO _______. Commission File number: 000-27901 ------------- TeleCorp PCS, Inc. (Exact name of registrant as specified in its charter) Delaware 54-1872248 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) and the following subsidiary: TeleCorp Communications, Inc. (Exact name of registrant as specified in its charter) Delaware 52-2105807 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) ____________________ 1010 N. Glebe Road, Suite 800 Arlington, VA 22201 (703) 236-1100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____ No X ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 15, 1999, the outstanding shares of each class of common stock are as follows: Class A Common Stock, $.01 par value per share 73,873,889 Class B Common Stock, $.01 par value per share 0 Class C Common Stock, $.01 par value per share 283,813 Class D Common Stock, $.01 par value per share 851,429 Voting Preference Common Stock, $.01 par value per share 3,090 (TeleCorp Communications, Inc. is a direct, wholly-owned subsidiary of TeleCorp PCS, Inc.) This Form 10-Q, future filings of the registrant, press releases of the registrant, and oral statements made with the approval of an authorized executive officer of the Company may contain forward looking statements. In connection therewith, please see the cautionary statements and risk factors contained in Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward Looking Statements; Risk Factors" and elsewhere in this report which identify important factors which could cause actual results to differ materially from those in any such forward-looking statements. Index
Page ------ PART I. Financial Information Item 1. Financial Statements ......................................................... 1 Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999 (unaudited)......................................................... 1 Consolidated Statements of Operations for the Three and Nine Months ended , September 30 1998 (unaudited) and September 30, 1999 (unaudited)...................... 2 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 1998 (unaudited) and September 30, 1999 (unaudited)...................... 3 Notes to Consolidated Financial Statements ............................................ 4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations ................................................................... 21 PART II. Other Information Item 2 Changes in Securities......................................................... 32 Item 4 Submission of Matters to Vote of Security Holders............................. 32 Item 6 Exhibits and Report on Form 8-K............................................... 33 INDEX TO EXHIBITS........................................................................ 35
Part I -- Financial Information Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS ASSETS
As of As of September 30, December 31, 1999 Current assets: 1998 (unaudited) ------------------ ------------------ Cash and cash equivalents $ 111,732,841 $ 80,410,108 Accounts receivable, net - 17,852,412 Inventory 778,235 12,125,650 Prepaid expenses 2,185,444 2,268,836 Other current assets 1,218,263 231,747 ------------------ ------------------ Total current assets 115,914,783 112,888,753 Property and equipment, net 197,468,622 347,348,394 PCS licenses and microwave relocation costs 118,107,256 235,759,502 Intangible assets - AT&T agreements and other, net 26,285,612 39,696,161 Deferred financing costs, net 8,584,753 18,384,404 Other assets 283,006 705,964 ------------------ ------------------ Total assets $ 466,644,032 $ 754,783,178 ================== ================== LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 14,591,922 $ 21,962,774 Accrued expenses 94,872,262 38,794,385 Microwave relocation obligation, current portion 6,636,369 5,297,484 Long term debt, current portion - 1,340,378 Accrued interest 4,490,553 3,635,106 Deferred revenue - 1,133,018 ------------------ ------------------ Total current liabilities 120,591,106 72,163,145 Long-term debt 243,385,066 628,409,693 Microwave relocation obligation 2,481,059 2,364,544 Accrued expenses - 5,028,943 Deferred rent 196,063 605,496 ------------------ ------------------ Total liabilities 366,653,294 708,571,821 ------------------ ------------------ Mandatorily redeemable preferred stock, issued 255,999, and 382,478 shares, respectively and outstanding 255,215 and 382,478 shares, respectively (liquidation preference $382,802,874 as of September 30,1999) 240,408,879 353,014,125 Deferred compensation (4,111) (9,482) Treasury stock, 784 and no shares, at cost (8) - Preferred stock subscriptions receivable (75,914,054) (103,000,543) ------------------ ------------------ Total mandatorily redeemable preferred stock, net 164,490,706 250,004,100 ------------------ ------------------ Commitments and contingencies Stockholders' equity (deficit): Series F preferred stock, par value $.01 per share, 10,308,676 and 14,912,778 shares issued and outstanding, respectively (liquidation preference; $443 as of September 30, 1999) 103,087 149,128 Common stock, par value $.01 per share, issued 49,357,658 and 74,973,595 shares respectively, and outstanding 48,805,184 and 74,973,595 shares, respectively 493,576 749,704 Additional paid-in capital - 5,379,062 Deferred compensation (7,177) (801,083) Common stock subscriptions receivable (86,221) (190,991) Treasury stock, 552,474 and no shares, at cost (18) - Accumulated deficit (65,003,215) (209,078,563) ------------------ ------------------ Total stockholders' equity (deficit) (64,499,968) (203,792,743) ------------------ ------------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit) $ 466,644,032 $ 754,783,178 ================== ==================
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the three months ended For the nine months ended September 30 September 30 ---------------------------------- --------------------------------- 1998 1999 1998 1999 ---------------------------------- --------------------------------- Revenue: Service revenue $ - $ 12,704,676 $ - $ 18,937,031 Equipment revenue - 4,672,628 - 10,321,594 Roaming revenue - 9,455,164 - 18,942,080 -------------- -------------- -------------- -------------- Total revenue - 26,832,468 - 48,200,705 -------------- -------------- -------------- -------------- Operating expenses: Cost of revenue - 12,979,848 - 23,086,816 Operations and development 2,930,301 10,426,905 4,144,673 25,925,009 Selling and marketing 1,393,136 18,795,152 2,488,497 39,719,864 General and administrative 7,681,572 16,501,559 15,576,108 38,942,446 Depreciation and amortization 212,608 19,507,679 308,753 35,999,053 -------------- -------------- -------------- -------------- Total operating expenses 12,217,617 78,211,143 22,518,031 163,673,188 -------------- -------------- -------------- -------------- Operating loss (12,217,617) (51,378,675) (21,518,031) (115,472,483) Other (income) expense: Interest expense 4,271,488 16,140,296 5,500,733 33,247,810 Interest income (2,490,238) (1,740,527) (2,630,576) (4,805,133) Other expense 803,416 13,513 23,193 160,188 -------------- -------------- -------------- -------------- Net loss (14,802,283) (65,791,957) (25,411,381) (144,075,348) Accretion of mandatorily redeemable preferred stock (4,026,459) (7,063,918) (4,026,459) (16,959,618) -------------- -------------- -------------- -------------- Net loss attributable to common equity $ (18,828,742) $ (72,855,875) $ (29,437,840) $ (161,034,966) ============== ============== ============== ============== Net loss attributable to common equity par share - basic and diluted $ (0.39) $ (0.88) $ (1.45) $ (2.30) ============== ============== ============== ============== Weighted average common equity shares outstanding-basic and diluted 48,523,467 82,331,434 20,367,373 70,089,141 ============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements 2 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the nine months ended September 30, 1998 1999 ----------------------------------------- Cash flows from operating activities: Net loss $ (25,411,381) $ (144,075,348) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 739,171 34,799,411 Noncash compensation expense associated with the issuance of common stock and preferred stock - - Noncash interest expense 247,900 19,533,603 Allowance for bad debt 1,022,267 Amortization of deferred financing costs 232,398 1,199,642 Amortization of discount on notes payable 142,696 261,796 Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable - (17,923,554) Inventory - (11,347,415) Prepaid expenses (885,463) (83,392) Other current assets (135,573) 997,337 Other assets (210,413) 715,246 Accounts payable 7,831,768 11,137,988 Accrued expenses 7,636,992 15,591,175 Deferred rent 105,388 409,433 Accrued interest 569,409 (946,588) Deferred revenue - 1,133,018 ---------------- ---------------- Net cash used in operating activities (9,137,108) (87,575,383) ---------------- ---------------- Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment (38,599,088) (245,528,171) Capitalized interest on network under development and wireless network - (4,478,356) Expenditures for microwave relocation (1,966,669) (5,678,837) Purchase of PCS licenses (21,000,000) (72,390,417) Deposit on PCS licenses - (43,647,343) Refund of deposit on PCS licenses - 11,361,351 Purchase of intangibles for AT&T agreements - (16,144,725) ---------------- ---------------- Net cash used in investing activities (61,565,757) (376,506,498) ---------------- ---------------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock 14,036,700 64,520,902 Receipt of preferred stock subscription receivable - 3,740,068 Direct issuance costs from sale of mandatorily redeemable preferred stock (1,027,694) (2,500,000) Proceeds from sale of common stock 38,305 21,724,314 Proceeds from long-term debt 255,390,954 397,635,000 Purchases of treasury shares (7) (19) Payments on notes payable (2,072,573) (40,223,611) Payments of deferred financing costs (9,109,677) (10,999,293) Net decrease in amounts due to affiliates (824,164) (1,138,213) ---------------- ---------------- Net cash provided by financing activities 256,431,844 432,759,148 ---------------- ---------------- Net increase in cash and cash equivalents 185,728,979 (31,322,733) Cash and cash equivalents at the beginning of period 2,566,685 111,732,841 ---------------- ---------------- Cash and cash equivalents at the end of period $ 188,295,664 $ 80,410,108 ================ ================
The accompanying notes are an integral part of these consolidated financial statements 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization TeleCorp Holding Corp., Inc. (Holding) was incorporated in the State of Delaware on July 29, 1996 (date of inception). Holding was formed to participate in the Federal Communications Commission's (FCC) Auction of F-Block Personal Communications Services (PCS) licenses (the Auction) in April 1997. Holding successfully obtained licenses in the New Orleans, Memphis, Beaumont, Little Rock, Houston, Tampa, Melbourne and Orlando Basic Trading Areas (BTAs). Holding qualifies as a Designated Entity and Very Small Business under Part 24 of the rules of the FCC applicable to broadband PCS. In April 1997, Holding entered into an agreement to transfer the PCS licenses for the Houston, Tampa, Melbourne and Orlando BTAs to four newly-formed entities created by Holding's existing stockholder group: THC of Houston, Inc.; THC of Tampa, Inc.; THC of Melbourne, Inc.; and THC of Orlando, Inc. These licenses were transferred along with the related operating assets and liabilities in exchanges for investment units consisting of Class A, B and C common stock and Series A preferred stock in August 1997. Concurrently, Holding distributed the investment units, on a pro rata basis, in a partial stock redemption to Holding's existing stockholder group and issued an aggregate of approximately $2.7 million in affiliate notes payable to the newly-formed entities. As a result of this distribution, Holding no longer retains any ownership equity interest in the newly-formed entities. Because the above transaction was non-monetary in nature and occurred between entities with the same stockholder group, the transaction was accounted for at historical cost. TeleCorp PCS, Inc. (TeleCorp) was incorporated in the State of Delaware on November 14, 1997 by the controlling stockholders of Holding. TeleCorp will be the exclusive provider of wireless mobility services in its licensed regions in connection with a strategic alliance with AT&T Corporation and its affiliates (collectively AT&T). Upon finalization of the AT&T transaction in July 1998, Holding became a wholly-owned subsidiary of TeleCorp (see Management's Discussion and Analysis of Financial Condition and Results of Operations). 2. Basis of Presentation: Unaudited Interim Financial Information The unaudited consolidated balance sheet as of September 30, 1999, and the unaudited consolidated statements of operations and cash flows for the three and nine months ended September 30, 1998 and 1999, and related footnotes, have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management the interim data includes, all adjustments (consisting of only normally recurring adjustments) necessary for a fair statement of the results for the interim periods. Operating results for the nine months ended September 30, 1998 and 1999 are not necessarily indicative of results that may be expected for the years ending December 31, 1998 and 1999, respectively. -4- 3. Property and Equipment Property and equipment consists of the following:
December 31, September 30, 1998 1999 (unaudited) ------------------ ------------------ Wireless network $ - $ 306,052,853 Network under development 170,885,628 17,736,768 Computer equipment 10,115,063 14,999,193 Internal use software 11,161,142 19,421,145 Leasehold improvements 3,204,623 10,516,173 Furniture, fixtures and office equipment 2,924,233 8,574,678 Land - 48,800 ------------------ ------------------ 198,290,689 377,349,610 Accumulated depreciation (822,067) (30,001,216) ------------------ ------------------ $ 197,468,622 $ 347,348,394 ================== ==================
4. Long-term Debt Long-term debt consists of the following:
December 31, September 30, 1998 1999 (unaudited) ---------------- ---------------- Senior subordinated discount notes $ - $ 344,351,212 Senior credit facility 225,000,000 225,000,000 Lucent notes payable 10,460,400 42,515,924 U.S. Government financing 7,924,666 17,882,935 ---------------- ---------------- $ 243,385,066 $ 629,750,071 Less current portion - (1,340,378) ---------------- ---------------- $ 243,385,066 $ 628,409,693 ================ ================
Senior Subordinated Discount Notes On April 23, 1999, the Company completed the issuance and sale of 11 5/8% Senior Subordinated Discount Notes (the Notes) with an aggregate principal amount at maturity of $575,000,000. The total gross proceeds from the sale of the Notes were $327,635,000. Offering expenses consisting of underwriting, printing, legal and accounting fees totaled $10,999,293. The Notes mature April 15, 2009, unless previously redeemed by the Company. As interest accrues, it will be added to the principal as an increase to interest expense and the carrying value of the Notes until April 15, 2004. The Company will begin paying interest semi-annually on April 15 and October 15 of each year beginning October 15, 2004. The Notes are not collateralized. The Notes are subordinate to all of the Company's existing and future senior debt and ranks equally with all other senior subordinated debt, and ranks senior to all of the Company's existing and future subordinated debt. The Notes are guaranteed by the Company's wholly owned subsidiary, TeleCorp Communications, Inc. As of September 30, 1999 accrued interest added to the principal was $16,716,212. -5- Senior Credit Facility In July 1998, the Company entered into a credit facility (the Senior Credit Facility) with a group of commercial lenders, under which the Company may borrow up to $525,000,000, in the aggregate, consisting of (i) up to $150,000,000 in revolving loans (the Senior Revolving Credit Facility) with a maturity date of January 2007, (ii) a $150,000,000 term loan (the Tranche A Term Loan) with a maturity date of January 2007, and (iii) a $225,000,000 term loan (the Tranche B Term Loan) with a maturity date of January 2008. A total of $225,000,000 of indebtedness from the Tranche B Term Loan was outstanding as of December 31, 1998 and September 30, 1999. The Senior Credit Facility also provides for an uncommitted $75,000,000 senior term loan (the Expansion Facility) with a maturity date of January 2008. Beginning in September 2002, principal repayments will be made in 18 quarterly installments for the Tranche A Term Loan and 22 quarterly installments for the Tranche B Term Loan. Quarterly principal repayments for the Tranche A Term Loan are as follows: first six, $3,750,000; next four, $9,375,000; last eight, $11,250,000. Quarterly principal repayments for the Tranche B Term Loan are as follows: first 18, $562,500, last four, $53,718,750. Interest payments on the senior credit facility are made quarterly. The Senior Credit Facility contains a prepayment provision whereby certain amounts borrowed must be repaid upon the occurrence of certain specified events. The commitment to make loans under the Tranche A Term loan will terminate in July 2001, or earlier if elected by the Company. Beginning in April 2005, the commitment to make loans under the Senior Revolving Credit Facility will be permanently reduced on a quarterly basis through April 2007 as follows: first four reductions, $12,500,000; last four reductions $25,000,000. The unpaid principal on the Senior Revolving Credit Facility is due January 2007. In July 2000, if the undrawn portion of the Tranche A Term Loan exceeds $50,000,000 the amount of the Tranche A Term Loan will be automatically reduced by such excess. The interest rate applicable to the Senior Credit Facility is based on, at the Company's option, (i) LIBOR (Eurodollar Loans) plus the Applicable Margin, as defined, or (ii) the higher of the administrative agent's prime rate or the Federal Funds Effective Rate (ABR Loans), plus the Applicable Margin, as defined. The Applicable Margin for Eurodollar Loans will range from 125 to 325 basis points based upon certain events by the Company, as specified. The Applicable Margin for ABR Loans will range from 25 to 225 basis points based upon certain events by the Company, as specified. At December 31, 1998, the interest rate applicable to the Tranche B Term Loan was 8.41%. At September 30, 1998 and 1999, the interest rate applicable to the Tranche B Term Loan was 8.84% and 8.48%, respectively. For the nine months ended September 30, 1998 and 1999, interest incurred on the Tranche B Term Loan was $3.4 million and $14.1 million of which $3.2 million and $9.9 million was expensed and $0.2 million and $4.2 million was capitalized, respectively. The loans from the Senior Credit Facility are subject to an annual commitment fee which ranges from 0.50% to 1.25% of the available portion of the Tranche A Term Loan and the Senior Revolving Credit Facility. The Company has expensed $2,351,714 and $2,863,252 for the nine month periods ended September 30, 1998 and 1999 respectively, related to these bank commitment fees. The Senior Credit Facility requires the Company to purchase interest rate hedging contracts covering amounts equal to at least 50% of the total amount of the outstanding indebtedness of the Company. As of December 31, 1998 and September 30, 1999, the Company hedged 100% of its outstanding indebtedness of $225,000,000 to take advantage of favorable interest rate swaps. -6- Initially, borrowings under the Senior Credit Facility are subject to a maximum Senior Debt to Total Capital ratio, as defined, of 50%. This ratio is increased to 55% if certain specified operating benchmarks are achieved. In addition, the Company must comply with certain financial and operating covenants. The financial covenants include various debt to equity, debt to EBITDA, interest coverage, and fixed charge coverage ratios, as defined in the Senior Credit Facility. The operating covenants include minimum subscribers, minimum aggregate service revenue, minimum coverage of population and maximum capital expenditure thresholds. As of December 31, 1998 and September 30, 1999, the Company was in compliance with these covenants. The Company may utilize the Expansion Facility as long as the Company is not in default of the Senior Credit Facility and is in compliance with each of the financial covenants. However, none of the lenders are required to participate in the Expansion Facility. The Senior Credit Facility is collateralized by substantially all of the assets of the Company. In addition, the Senior Credit Facility has been guaranteed by the Company's subsidiaries and shall be guaranteed by subsequently acquired or organized domestic subsidiaries of the Company. Lucent Note Agreement In May 1998, the Company entered into a Note Purchase Agreement (the Lucent Note Agreement) with Lucent Technologies, Inc. (Lucent) which provides for the issuance of increasing rate 8.5% Series A (the Series A Notes) and 10.0% Series B (the Series B Notes) junior subordinated notes (the Subordinated Notes) with an aggregate face value of $80,000,000. The aggregate face value of the Subordinated Notes shall decrease dollar for dollar, upon the occurrence of certain events as defined in the Lucent Note Agreement. The proceeds of the Subordinated Notes are to be used to develop the Company's network in certain designated areas. As of December 31, 1998, the Company had $10,460,400 outstanding under the Series A Notes. As of September 30, 1999, the Company had $42,515,925 outstanding under the Series A Notes. During the nine months ended September 30, 1999, the Company borrowed and repaid $40,000,000 on the Lucent Series B notes plus $227,778 of accrued interest. The Series A and Series B Notes will not amortize and will have a maturity date six months after the final maturity of the Company's high yield debt offering, but in no event later than May 1, 2012. The Series A Notes will have a mandatory redemption at par plus accrued interest from the proceeds of a subsequent equity offering to the extent the net proceeds exceed an amount identified in the Lucent Note Agreement. If the Series A Notes and Series B Notes are not redeemed in full by January 2001 and January 2000, respectively, the interest rate on each note will increase by 1.5% per annum on January 1. However, the interest rate applicable to the Subordinated Notes shall not exceed 12.125%. Interest payable on the Series A Notes and the Series B Notes on or prior to May 11, 2004 shall be payable in additional Series A and Series B Notes. Thereafter, interest shall be paid in arrears in cash on each six month and yearly anniversary of the Series A and Series B closing date or, if cash interest payments are prohibited under the Senior Credit Facility and/or the Senior Subordinated Discount Notes, in additional Series A and Series B Notes. As of December 31, 1998, interest accrued under the Series A Notes of $460,400 has been included in long-term debt. As of September 30, 1999, interest accrued under the Series A Notes of $2,515,924 has been included in long-term debt. -7- The Company may redeem the Subordinated Notes held by Lucent or any of its affiliates at any time. The Series A Notes that are not held by Lucent or any of its affiliates may be redeemed by the Company prior to May 2002 and after May 2007. The Series B Notes that are not held by Lucent or any of its affiliates may be redeemed by the Company prior to May 2000 and after May 2005. Any redemption after May 2007, in the case of the Series A Notes, and May 2005, in the case of the Series B Notes, shall be subject to an interest rate premium, as specified. All of the outstanding notes under the Lucent Note Agreement as of December 31, 1998 and September 30, 1999 are held by Lucent. The Company must comply with certain operating covenants. As of December 31, 1998 and September 30, 1999, the Company was in compliance with these operating covenants. In addition, Lucent has agreed to make available up to an additional $80,000,000 of junior subordinated vendor financing in amounts up to 30% of the value of the equipment, software and services provided by Lucent in connection with any additional markets the Company acquires, subject to certain conditions as specified (the Vendor Expansion Facility). The expiration date for any notes issued pursuant to the Vendor Expansion Facility is the date which is six months after the scheduled maturity of the Notes, subject to mandatory prepayment if certain future events occur. U.S. Government financing In 1996, the Company placed $7,500,000 on deposit with the FCC in order to bid on F Block broadband PCS licenses. In April 1997, the Company's application for the PCS licenses was approved. The Company made a down payment of $5,942,835 using the funds from the FCC deposit and issued promissory notes to the FCC for $23,771,342. The balance of the Company's deposit of $1,557,165 was refunded in April 1997. In April 1997, certain of the PCS licenses with a cost of $15,678,814 and related US. Government financing in the amount of $12,034,212, net of a discount of $2,544,192, was transferred to four newly-formed entities created by the Company's existing stockholder group in August 1997. The terms of the notes include: an interest rate of 6.25%, quarterly interest payments which commenced in July 1998 and continue for the one year thereafter, then quarterly principal and interest payments for the remaining 9 years. The promissory notes are collateralized by the underlying PCS licenses. During the nine months ended September 30, 1999, the Company completed the acquisition of additional PCS licenses from Digital PCS, Inc. and Wireless 2000, Inc. (Note 5). As part of these acquisitions, the Company assumed additional U.S. Government financing with the FCC amounting to $11,327,034, less a discount of $1,368,765. The terms of the notes include an interest rate of 6.125% for Notes assumed from Digital PCS, Inc. and 7.00% for Notes assumed from Wireless 2000, Inc, quarterly interest payments for a two year period and then quarterly principal and interest payments for the remaining eight years. These notes are net of a discount of $1,268,272, and $1,368,765 as of December 31, 1998 and September 30, 1999, respectively. The notes were discounted using management's best estimate of the prevailing market interest rate at the time of issuance of 10.25%. -8- As of September 30, 1999, minimum required annual principal repayment (undiscounted) under all of the Company's outstanding debt obligations were as follows:
Quarter ended December 31, 1999 $ 327,389 2000 1,361,193 2001 1,447,737 2002 2,102,284 2003 5,560,835 2004 5,785,195 Thereafter 843,935,332 ---------------- $ 860,519,965 ================
5. Acquisitions On April 20, 1999, the Company completed the acquisition of 10 MHz PCS licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana BTA's from Digital PCS, LLC. The total purchase price of $6,113,889 was comprised of $2,334,819 of mandatorily redeemable preferred stock and common stock of the Company, the assumption of U.S. Government financing with the FCC of $4,101,455, less a discount of $608,941, and $286,556 in cash as reimbursement to Digital PCS, LLC, for interest due to the FCC incurred prior to close and legal costs. The entire purchase price has been allocated to the PCS licenses acquired. As a result of completing the transaction with Digital PCS, LLC, the Cash Equity Investors have irrevocably committed to contribute $5,000,000 in exchange for mandatorily redeemable preferred stock and common stock over a two year period from the close of this transaction. As of September 30, 1999 the Company has received $2,200,000 of the $ 5,000,000 commitment. On May 24, 1999, the Company sold mandatorily redeemable preferred stock and preferred stock to AT&T for $40,000,000. On May 25, 1999, the Company acquired from AT&T 20 MHz PCS licenses covering the San Juan MTA, 27 constructed cell sites, a switching facility, leases for additional cell sites, the extension of the Network Membership License Agreement, Long Distance Agreement, Intercarrier Roamer Services Agreement and AT&T Exclusivity Agreement and the reimbursement of AT&T for microwave relocation costs, salary and lease payments (the Puerto Rico transaction) incurred prior to acquisition. The total purchase price of this asset acquisition was $ 99,694,055 in cash. In addition, the Company incurred legal fees of $252,340 related to this acquisition. The purchase price has been allocated to the assets acquired, as follows: -9- PCS licenses $ 70,421,295 Intangible assets - AT&T Agreements 17,310,000 Cell sites, site acquisition, switching 9,015,100 facility assets, and other assets Microwave relocation costs 3,200,000 ------------- $ 99,946,395 =============
As a result of completing this transaction, the Company's available borrowings under the Lucent Note Agreement increased by $15,000,000 ($7,500,000 of Series A and $7,500,000 of Series B) and certain Cash Equity Investors have committed $39,996,600 in cash in exchange for mandatorily redeemable preferred and common stock. As a part of the financing, the Company paid $2,000,000 to a Cash Equity Investor upon closing the transaction. The Cash Equity Investors cash commitment of $39,996,600 will be funded over a three year period from the close of this transaction. As of September 30, 1999, the Company received $11,998,980 of this cash commitment. In addition, certain officers, the Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company were issued a total of 5,318 and 2,380,536 restricted shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively. The estimated fair value of these shares has been recorded as deferred compensation and is being amortized over the related vesting periods. On June 2, 1999 the Company acquired from Wireless 2000, Inc. 15 MHz PCS licenses in the Alexandria, Lake Charles and Monroe, Louisiana BTAs. The total purchase price of $7,448,318 was comprised of $370,810 of mandatorily redeemable preferred stock and common stock of the Company, the assumption of U.S. Government financing with the FCC of $7,449,190, less a discount of $1,021,621, and $649,939 in cash as reimbursement of microwave relocation costs and reimbursement of FCC interest and legal costs. The entire purchase price has been allocated to the PCS licenses acquired. In February 1999, Viper Wireless, Inc. (Viper), was formed to participate in the C-Block PCS license re-auction for additional spectrum in most of the Company's markets. Viper was initially capitalized with $100 and was equally owned by the company's Chief Executive Officer and Executive Vice President-Chief Financial Officer. In order to participate in the re- auction, the company paid the FCC an initial deposit of $17,818,549, on behalf of Viper. Simultaneously, the Company transferred this initial deposit to Viper in exchange for an 85% ownership interest which represented a 49.9% voting interest. -10- On April 15, 1999, the FCC announced Viper was the high bidder for 15 MHz licenses in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico and Jackson, Tennessee and a 30 MHz license in Beaumont, Texas. The total auction price for these licenses is approximately $32,286,000 plus legal costs of $46,566. During the nine months ended September 30, 1999, the FCC refunded $11,361,351 of the initial deposit; however, the Company was required to pay the FCC $11,059,194 as a final deposit on behalf of Viper. As of and for the nine months ended September 30, 1999, Viper had no financial activity other than its capitalization which includes the transfer of the initial deposit to Viper. The company received final regulatory approval of the license transfer from the FCC on September 9, 1999. The entire purchase price has been allocated to the PCS licenses acquired. AT&T and certain of the Company's other stockholders have committed an aggregate of up to approximately $32,300,000 in exchange for additional shares of mandatorily redeemable preferred stock, Series F preferred stock and common stock of the Company. As part of this financing, the Company paid approximately $500,000 to an affiliate of a Cash Equity Investor for closing this preferred and common stock financing. In May and July 1999, AT&T and the certain Cash Equity Investors funded approximately $17,516,000 of their commitment to the Company. The Company made its final payment of $14,769,600 to the FCC on September 13, 1999 with respect to these licenses and received the remaining funding commitments from AT&T and certain Cash Equity Investors on September 29, 1999. 6. Commitments In May 1998, the Company entered into a vendor procurement contract (the Vendor Procurement Contract) with Lucent, pursuant to which the Company may purchase up to $285,000,000 of radio, switching and related equipment and services for the development of the Company's wireless communications network. Through September 30, 1999, the Company has purchased approximately $140,000,000 of equipment and services from Lucent. The Company has operating leases primarily related to retail store locations, distribution outlets, office space, and rent for the Company's network build-out. The terms of some of the leases include a reduction of rental payments and scheduled rent increases at specified intervals during the -11- term of the leases. The Company is recognizing rent expense on a straight- line basis over the life of the lease, which establishes deferred rent on the balance sheet. As of September 30, 1999, the aggregate minimum rental commitments under non-cancelable operating leases are as follows: 1999 $ 3,794,049 2000 18,786,811 2001 18,587,171 2002 18,311,199 2003 5,976,624 2004 8,982,627 Thereafter 24,347,399 ----------------- Total $ 108,785,880 =================
Rental expense, which is recorded ratably over the lease terms, was approximately $9,700,000 for the nine months ended September 30, 1999. The Company has entered into a series of agreements for software licenses, consulting, transition support and maintenance with various vendors. The total future commitments under the agreements are approximately $4,000,000 as of September 30, 1999. The Company has entered into letters of credit to facilitate local business activities. The Company is liable under the letters of credit for nonperformance of certain criteria under the individual contracts. The total amount of outstanding letters of credit was $1,476,000 at September 30, 1999. The outstanding letters of credit reduce the amount available to be drawn under the Senior Credit Facility. The Company is unaware of any events that would have resulted in nonperformance of a contract during the nine months ended September 30, 1999. 7. Subsidiary Guarantee On April 23, 1999, the Company completed the issuance and sale of 11 5/8% Senior Subordinated Discount Notes. The Notes are fully and unconditionally guaranteed on a joint and several basis by TeleCorp Communications, Inc., one of the Company's wholly-owned subsidiaries. Summarized financial information of TeleCorp, TeleCorp Communications, Inc. and non-guarantor subsidiaries as of September 30, 1999, and for the three months ended September 30, 1999 and for the nine months ended September 30, 1999 as follows: Balance Sheet Information as of December 31, 1998:
TeleCorp Communications, Inc.-- Non-Guarantor TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated ------------ ---------------------- ------------- ------------- ------------ ASSETS Current assets: Cash and cash equivalents........... $ 93,046,614 $ 21,440,720 $ (2,754,493) $ -- $111,732,841 Accounts receivable.... -- -- -- -- -- Inventory.............. -- 778,235 -- -- 778,235 Intercompany receivables........... 279,077,565 -- -- (279,077,565) -- Prepaid expenses....... -- 811,999 1,373,445 -- 2,185,444 Other current assets... 637,102 581,161 -- -- 1,218,263 ------------ ------------ ------------ ------------- ------------- Total current assets ............. 372,761,281 23,612,115 (1,381,048) (279,077,565) 115,914,783 Property and equipment, net.................... 1,500,000 90,072,502 105,912,651 (16,531) 197,468,622 PCS licenses and microwave relocation costs.................. -- 12,456,838 105,650,418 -- 118,107,256 Intangible assets--AT&T agreements............. -- -- 26,285,612 -- 26,285,612 Deferred financing costs, net............. 8,584,753 -- -- -- 8,584,753 FCC deposit............. -- -- -- -- -- Other assets............ 4,369,680 6,944 276,062 (4,369,680) 283,006 ------------ ------------ ------------ ------------- ------------ Total assets......... $387,215,714 $126,148,399 $236,743,695 $(283,463,776) $466,644,032 ============ ============ ============ ============= ============ LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Due to affiliates...... $ -- $ 92,923,096 $186,154,469 $(279,077,565) $ -- Accounts payable....... 11 8,331,045 6,260,866 -- 14,591,922 Accrued expenses....... 13,403 41,644,524 53,214,335 -- 94,872,262 Microwave relocation obligation............ -- 6,636,369 -- -- 6,636,369 Long-term debt......... -- -- -- -- -- Accrued interest....... 3,991,500 -- 499,053 -- 4,490,553 Deferred revenue....... -- -- -- -- -- ------------ ------------ ------------ ------------- ------------ Total current liabilities......... 4,004,914 149,535,034 246,128,723 (279,077,565) 120,591,106 ------------ ------------ ------------ ------------- ------------ Long-term debt.......... 235,460,400 -- 7,924,666 -- 243,385,066 Microwave relocation obligation............. -- 2,481,059 -- -- 2,481,059 Accrued expenses........ -- -- -- -- 196,063 Deferred rent........... -- -- 196,063 -- -- ------------ ------------ ------------ ------------- ------------ Total liabilities.... 239,465,314 152,016,093 254,249,452 (279,077,565) 366,653,294 ------------ ------------ ------------ ------------- ------------ Mandatorily redeemable preferred stock........ 240,408,879 -- -- -- 240,408,879 Deferred compensation... -- (4,111) -- -- (4,111) Treasury stock.......... (8) -- -- -- (8) Preferred stock subscriptions receivable............. (75,914,054) -- -- -- (75,914,054) ------------ ------------ ------------ ------------- ------------ Total mandatorily redeemable preferred stock............... 164,494,817 (4,111) -- -- 164,490,706 ------------ ------------ ------------ ------------- ------------ Series F preferred stock.................. 103,087 -- -- -- 103,087 Common stock............ 493,576 -- -- -- 493,576 Additional paid in capital................ -- -- 4,369,680 (4,369,680) -- Deferred compensation... -- (7,177) -- -- (7,177) Common stock subscriptions receivable............. (86,221) -- -- -- (86,221) Treasury stock.......... (18) -- -- -- (18) Accumulated deficit..... (17,254,841) (25,856,406) (21,875,437) (16,531) (65,003,215) ------------ ------------ ------------ ------------- ------------ Total shareholders' equity (deficit).... (16,744,417) (25,863,583) (17,505,757) (4,386,211) (64,499,968) ------------ ------------ ------------ ------------- ------------ Total liabilities and shareholders' equity (deficit)........... $387,215,714 $126,148,399 $236,743,695 $(283,463,776) $466,644,032 ============ ============ ============ ============= ============
-12- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet as of September 30, 1999 (unaudited):
TeleCorp Communications, Inc.- Non-Guarantor TeleCorp Guarantor Subsidiary Subsidiaries -------------- ---------------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 93,203,433 $ (10,164,328) $ (2,628,997) Accounts receivable, net - 17,823,462 28,950 Inventory - 12,125,650 - Intercompany receivables 701,489,565 - - Prepaid expenses - 784,848 1,483,988 Other current assets 31,053 196,248 4,446 -------------- -------------- ------------- Total current assets 794,724,051 20,765,880 (1,111,613) Property and equipment, net 5,513,458 163,707,122 178,198,908 PCS licenses and microwave relocation Costs 1,292,605 117,306,326 117,160,571 Intangible assets-AT&T agreements - - 39,696,161 Deferred financing costs, net 18,080,655 303,749 - FCC deposit - (32,285,994) 32,285,994 Other assets 4,369,680 322,671 17,899,686 -------------- -------------- ------------- Total assets $ 823,980,449 $ 270,119,754 $ 384,129,707 ============== ============== ============= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Due to affiliates $ - $ 327,455,847 $ 374,033,718 Accounts payable - 8,069,648 13,893,126 Accrued expenses 24,751 35,078,700 3,690,934 Long-term debt, current portion - - 1,340,378 Microwave relocation obligation - 5,297,484 - Accrued interest 3,163,174 - 471,932 Deferred Revenue - 1,133,018 - -------------- -------------- ------------- Total current liabilities 3,187,925 377,034,697 393,430,088 -------------- -------------- ------------- Long-term debt 611,867,136 - 17,882,935 Microwave relocation obligation - 2,364,544 - Accrued expenses - - 5,028,943 Deferred rent - - 605,496 --------------- ------------- Total liabilities 615,055,061 379,399,241 415,607,084 --------------- ------------- Mandatorily redeemable preferred stock 353,014,125 - - Deferred compensation (5,371) (4,111) - Treasury stock - - - Preferred stock subscriptions receivable (103,000,543) - - -------------- -------------- ------------- Total MRPS 250,008,211 (4,111) - -------------- -------------- ------------- Shareholders' equity (deficit): Series F preferred stock 149,128 - - Common stock 749,704 - - Additional paid in capital 5,379,060 - 21,886,075 Deferred compensation (793,906) (7,177) - Common stock subscriptions receivable (190,991) - - Treasury stock - - - Accumulated deficit (46,375,818) (109,268,199) (53,363,452) -------------- -------------- ------------- Total shareholders' equity (deficit) (41,082,823) (109,275,376) (31,477,377) -------------- -------------- ------------- Total liabilities and shareholders' equity (deficit) $ 823,980,449 $ 270,119,754 $ 384,129,707 =============== ============== ============= Eliminations Consolidated -------------- ------------- ASSETS Current assets: Cash and cash equivalents $ - $ 80,410,108 Accounts receivable, net - 17,852,412 Inventory - 12,125,650 Intercompany receivables (701,489,565) - Prepaid expenses - 2,268,836 Other current assets - 231,747 -------------- ------------- Total current assets (701,489,565) 112,888,753 Property and equipment, net (71,094) 347,348,394 PCS licenses and microwave relocation Costs - 235,759,502 Intangible assets-AT&T agreements - 39,696,161 Deferred financing costs, net - 18,384,404 FCC deposit - - Other assets (21,886,073) 705,964 -------------- ------------- Total assets $ (723,446,732) $ 754,783,178 ============== ============= LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Due to affiliates $ (701,489,565) $ - Accounts payable - 21,962,774 Accrued expenses - 38,794,385 Long-term debt, current portion - 5,297,484 Microwave relocation obligation - 1,340,378 Accrued interest - 3,635,106 Deferred Revenue - 1,133,018 -------------- ------------- Total current liabilities (701,489,565) 72,163,145 -------------- ------------- Long-term debt - 628,409,693 Microwave relocation obligation - 2,364,544 Accrued expenses - 5,028,943 Deferred rent - 605,496 -------------- ------------- Total liabilities (701,489,565) 708,571,821 -------------- ------------- Mandatorily redeemable preferred stock - 353,014,125 Deferred compensation - (9,482) Treasury stock - - Preferred stock subscriptions receivable - (103,000,543) -------------- ------------- Total MRPS - 250,004,100 -------------- ------------- Shareholders' equity (deficit): Series F preferred stock - 149,128 Common stock - 749,704 Additional paid in capital (21,886,073) 5,379,062 Deferred compensation - (801,083) Common stock subscriptions receivable - (190,991) Treasury stock - - Accumulated deficit (71,094) (209,078,563) -------------- ------------- Total shareholders' equity (deficit) (21,957,167) (203,792,743) -------------- ------------- Total liabilities and shareholders' equity (deficit) $ (723,446,732) $ 754,783,178 ============== =============
-13- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations Information for the three months ended September 30, 1999 (unaudited): TeleCorp Communications, Inc. - Guarantor Non-Guarantor TeleCorp Subsidiary Subsidiaries Eliminations Consolidated ------------ ---------------- ----------------- ---------------- ---------------- Revenue: Service revenue $ - $ 12,704,676 $ - $ - $ 12,704,676 Equipment revenue - 4,672,628 (1,547,786) 1,547,786 4,672,628 Roaming revenue - 9,366,731 2,791,385 (2,702,952) 9,455,164 ------------ --------------- ----------------- --------------- ---------------- Total Revenue - 26,744,035 1,243,599 (1,155,166) 26,832,468 ------------ --------------- ----------------- --------------- ---------------- Operating expenses: Cost of revenue - 12,979,848 - - 12,979,848 Operations and development - 8,220,425 3,361,646 (1,155,166) 10,426,905 Selling and marketing - 18,627,088 168,064 - 18,795,152 General and administrative 389,296 15,407,542 704,721 - 16,501,559 Depreciation and amortization 1,069,857 7,204,795 11,233,027 - 19,507,679 ------------ --------------- ----------------- --------------- ---------------- Total operating expense 1,459,153 62,439,698 15,467,488 (1,155,166) 78,211,143 ------------ --------------- ----------------- --------------- ---------------- Operating loss (1,459,153) (35,695,663) (14,223,859) - (51,378,675) Other (income) expense: Interest expense 15,384,859 76 755,361 - 16,140,296 Interest income (1,675,738) (63,431) (1,358) - (1,740,527) Other expense - 6,644 6,869 - 13,513 ------------ --------------- ----------------- --------------- ---------------- Net loss $(15,168,274) $ (35,638,952) $ (14,984,731) $ - $ (65,791,957) ============ =============== ================= =============== ================
-14- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Operations Information for the nine months ended September 30, 1999 (unaudited): TeleCorp Communications, Inc.- Non-Guarantor TeleCorp Guarantor Subsidiary Subsidiaries Eliminations Consolidated ------------- -------------------- --------------- -------------- -------------- Revenue: Service revenue $ - $ 18,937,031 $ - $ - $ 18,937,031 Equipment revenue - 10,321,594 - - 10,321,594 Roaming revenue - 18,853,647 2,791,385 (2,702,952) 18,942,080 ------------- ---------------- --------------- -------------- -------------- Total Revenue - 48,112,272 2,791,385 (2,702,952) 48,200,705 ------------- ---------------- --------------- -------------- -------------- Operating expenses: Cost of revenue 23,086,816 - - 23,086,816 Operations and development - 20,019,859 8,553,540 (2,648,390) 25,925,009 Selling and marketing - 39,237,880 481,984 - 39,719,864 General and administrative 742,888 36,077,088 2,122,470 - 38,942,446 Depreciation and amortization 1,742,387 12,959,402 21,297,264 - 35,999,053 ------------- ---------------- --------------- -------------- -------------- Total operating expense 2,485,275 131,381,045 32,455,258 (2,648,390) 163,673,188 ------------- ---------------- --------------- -------------- -------------- Operating loss (2,485,275) (83,268,773) (29,663,873) (54,562) (115,472,483) Other (income) expense: Interest expense 31,449,866 76 1,797,868 - 33,247,810 Interest income (4,625,686) (173,111) (6,336) - (4,805,133) Other expense 8,089 144,200 7,899 - 160,188 ------------- ---------------- --------------- -------------- -------------- Net loss $ (29,317,544) $ (83,239,938) $ (31,463,304) $ (54,562) $ (144,075,348) ============= ================ =============== ============== ==============
-15- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash Flow Information for the nine months ended September 30, 1999 (unaudited): - -------------------------------------------------------------------------------
TeleCorp Communications, TeleCorp Inc.-Guarantor Subsidiary --------------------- -------------------------- Cash flows from operating activities: Net loss $ (29,317,544) $ (83,239,938) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization 542,744 13,049,536 Noncash compensation expense associated with the issuance of restricted common stock and preferred stock - - Noncash interest expense associated with Lucent notes and senior subordinated debt 19,033,533 - Allowance for bad bebt - 932,267 Amortization of deferred financing costs 1,199,642 - Amortization of discount on notes payable - - Changes in cash flow from operations resulting from changes in assets and liabilities: Accounts receivable 56,689 (17,058,748) Inventory - (11,347,415) Prepaid expenses - 31,172 Other current assets 549,360 (80,858) Other assets 395,025 220,262 Accounts payable - 5,810,780 Accrued expenses 950,237 12,715,386 Deferred rent - - Accrued interest (1,103,686) 427,657 Deferred revenue - - --------------------- ---------------------- Net cash used in operating activities (7,694,000) (78,539,898) --------------------- ----------------------
Cash flows from investing activities: Expenditures for network under development, wireless network and property and equipment (325,655) (111,663,204) Capitalized interest on network under development and wireless network (3,876,641) - Expenditures for microwave relocation - (5,679,738) Purchase of PCS licenses (1,371,153) (69,690,000) Deposit on PCS licenses (28,877,743) - Partial refund of deposit on PCS licenses 11,361,350 - --------------------- ---------------------- Net cash used in investing activities (23,089,842) (187,032,942) --------------------- ---------------------- Cash flows from financing activities: Proceeds from sale of mandatorily redeemable preferred stock 64,364,415 - Receipt of preferred stock subscription receivable 3,740,068 - Direct issuance costs from sale of mandatorily redeemable preferred stock (2,500,000) - Proceeds from sale of common stock 21,880,791 - Proceeds from long-term debt 397,635,000 - Purchases of treasury shares (19) - Payments on notes payable (40,938,898) - Payments of deferred financing costs (10,738,044) (261,249) Proceeds from cash transfers from and expenses paid by affiliates 4,171,365 315,780,445 Payments on behalf of and transfers to affiliates (406,674,017) (81,551,403) --------------------- ---------------------- Net cash provided by financing activities 30,940,661 233,967,793 --------------------- ---------------------- Net increase in cash and cash equivalents 156,819 (31,605,048) Cash and cash equivalents at the beginning of period 93,046,614 21,440,720 --------------------- ---------------------- Cash and cash equivalents at the end of period $ 93,203,433 $ (10,164,328) ===================== ======================
-17- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Subsequent events Initial Public Offering On November 2, 1999, the Company filed a preliminary prospectus with the Securities and Exchange Commission for an initial public offering of 7,800,000 shares of class A common stock with an estimated price range of $16 to $18 per share. Deferred Compensation Upon an initial public offering, the certain variable stock option awards will reach their measurement date. At that date, the Company will record deferred compensation expense cased on the difference between the estimated fair value and the exercise price of the award. Deferred compensation has been estimated to be $9,400,000 and will be recognized as compensation expense over the related vesting periods, or which approximately $1,700,000 will be recorded as compensation expense in the fourth quarter of 1999. In addition, certain variable restricted stock awards will become fixed upon effectiveness of an initial public offering. This will result in estimated deferred compensation of approximately $53,300,000 of which $17,600,000 will be recorded as compensation expense in the fourth quarter of 1999. In connection with the Viper Wireless transaction (see Note 5), certain employees, the Chief Executive Officer and the Executive Vice President- Chief Financial Officer will be issued a total of 1,111 and 503,022 shares of mandatorily redeemable Series E preferred stock and Class A common stock, respectively, pending final FCC approval of the share issuance. The Chief Executive Officer and the Executive Vice President-Chief Financial Officer's share's vest immediately and the employees' shares vest ratably over five years. The total estimated fair value of the shares is approximately $8,600,000 which will be recorded as deferred compensation, of which $5,500,000 will be recorded as deferred compensation expense in the fourth quarter of 1999 if final share transfer approval is received for the FCC. Stock Split On November 8, 1999, the Company filed an amendment to its certificate of incorporation with the Delaware Secretary of State to effect a 3.09-for-1 stock split of its outstanding and authorized Series F preferred stock and all classes of its common stock. The stock split has been retroactively reflected in the financial statements for all periods presented. In addition, the amendment to the Company's certificate of incorporation increased the authorized number of shares of each of the Class A common stock and the Class B common stock by 15 million. In addition, the Board of Directors and the stockholders approved further amendments and restatements to the Company's certificate of incorporation to become effective upon the closing of the Company's pending initial public offering, including a 300 million increase in the number of authorized shares of the Company's class A common stock. -18- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pending Acquisitions On October 18, 1999, the Company agreed to acquire TeleCorp LMDS, Inc., (TeleCorp LMDS) through an exchange of all of the outstanding stock of TeleCorp LMDS for an estimated aggregate purchase price of approximately $16,900,000. The consideration will be comprised of 2,700 shares of our Series C preferred stock and 834,300 shares of our Class A common stock. TeleCorp LMDS' only assets are LMDS licenses. The purchase price has been preliminarily allocated to the acquired licenses, subject to adjustment, based on a final valuation. TeleCorp LMDS' stockholders are Mr. Vento, Mr. Sullivan and three of the Company's Cash Equity Investors. By acquiring TeleCorp LMDS, the Company will gain local multipoint distribution service, or LMDS, licenses covering 1100 MHz of spectrum in the Little Rock, Arkansas basic trading area (BTA) and 150 MHz of spectrum in each of the Beaumont, Texas, New Orleans, Louisiana, San Juan and Mayeguez Puerto Rico, and the U.S. Virgin Islands BTAs. The LMDS licenses will provide the Company with additional spectrum to use to use as back-haul portions of PCS network traffic in these markets. On October 14, 1999, the Company agreed to purchase 15 MHz of additional spectrum in the Lake Charles, Louisiana basic trading area (BTA) from Gulfstream Telecomm, LLC. Total consideration approximates $2,700,000 and consists of $362,844 in cash plus the assumption of approximately $2,300,000 in debt related to the license. Additionally, the Company will reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to the license from June 1998 until the date the transaction is completed. Each of these agreements are subject to governmental approvals and other customary conditions to closing, and they may not close on schedule or at all. Vendor Financing In October 1999, the Company entered into an amended and restated note purchase agreement with Lucent for the issuance of up to $12,500,00 of new series A and up to $12,500,00 of new series B notes under a vendor expansion facility in connection with prior acquisitions of licenses in certain markets. The terms of these notes issued under these facilities are identical to the original Lucent series A and series B notes. In addition, pursuant to the amended and restated Lucent note purchase agreement, Lucent has agreed to make available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20.0 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to the Company for such purposes under our senior credit facility (see Note 4). Any notes purchased under this vendor financing facility would be divided equally between Lucent series A and series B notes. The terms of Lucent series A and series B notes issued under these expansion facilities would be identical to the terms of the original Lucent series A and series B notes as amended, including a maturity date of October 23, 2009. -19- TELECORP PCS, INC. AND SUBSIDIARIES AND PREDECESSOR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition, any Lucent series B notes issued under the vendor expansion facility will mature and will be subject to a mandatory prepayment on a dollar for dollar basis out of the net proceeds of any future public or private offering or sale of debt securities, exclusive of any private placement of notes issued to finance any additional markets and borrowings under the senior credit facilities or any replacement facility. -20- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this Form 10-Q and the financial statements and related notes and Management Discussion and Analysis of Financial Condition and Results of Operations included in our registration statements on Form S-4 initially filed on October 13, 1999 (file no. 333-81313), as amended, and our Form S-1 initially filed on October 20, 1999 (file no. 333-89393),as amended. Overview Our predecessor, TeleCorp Holding Corp., Inc., was incorporated on July 29, 1996 to participate in the FCC's auction of PCS licenses in April 1997, as a designated entity and very small business, as defined by the FCC. TeleCorp Holding obtained PCS licenses in the New Orleans, Memphis, Beaumont and Little Rock basic trading areas, as well as other licenses that were subsequently transferred to unrelated entities. The FCC has divided the country into major trading areas which are each further subdivided into basic trading areas for the purposes of PCS licensing. We were incorporated on November 14, 1997 by the controlling stockholders of TeleCorp Holding, which subsequently became our wholly-owned subsidiary. In January 1998, we entered into a venture with AT&T under which AT&T contributed PCS licenses to us in exchange for an equity interest in us and sold additional PCS licenses to us for $21.0 million. In July 1998, we received final FCC approval for the venture and, in connection with the completion of the venture, we entered into exclusivity, licensing, roaming and long distance agreements with AT&T Wireless. We are AT&T's exclusive provider of PCS in our licensed markets subject to AT&T's right to resell services on our network. We use the AT&T brand name and logo together with the SunCom name and logo, giving equal emphasis to each. We have acquired PCS licenses in a total of eight major trading areas covering approximately 16.5 million people. See "Acquisition History" below. For periods prior to 1999 we were a development stage company. In the first quarter of 1999, we commenced commercial operations in each of our major mainland U.S. markets, after having launched our New Orleans market for roaming services in late December 1998. We launched our service in our Puerto Rico markets on June 30, 1999. Revenue We derive our revenue from: . Service. We sell wireless personal communications services. The various types of service revenue associated with personal communications services for our subscribers include monthly recurring charges and monthly non- recurring airtime charges for local, long distance and roaming airtime used in excess of pre-subscribed usage. Our customers' charges are rate plan dependent, based on the number of pooled minutes included in their plans. Service revenue also includes monthly non-recurring airtime usage associated with our prepaid subscribers and non-recurring activation and de-activation service charges. . Equipment. We sell wireless personal communications handsets and accessories that are used by our customers in connection with our wireless services. -21- . Roaming. We charge monthly, non-recurring, per minute fees to other wireless companies whose customers use our network facilities to place and receive wireless services. Roaming revenue constituted the largest component of our revenue during the first six months of this year. We expect that as our customer base grows, there will be a significant change in our gross revenue mix. As a result, service revenue is expected to increase while roaming revenues and equipment sales are expected to decrease, as a percent of gross revenue. Roaming minutes on our network are expected to increase as AT&T and other carriers increase the number of subscribers on their networks. Under our reciprocal roaming agreement with AT&T, our largest roaming partner, the amount we will receive and pay for roaming minutes declines for each of the next several years. It appears that the wireless industry is experiencing a general trend towards offering rate plans containing larger buckets of minutes. This is expected to result in decreases in gross revenue per minute. We have autonomy in determining our pricing plans. We have developed our pricing plans to be competitive and to emphasize the advantages of our service. We may discount our pricing in order to obtain customers or in response to downward pricing in the market for wireless communications services. Cost of Revenue Equipment. We purchase personal communications handsets and accessories from third party vendors to resell to our customers for use in connection with our services. The cost of handsets is, and is expected to remain, higher than the resale price to the customer. We record as cost of revenue an amount approximately equal to our revenue on equipment sales. We record the excess cost of handsets as a sales and marketing operating expense. We do not manufacture any of this equipment. Roaming Fees. We pay fees to other wireless communications companies based on airtime usage of our customers on other communications networks. It is expected that reciprocal roaming rates charged between us and other carriers will decrease. We do not have any significant minimum purchase requirements other than our obligation to purchase at least 15 million roaming minutes from July 1999 to January 2002 from another wireless provider in Puerto Rico relating to customers roaming outside our coverage area. We believe we will be able to meet these minimum requirements. Clearinghouse Fees. We pay fees to an independent clearinghouse for processing our call data records and performing monthly inter-carrier financial settlements for all charges that we pay to other wireless companies when our customers use their network, and that other wireless companies pay to us when their customers use our network. We do not have any significant minimum purchase requirements. These fees are based on the number of transactions processed in a month. Variable Interconnect. We pay monthly charges associated with the connection of our network with other carriers' networks. These fees are based on minutes of use by our customers. This is known as interconnection. We do not have any significant minimum purchase requirements. Variable Long Distance. We pay monthly usage charges to other communications companies for long distance service provided to our customers. These variable charges are based on our subscribers' usage, applied at pre- negotiated rates with the other carriers. We do not have any significant minimum purchase requirements other than an obligation to AT&T Wireless to purchase a minimum number of minutes of traffic annually over a specified time period and a specified number of dedicated voice and data leased lines in order for us to retain preferred pricing rates. We believe we will be able to meet these minimum requirements. -22- Operating Expense Operations and development. Our operations and development expense includes engineering operations and support, field technicians, network implementation support, product development, and engineering management. This expense also includes monthly recurring charges directly associated with the maintenance of network facilities and equipment. Operations and development expense is expected to increase as we expand our coverage and add subscribers. In future periods, we expect that this expense will decrease as a percentage of gross revenues. Selling and marketing. Our selling and marketing expense includes brand management, external communications, retail distribution, sales training, direct, indirect, third party and telemarketing support. We also record the excess cost of handsets over the resale price as a cost of selling and marketing. Selling and marketing expense is expected to increase as we expand our coverage and add subscribers. In future periods, we expect that this expense will decrease as a percentage of gross revenues. General and administrative. Our general and administrative expense includes customer support, billing, information technology, finance, accounting and legal services. Although we expect general and administrative expense to increase in future periods we expect this expense will decrease significantly as a percentage of gross revenues. Upon the closing of our pending initial public offering ("IPO") the value of some outstanding stock option and restricted stock awards will become fixed, although most of the awards will remain subject to vesting requirements over approximately four years. Accordingly, we expect to record approximately $71.3 million on our balance sheet as deferred compensation and additional paid-in capital, based on an assumed public offering price in the IPO of $17.00 per share (the mid point of the estimated offering range). The actual amount will be amortized in the statement of operations as additional compensation expense as the vesting requirements are met. Because some of these awards will be vested upon the closing of the IPO, we expect to record a charge of approximately $24.8 million of the $71.3 million based on such assumed public offering price in the IPO on our statement of operations as compensation expense for the fourth quarter of 1999. Depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method, generally over three to ten years, based upon estimated useful lives. Leasehold improvements are amortized over the lesser of the useful lives of the assets or the term of the lease. Network development costs incurred to ready our network for use are capitalized. Amortization of network development costs begins when the network equipment is ready for its intended use and will be amortized over its estimated useful life ranging from five to ten years. We began amortizing the cost of the PCS licenses, microwave relocation costs, and capitalized interest in the first quarter of 1999, when PCS services commenced in some of our basic trading areas. Microwave relocation entails transferring business and public safety companies from radio airwaves that overlap with the portion of the airwaves covered by our business to other portions of the airwaves. Amortization is calculated using the straight-line method over 40 years. The AT&T agreements are amortized on a straight-line basis over the related contractual terms, which range from three to ten years. Amortization of the AT&T exclusivity agreement, long distance agreement and the inter-carrier roamer services agreement began once wireless services were available to its customers. Amortization of the network membership license agreement began on July 17, 1998, the date of the finalization of the AT&T transaction. Capital expenditures. Our principal capital requirements for deployment of our wireless network include installation of equipment and, to a lesser extent, site development work. -23- Interest Income (Expense). Interest income is earned primarily on our cash and cash equivalents. Interest expense through September 30, 1999 consists of interest due on our senior credit facilities, vendor financing, and debt owed to the U.S. government related to our licenses. Interest payable on the Lucent series A notes and the Lucent series B notes on or prior to May 11, 2004 will be payable in additional series A and series B notes. Thereafter, interest will be paid in arrears in cash on each six month and yearly anniversary of the series A and series B closing date or, if cash interest payments are prohibited under the senior credit facilities or a qualifying high yield debt offering, in additional series A and series B notes. The U.S. government financing receives quarterly interest payments, which commenced in July 1998 and continued for one year thereafter, then quarterly principal and interest payments for the remaining nine years. Results of Operations Nine Months ended September 30, 1999 Compared to Nine Months ended September 30, 1998 The Company, which launched commercial service in the first quarter of 1999, grew its customer base to 75,723 at September 30, 1999. For the nine months ended September 30, 1999, service revenue was $18.9 million, equipment revenue totaled $10.3 million and roaming revenue was $18.9 million. We began offering wireless services in each of our major mainland U.S. markets in the first quarter of 1999, and in Peurto Rico on June 30, 1999. We generated no revenue for the nine months ended September 30, 1998. Cost of revenue, consisting mainly of cost of equipment and roaming fees, for the nine months ended September 30, 1999 was $23.1 million. We did not generate any cost of revenue for the nine months ended September 30, 1998. Operations and development expense for the nine months ended September 30, 1999 was $25.9 million. This expense was primarily related to the engineering and operating staff required to implement and operate our network. For the nine months ended September 30, 1998, operations and development expense was $4.1 million as the Company was preparing for commercial launch. Selling and marketing expense for the nine months ended September 30, 1999 was $39.7 million, as compared to $2.5 million for the nine months ended September 30, 1998. This increase was due to salary and benefits for a substantially larger sales and marketing staff, and all other direct sales costs, including advertising, related to acquiring customers and providing wireless services. During the nine months ended September 30, 1998 the Company was preparing for commercial launch. General and administrative expense for the nine months ended September 30, 1999 was $38.9 million, as compared to $15.6 million for the nine months ended September 30, 1998. The increase was due to the growth of billing expense related to our increasing 1999 customer base, as well as the growth of our infrastructure and staffing related to information technology, customer care, finance and legal functions incurred in conjunction with the development and rapid expansion of our markets. During the nine months ended September 30, 1998 the Company was preparing for commercial launch. Depreciation and amortization expense for the nine months ended September 30, 1999 was $36.0 million, as compared to $0.3 million for the nine months ended September 30, 1998. This increase was related to the amortization on personal communications services licenses and AT&T agreements, as well as the depreciation of our fixed assets subsequent to the commercial launch of our wireless service markets. -24- Interest expense, net of interest income, for the nine months ended September 30, 1999 was $28.4 million, as compared to $4.7 million for the nine months ended September 30, 1998. This increase in net interest expenses was related to borrowings under our senior subordinated discount notes of $344.3 million, our senior credit facilities of $225 million and the issuance of $42.5 million aggregate principal amount of notes under the vendor financing provided by Lucent. Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998 The Company grew its customer base to 75,723 at September 30, 1999. For the three months ended September 30, 1999 we added 44,753 customers, primarily related to our continued network build-out in our mainland U.S. markets and the launch of our Puerto Rico market on June 30, 1999. For the three months ended September 30, 1999, service revenue was $12.7 million, equipment revenue was $4.7 million and roaming revenue was $9.5 million. Our revenue growth is driven by our increasing customer base in conjunction with our network build-out. We generated no revenue for the three months ended September 30, 1998. Cost of revenue for the three months ended September 30, 1999 was $12.9 million. We did not generate any cost of revenue during these three months of 1998. Operations and development expense for the three months ended September 30, 1999 was $10.4 million, as compared to $2.9 million for the three months of 1998. The increase was attributable to the commercial launch of our networks during 1999. Selling and marketing expenses for the three months ended September 30, 1999 was $18.7 million, as compared to $1.4 million for the three months ended September 30, 1998. This increase was due to salary and benefits for a substantially larger sales and marketing staff and all other direct sales costs, including advertising, related to acquiring customers and providing wireless services. During the three months ended September 30, 1998 the Company was preparing for commercial launch. General and administrative expense for the three months ended September 30, 1999 was $16.5 million, as compared to $7.7 million for the three months ended September 30, 1998. The increase was due to the growth of billing expense related to our increasing 1999 customer base, as well as the growth of our infrastructure and staffing related to information technology, customer care, finance and legal functions incurred in conjunction with the development and rapid expansion of our markets. Depreciation and amortization expense for the three months ended September 30, 1999 was $19.5 million, as compared to $0.2 million for the three months ended September 30, 1998. This increase is due to the commercial launch of our wireless network resulting in the depreciation of our fixed assets, as well as the amortization on personal communications services licenses and AT&T agreements. Interest expense, net of interest income, for the three months ended September 30, 1999 was $14.4 million, as compared to $1.8 million for the three months ended September 30, 1998. This increase in net interest expenses was related to borrowings under our senior subordinated discount notes of $344.3 million, our senior credit facilities of $225 million and the issuance of $42.5 million aggregate principal amount of notes under the vendor financing provided by Lucent. -25- Acquisition History Following approval of our venture with AT&T by the FCC, we completed the following acquisitions: On April 20, 1999, we completed the acquisition of PCS licenses covering the Baton Rouge, Houma, Hammond and Lafayette, Louisiana basic trading areas from Digital PCS. As consideration for these licenses, we issued to Digital PCS $2.3 million of our common and preferred stock, paid Digital PCS approximately $0.3 million in reimbursement of interest paid on U.S. Government debt related to the licenses and assumed $4.1 million of debt owed to the U.S. government related to these licenses. This debt is shown on our balance sheet net of a discount of $0.6 million reflecting the below market interest rate on the debt. These licenses cover a population of approximately 1.6 million, including a population of 1.2 million in Baton Rouge and Lafayette covered by licenses we already owned. These licenses also cover areas contiguous to our existing licensed area, including travel corridors, which provide us with opportunities to expand our covered area. On May 25, 1999, we completed the acquisition of a PCS license and related assets covering the San Juan major trading area from AT&T. On May 24, 1999, we sold to AT&T $40.0 million of our series A and F preferred stock. On May 25, 1999, we purchased the license and related assets from AT&T for $95.0 million in cash. In addition, we reimbursed AT&T $3.2 million for microwave relocation and $1.5 million for other expenses it incurred in connection with the acquisition. This license covers a population of approximately 3.9 million in Puerto Rico and the U.S. Virgin Islands. On June 2, 1999, we completed the acquisition of PCS licenses covering the Alexandria, Lake Charles and Monroe, Louisiana basic trading areas from Wireless 2000. As consideration for these licenses, we issued to Wireless 2000 approximately $0.4 million of common and preferred stock, paid Wireless 2000 $0.2 million for its costs for microwave relocation related to the Monroe license and $0.4 million in reimbursement of interest paid on government debt related to their licenses, and assumed $7.4 million of debt owed to the U.S. government related to these licenses. This debt is shown on our balance sheet net of a discount of $1.0 million reflecting the below market interest rate on the debt. These licenses cover a population of approximately 0.8 million. These licenses also cover areas contiguous to our existing licensed area, including travel corridors, which provide us with opportunities to expand our covered area. We cannot, without AT&T's consent, develop the markets covered by the Monroe license. Our agreements with AT&T were extended to cover these markets, except for a portion of the Monroe basic trading area, upon the closing of the Louisiana and Puerto Rico acquisitions. We participated in the FCC's reauction of PCS licenses for additional licenses through Viper Wireless. On April 15, 1999, the FCC announced that the reauction ended, and Viper Wireless was the high bidder for additional airwaves in New Orleans, Houma and Alexandria, Louisiana, San Juan, Puerto Rico, Jackson, Tennessee and Beaumont, Texas. The FCC granted us all of these licenses. At present, TeleCorp Holding owns 85% of Viper Wireless, and Mr. Vento and Mr. Sullivan together own the remaining 15%. Mr. Vento and Mr. Sullivan together have voting control over Viper Wireless. On September 30, 1999, we solicited the approval of the FCC for the transfer of shares of Viper Wireless we do not yet own to TeleCorp Holding for 503,022 shares of our class A common stock and 1,111 shares of our series E preferred stock. Any consolidation of Viper Wireless into us will be subject to a final FCC order approving the transaction. In order to finance the acquisition of Viper Wireless, AT&T and some of our other initial investors paid $32.3 million for additional shares of our preferred and common stock. -26- Recent Developments Since September 30, 1999, we have entered into the following agreements: On October 18, 1999, we agreed to acquire TeleCorp LMDS, Inc. through an exchange of all of the outstanding stock of TeleCorp LMDS for 834,300 shares of our class A common stock and 2,700 shares of our series C preferred stock. TeleCorp LMDS's stockholders are Mr. Vento, Mr. Sullivan and three of our initial investors. By acquiring TeleCorp LMDS, we will gain local multipoint distribution service licenses covering 1100 MHz of airwaves in the Little Rock, Arkansas basic trading area and 150 MHz of airwaves in each of the Beaumont, Texas, New Orleans, Louisiana, San Juan and Mayaguez, Puerto Rico, and U.S. Virgin Islands basic trading areas. These licenses will provide us with additional airwaves that we can use to carry portions of our PCS network traffic in these markets. On October 14, 1999, we agreed to purchase 15 MHz of additional airwaves in the Lake Charles, Louisiana basic trading area from Gulf Telecomm, LCC. As consideration for the additional airwaves we will pay Gulf Telecomm $362,844 in cash, assume approximately $2.3 million in FCC debt related to the license and reimburse Gulf Telecomm for all interest it paid to the FCC on debt related to the license from June, 1998 until the date the transaction is completed. Each of these agreements are subject to governmental approvals and other customary conditions to closing and they may not close on schedule or at all. From time to time, we enter into discussions regarding the acquisition of other licenses, including swapping our licenses for those of other license holders. Liquidity and Capital Resources Since inception, our activities have consisted principally of hiring a management team, raising capital, negotiating strategic business relationships, planning and participating in the personal communications services auction, initiating research and development, conducting market research and developing our wireless services offering and network. We have been relying on the proceeds from borrowings and issuances of capital stock, rather than revenues, for our primary sources of cash flow. We began commercial operations in December 1998 and began earning recurring revenues by the end of the first quarter of 1999. Cash and cash equivalents totaled $80.4 million at September 30, 1999, as compared to $111.7 million at December 31, 1998. This decrease was the result of cash provided by financing activities of $432.8 million, offset by $87.6 million of cash used in operating activities and $376.5 million of cash used in network development, expenditures for microwave relocation, purchase of and deposits on PCS licenses and investing activities. During the nine months ended September 30,1999, we increased long-term debt by $386.4 million, and we received $87.4 million of preferred stock proceeds and receipts of preferred stock subscription receivables, net of direct issuance costs. Cash outlays for capital expenditures required to develop and construct our network totaled $245.5 million and we were required to deposit $32.3 million with the FCC for personal communications services licenses during the nine months ended September 30, 1999. Cash used in operating activities of $87.6 million for the nine months ended September 30, 1999 resulted from a net loss of $144.1 million that was partially offset by non-cash charges of $56.8 million. Net change in assets and liabilities was a reduction of $0.6 million. -27- From inception through September 1998, our primary source of financing was notes issued to our stockholders. In July 1996, we issued $0.5 million of subordinated promissory notes to our stockholders. We converted these notes into 50 shares of our series A preferred stock in April 1997. In December 1997, we issued various promissory notes to our stockholders. We converted these notes into mandatorily redeemable preferred stock. From January 1 to September 30, 1998, we borrowed approximately $22.5 million in the form of promissory notes to existing and prospective stockholders to satisfy working capital needs. We converted these notes into equity of TeleCorp in July 1998 in connection with the completion of the venture with AT&T. In connection with completion of the venture with AT&T, we received unconditional and irrevocable equity commitments from our stockholders in the aggregate amount of $128.0 million in return for the issuance of preferred and common stock. As of September 30, 1999, approximately $55.5 million of the equity commitments had been funded. The remaining equity commitments will be funded in an installment of $36.3 million in July 2000 and $36.2 million in July 2001. We received additional irrevocable equity commitments from our stockholders in the aggregate amount of $5.0 million in return for the issuance of preferred and common stock in connection with the Digital PCS, Inc. acquisition. Our stockholders funded $2.2 million of these equity commitments on April 30, 1999, and will fund $1.4 million on each of July 2000 and July 2001. We have received additional irrevocable equity commitments from our stockholders in the aggregate amount of approximately $40.0 million in return for the issuance of preferred and common stock in connection with the Puerto Rico acquisition. We received $12.0 million of these commitments on May 24, 1999, and $6.0 million will be funded in December 1999 and $11.0 million will be funded on each of March 30, 2001 and March 30, 2002. We also received irrevocable equity commitments from our stockholders in the amount of $32.3 million in connection with Viper Wireless' participation in the FCC's re-auction of C-Block licenses. We received $6.5 million of these equity commitments on May 14, 1999 and $11.0 million on July 15, 1999, and $14.8 million on September 29, 1999. In the aggregate, we have obtained $205.3 million of cash equity commitments, of which 102.0 million had been funded as of September 30, 1999. In July 1998, we entered into senior credit facilities with a group of lenders for an aggregate amount of $525.0 million. In October 1999 we entered into amendments to the senior credit facilities under which the amount of credit available to us was increased to $560.0 million. Our senior credit facilities provide for: . a $150.0 million senior secured term loan that matures in January 2007, . a $225.0 million senior secured term loan that matures in January 2008, . a $150.0 million senior secured revolving credit facility that matures in January 2007, . a $35.0 million senior secured term loan that matures in May 2009 and . an uncommitted $40.0 million senior secured term loan in the form of an expansion facility. We must repay the term loans in quarterly installments, beginning in September 2002, and the commitments to make loans under the revolving credit facility are automatically and permanently reduced -28- beginning in April 2005. As of September 30, 1999, $225.0 million had been drawn under the senior credit facilities. In May 1998, we entered into a vendor procurement contract with Lucent, under which we agreed to purchase radio, switching and related equipment and services for the development of our network. Lucent agreed to provide us with $80.0 million of junior subordinated vendor financing. This $80.0 million consisted of $40.0 million aggregate principal amount of increasing rate Lucent series A notes due 2012 and $40.0 million aggregate principal amount of increasing rate Lucent series B notes due 2012. As of September 30, 1999, we had outstanding approximately $40.0 million of the Lucent series A notes, including $1.6 million of Lucent series A notes issued as payment in kind, plus $2.5 million of additional accrued interest. The $40 million principal amount of Lucent series A notes is subject to mandatory prepayment on a dollar for dollar basis out of the proceeds of future equity offerings in excess of $130.0 million. In October 1999, the Company entered into an amended and restated note purchase agreement with Lucent for the issuance of up to $12.5 million of new series A and up to $12.5 million of new series B notes under a vendor expansion facility in connection with prior acquisitions of licenses in certain markets. The terms of these notes issued under these facilities are identical to the original Lucent series A and series B notes. In addition, pursuant to the amended and restated Lucent note purchase agreement, Lucent has agreed to take available up to an additional $50.0 million of new vendor financing not to exceed an amount equal to 30% of the value of equipment, software and services provided by Lucent in connection with any additional markets we acquire. This $50.0 million of availability is subject to a reduction up to $20 million on a dollar for dollar basis of any additional amounts Lucent otherwise lends to the Company for such purposes under our senior credit facility. Any notes purchased under this vendor financing facility would be divided equally between Lucent series A and series B notes. As of September 30, 1999, we have $20.5 million of debt owed to the U.S. government related to our C-Block and F-Block licenses. This debt is shown on our balance sheet at $17.9 million net of discounts of $2.6 million reflecting the below market interest rates on the debt. We assumed $4.1 million of debt to the U.S. government in connection with the Digital PCS, LLC acquisition. This debt is shown on our balance sheet net of a discount of $0.7 million reflecting the below market interest rate on the debt. In addition, we assumed $7.4 million of debt to the U.S. government in connection with the Wireless 2000 acquisition. This debt is shown on our balance sheet net of a discount of $1.3 million reflecting the below market interest rate on the debt. -29- From inception through December 31, 1998, cash outlays for capital expenditures were $108.7 million. The continued construction of our network and the marketing and distribution of wireless communications products and services will require substantial additional capital. We will incur significant amounts of debt to implement our business plan and will therefore be highly leveraged. We estimate that our total capital requirements from our inception until December 31, 2002 will be approximately $1.2 billion. These requirements include license acquisition costs, capital expenditures for network construction, operating cash flow losses and other working capital costs, debt service and closing fees and expenses. Cash outlays for capital expenditures from inception to September 30, 1999 were $354.2 million. We estimate that cash outlays for capital expenditures will total approximately $299.5 million for the year ended December 31, 1999. Year 2000 The year-2000 issue is the result of computer programs being written using two digits, rather than four digits, to define the applicable year. Programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations, including an inability to process transactions, send invoices or engage in similar normal business activities. Because we rely on computer hardware and software, telecommunications and related service industries are highly susceptible to the year-2000 issue. Over the past two years, as we purchased the various components that comprise our internal information technology systems, we received representations from our vendors that these components were year-2000 compliant. We have begun the process of evaluating our information technology systems to verify the accuracy of the representations made by our vendors. Our costs to date have been immaterial, and we anticipate that our total costs in evaluating our information technology system will not exceed $5.0 million, including costs to build the necessary redundancy into our systems. Our non-information technology systems may also be susceptible to the year- 2000 issues. In particular, our network switches contain embedded components that are date sensitive. We have received assurances from Lucent that all of our network hardware purchased from them is year-2000 compliant. The failure of our network switches would have a material adverse effect on our business. We also depend upon the ability of AT&T, AT&T's roaming partners and EDS to ensure that their software and equipment are year-2000 compliant. We rely on AT&T to provide our customers with over-the-air activation and roaming. We rely on EDS to provide clearinghouse services. There can be no guarantee that their systems will be year-2000 compliant on a timely basis or that their systems will be compatible with our systems. Year-2000 noncompliance or incompatible systems could have a material adverse effect on our business. Forward Looking Statements; Cautionary Statement Statements in this report expressing our expectations and beliefs of the Company regarding our future results or performance are forward-looking statements that involve a number of risks and uncertainties. In particular, certain statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts constitute "forward-looking statements." Our actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, risks discussed in our Registration Statement on Form S-1 (Reg. No. 333-89393) and from time to time in our other filings with the Securities and Exchange Commission, including, without -30- limitation, the following: (1) we depend on our agreements with AT&T for our success, and under certain circumstances AT&T could terminate its exclusive relationship with us and our use of the AT&T brand name and logo, (2) we may not be able to manage the construction of our network or the growth of our business successfully, (3) we have substantial existing debt, and may incur substantial additional debt, that we may be unable to service, (4) we may not be able to obtain the additional financing we may need to complete our network and fund operating losses, (5) we have many competitors that have substantial coverage of our licensed areas, (6) difficulties in obtaining infrastructure equipment or sites may affect our ability to construct our network and meet our development requirements, (7) potential acquisitions may require us to incur substantial additional debt and integrate new technologies, operations and services, which may be costly and time consuming, (8) we may experience a high rate of customer turnover, (9) our association with the other SunCom companies may harm our reputation if consumers react unfavorably to them, (10) we depend upon consultants and contractors for our network services, (11) we may become subject to new health and safety regulations, which may result in a decrease in demand for our services, (12) changes in our licenses or other governmental action or regulation could affect how we do business, (13) we could lose our PCS licenses or incur financial penalties if the FCC determines we are not a very small business or if we do not meet the FCC's minimum construction requirements, (14) the technologies that we use may become obsolete, which would limit our ability to compete effectively, (15) we expect to incur operating costs due to fraud, and (16) we depend on our third party service providers to become year-2000 compliant and we can not assure that this will occur. As a result of the foregoing and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price. We specifically decline any obligation to publicly release the result of any revisions which may be made to forward- looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statement. Item 3. Quantitative and Qualitative Disclosure About Market Risk We are not exposed to fluctuations in currency exchange rates since all of our services are invoiced in U.S. dollars. We are exposed to the impact of interest rate changes on our short-term cash investments, consisting of U.S. Treasury obligations and other investments in respect of institutions with the highest credit ratings, all of which have maturities of three months or less. These short-term investments carry a degree of interest rate risk. We believe that the impact of a 10% increase or decline in interest rates would not be material to our investment income. We use interest rate swaps to hedge the effects of fluctuations in interest rates on our senior credit facilities. These transactions meet the requirements for hedge accounting, including designation and correlation. These interest rate swaps are managed in accordance with our policies and procedures. We do not enter into these transactions for trading purposes. The resulting gains or losses, measured by quoted market prices, are accounted for as part of the transactions being hedged, except that losses not expected to be recovered upon the completion of hedged transactions are expensed. Gains or losses associated with interest rate swaps are computed as the difference between the interest expense per the amount hedged using the fixed rate compared to a floating rate over the term of the swap agreement. As of September 30, 1999, we have entered into six interest rate swap agreements totaling $225 million to convert our variable rate debt to fixed rate debt. The interest rate swaps had no material impact on our consolidated financial statements as of and for the year ended December 31, 1998 or the nine month period ended September 30, 1999. -31- Part II--Other Information Item 2. Changes in Securities and Use of Proceeds (a) In August we amended and restated our Certificate of Incorporation to effect a 100-for-1 stock split of the Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Common Stock, Series F Preferred Stock, and Senior Common Stock and a corresponding increase of the authorized shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Common Stock, Series F Preferred Stock and Senior Common Stock to account for the split. In November we further amended our Certificate of Incorporation to effect a 3.09-for-1 stock split of the Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Common Stock, Series F Preferred Stock and Senior Common Stock and a corresponding increase of the authorized shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Common Stock, Series F Preferred Stock and Senior Common Stock to account for the split, plus an increase of an additional 15 million shares of each of the Class A Common Stock and Class B Common Stock. Our Fourth Amended and Restated Certificate of Incorporation, as amended, is attached as an exhibit to this Form 10-Q. (b) During the third quarter ended September 30, 1999, we sold shares of our common stock and preferred stock in the amounts (restated to account for our 100-for-1 and 3.09-for-1 stock splits), at the times, and for the aggregate amounts of consideration listed below without registration under the Securities Act of 1933. Exemption from registration under the Securities Act for each of the following sales is claimed under Section 4(2) of the Securities Act because such transactions were by an issuer and did not involve a public offering. (i) On July 15, 1999 we issued 1,678.44 shares of Series D Preferred Stock, 518,638 shares of Series F Preferred Stock, 9,380.75 shares of Series C Preferred Stock and 2,898,652 shares of Class A Common Stock to 15 entities for an aggregate consideration of $11,059,190. (ii) On September 29, 1999, we issued 2,241.56 shares of Series D Preferred Stock, 692,642 shares of Series F Preferred Stock, 12,528.05 shares of Series C Preferred Stock and 3,871,168 shares of Class A Common Stock to 15 entities for an aggregate consideration of $14,769,610. Item 4. Submission of Matters to a Vote of Security Holders On August 27, 1999, the holders of 94% of the Class A Common Stock and all of the holders of the Voting Preference Common Stock, by written consent, approved amendments to our Certificate of Incorporation effecting a 100-for-1 stock split of all of the classes of Common Stock, the Series F Preferred Stock and Senior Common Stock and a corresponding increase of the authorized shares of all of the classes of Common Stock, Series F Preferred Stock and Senior Common Stock. The holders of 6% of the Class A Common Stock took no action with respect to such consent. -32- Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this report: 3.1 Fourth Amended and Restated Certificate of Incorporation, as amended, of Telecorp PCS, Inc. 27.1 Financial Data Schedule -33- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELECORP PCS, INC. Dated: November 15, 1999 By: /s/ Thomas H. Sullivan ____________________________________________ Thomas H. Sullivan, Executive Vice President and Chief Financial Officer SUBSIDIARY TELECORP COMMUNICATIONS, INC. Dated: November 15, 1999 By: /s/ Thomas H. Sullivan ____________________________________________ Thomas H. Sullivan, Executive Vice President and Chief Financial Officer -34- INDEX TO EXHIBITS 3.1 Fourth Amended and Restated Certificate of Incorporation, as amended, of TeleCorp PCS, Inc. 27.1 Financial Data Schedule. -35- EX-3.1 2 FOURTH AMENDED & RESTATED CERT. OF INCORPORATION FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED OF TELECORP PCS, INC. TeleCorp PCS, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of the corporation is TeleCorp PCS, Inc. (the "Corporation"). The original Certificate of Incorporation of the Corporation - ------------ was filed with the Secretary of State of the State of Delaware (the "Secretary of State") on November 14, 1997 and was amended and restated pursuant to a Restated Certificate of Incorporation filed with the Secretary of State on July 16, 1998, a Second Amended and Restated Certificate of Incorporation filed with the Secretary of State on April 20, 1999, a Third Amended and Restated Certificate of Incorporation filed with the Secretary of State on May 14, 1999 and amended by Amendment No. 1 to the Third Amended and Restated Certificate filed with the Secretary of State on August 27, 1999 (the "Third Amended and Restated Certificate"). SECOND: This Fourth Amended and Restated Certificate of Incorporation as amended (the "Restated Certificate of Incorporation") has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and written consent has been given by the stockholders of the Company in accordance with Section 228 of the General Corporation Law of the State of Delaware. THIRD: This Restated Certificate of Incorporation restates, integrates and amends the provisions of the Corporation's Third Restated Certificate, as follows: ARTICLE I The name of the Corporation shall be TeleCorp PCS, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The purpose of the Corporation is to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "GCL"). --- ARTICLE IV 4.1 Classes of Stock; Stock Split. The total number of shares of all ----------------------------- classes of stock which the Corporation shall have authority to issue is 656,014,090 shares, consisting of (a) 37,675,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"), consisting of 100,000 shares --------------- designated "Series A Convertible Preferred Stock" (the "Series A Preferred ------------------ Stock"), 200,000 shares designated "Series B Preferred Stock" (the "Series B - ----- -------- Preferred Stock"), 215,000 shares designated "Series C Preferred Stock" (the - --------------- "Series C Preferred Stock"), 50,000 shares designated "Series D Preferred Stock" ------------------------ (the "Series D Preferred Stock"), 30,000 shares designated "Series E Preferred ------------------------ Stock" (the "Series E Preferred Stock"), 15,450,000 shares designated "Series F ------------------------ Preferred Stock" (the "Series F Preferred Stock"), and 21,630,000 shares ------------------------ designated "Senior Common Stock" (the "Senior Common Stock"), and (b) ------------------- 618,339,090 shares of common stock, par value $0.01 per share (the "Common ------ Stock"), consisting of 308,550,000 shares designated "Class A Voting Common - ----- Stock" (the "Class A Common Stock"), 308,550,000 shares designated "Class B Non- -------------------- Voting Common Stock" (the "Class B Common Stock"), 309,000 shares designated -------------------- "Class C Common Stock" (the "Class C Common Stock"), 927,000 shares designated -------------------- "Class D Common Stock" (the "Class D Common Stock") and 3,090 shares designated -------------------- "Voting Preference Common-Stock" (the "Voting Preference Common Stock"). ------------------------------ (Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 4.14.). 3.09 FOR 1 STOCK SPLIT OF COMMON STOCK, ---------------------------------------- SENIOR COMMON STOCK ------------------- AND SERIES F PREFERRED STOCK ---------------------------- At the close of business on the date of the filing of the Certificate of Amendment with respect to Amendment No. 1 to the Fourth Restated Certificate of Incorporation, each outstanding share of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock and Series F Preferred Stock shall be divided into 3.09 shares of, respectively, Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock and Series F Preferred Stock Common Stock (the "Stock Split") without any action by the holders of such shares; provided, however, that upon such subdivision, the corporation shall not issue fractional shares or pay cash in respect thereof, but shall instead issue to each stockholder the aggregate number of shares resulting from the Stock Split rounded up to the next higher whole number of shares based upon the preceding calculation. Following the Stock Split, each holder of a certificate or certificates representing shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock and -2- F Preferred Stock of the Corporation, upon surrender thereof to the Corporation, shall receive a certificate or certificates representing the number of shares such stockholder is entitled to receive following the Stock Split. Pending such surrender of any certificate or certificates, such certificate or certificates for shares of Common Stock of the corporation shall be deemed for all purposes, as a result of the Stock Split and without any action on the part of the holders thereof, to evidence only the right to receive one or more certificates representing shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, Voting Preference Stock, Senior Common Stock and F Preferred Stock in accordance with the terms and conditions hereof. Following the Stock Split, the total number of shares of capital stock which the corporation shall have authority to issue is 656,014,090, consisting of (a) 37,675,000 shares of Preferred Stock, consisting of 100,000 shares of Series A Preferred Stock, 200,000 shares of Series B Preferred Stock, 215,000 shares of Series C Preferred Stock, 50,000 shares of Series D Preferred Stock, 30,000 shares of Series E Preferred Stock, 15,450,000 shares of Series F Preferred Stock, and 21,630,000 shares of Senior Common Stock, and (b) 618,339,090 shares of Common Stock, consisting of 308,550,000 shares of Class A Common Stock, 308,550,000 shares of Class B Common Stock, 309,000 shares of Class C Common Stock, 927,000 shares of Class D Common Stock and 3,090 shares of Voting Preference Common Stock." 4.2 Additional Series of Preferred Stock. (a) Subject to approval by holders of shares of any class or series of Preferred Stock to the extent such approval is required by its terms, the Board of Directors of the Corporation (the "Board of Directors") is hereby expressly ------------------ authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock in addition to the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock and the Senior Common Stock. Before any shares of any such series are issued, the Board of Directors shall fix, and hereby is expressly empowered to fix, by resolutions, the following provisions of the shares thereof: (i) the designation of such series, the number of shares to constitute such series and the stated value thereof if different from the par value thereof; (ii) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; (iii) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or any other series of this class; (iv) whether the shares of such series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption; (v) the amount or amounts payable upon shares of such series upon, and the rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; (vi) whether the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of -3- such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; (vii) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of this class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; (viii) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption other acquisition by the Corporation of, the Common Stock or shares of stock of any other class or any other series of this class; (ix) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such series or of any other series of this class or of any other class; and (x) any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof. (b) The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. All shares of any one series of Preferred Stock shall be identical in all respects with all other shares of such series, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. (c) Shares of Preferred Stock of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or that, if convertible or exchangeable, have been converted into or exchanged for any other security shall have the status of authorized and unissued shares of Preferred Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of shares of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of shares of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of shares of Preferred Stock. (d) Subject to the provisions of this Restated Certificate of Incorporation and except as otherwise provided by law, the stock of the Corporation, regardless of class, may be issued for such consideration and for such corporate purposes as the Board of Directors may from time to time determine. 4.3 Powers, Preferences and Rights of the Series A Preferred Stock. The -------------------------------------------------------------- powers, -4- preferences and rights of the Series A Preferred Stock and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series A Preferred Stock shall, with respect to the ------- payment of dividends and the distribution of assets on liquidation, dissolution or winding up, rank on a parity with the Series B Preferred Stock, and rank senior to Junior Stock. (b) Dividends and Distributions. --------------------------- (i) Dividends. The holders of shares of Series A Preferred Stock shall --------- be entitled to receive, as and when declared by the Board of Directors, out of funds legally available therefor, dividends on each outstanding share of Series A Preferred Stock, at an annual rate per share equal to ten percent (10%) of the Liquidation Preference, calculated on the basis of a 360-day year consisting of twelve 30-day months. Dividends shall be paid quarterly in arrears on the Dividend Payment Date commencing September 30, 1998 in the manner provided in paragraph (iii) below. (ii) Accrued Dividends, Record Date. Dividends payable pursuant to ------------------------------ paragraph (i) above shall begin to accrue and be cumulative from the date on which shares of Series A Preferred Stock are issued, and shall begin to accrue on a daily basis, in each case whether or not earned or declared. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of the dividends payable pursuant to paragraph (i) above, which record date shall not be more than 60 days prior to the Dividend Payment Date. (iii) Payment. All dividends shall be payable in cash. Until the 42nd ------- Dividend Payment Date, the Corporation shall have the option to defer payment of dividends on Series A Preferred Stock. Any dividend payments so deferred shall be payable on and not earlier than the 42nd Dividend Payment Date. (iv) Dividends Pro Rata. All dividends paid with respect to shares of ------------------ Series A Preferred Stock pursuant to this Section 4.3(b) shall be paid pro rata to the holders entitled thereto. In the event that the funds legally available therefor shall be insufficient for the payment of the entire amount of cash dividends payable at any Dividend Payment Date, subject to Section 4.3(c), such funds shall be allocated for the payment of dividends with respect to the shares of Series A Preferred Stock and Series B Preferred Stock pro rata based upon the Liquidation Preference of the outstanding shares. (c) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.3(b), (e) and (f), cash dividends on the Series A Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series A Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically -5- prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series A Preferred Stock are outstanding or dividends payable on shares of Series A Preferred Stock have not been paid in full in cash, then the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of Junior Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series A Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of capital stock of the Corporation, unless the Corporation could, pursuant to paragraph (ii) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (d) Voting Rights; Election of Directors. ------------------------------------ (i) The holders of shares of Series A Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraphs (ii) and (iii) below or as provided by law, and the shares of Series A Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraphs (ii) and (iii) below or as otherwise required by law). (ii) Unless the consent or approval of a greater number of shares shall then be required by law, the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock in person or by proxy, at each special and annual meeting of stockholders called for the purpose, or by written consent, shall be necessary to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of Senior Stock or Parity Stock or any additional shares of Series A Preferred Stock, (B) authorize, adopt or approve each amendment to this Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series A Preferred Stock, alter or change the powers, preferences or rights of the shares of Series A Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock being Senior Stock or Parity Stock, (C) amend, alter or repeal any provision of this Restated Certificate of Incorporation so as to affect the shares of Series A Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or -6- otherwise receive any shares of any class or classes of Senior Stock or Parity Stock. (iii) So long as the Initial Holders own in the aggregate at least two- thirds (2/3) of the number of shares of Series A Preferred Stock owned by it on the date hereof, holders of shares of Series A Preferred Stock shall have the exclusive right, voting separately as a single class, to nominate two directors of the Corporation or, at any time after the later of (x) the IPO Date or (y) the date on which shares of Class A Common Stock and Voting Preference Common Stock vote as a single class for all purposes, one director. The foregoing right to nominate two directors (or one director) may be exercised at any annual meeting of stockholders or a special meeting of stockholders or holders of Series A Preferred Stock held for such purpose or any adjournment thereof, or by the written consent, delivered to the Secretary of the Corporation, of the holders of a majority of the issued and outstanding shares of Series A Preferred Stock. Notwithstanding the foregoing, the Initial Holders shall have the right, exercisable at any time by written notice delivered to the Secretary of the Corporation, to surrender and cancel irrevocably such right to nominate two directors (or one director) of the Corporation. (e) Redemption at Option of the Corporation. The Corporation shall have --------------------------------------- the right to redeem shares of Series A Preferred Stock pursuant to the following provisions: (i) The Corporation shall not have any right to redeem shares of the Series A Preferred Stock prior to, with respect to any share of the Series A Preferred Stock, the 30th day after the tenth anniversary of the issuance of such share. Thereafter, subject to the restrictions in Section 4.3(c)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series A Preferred Stock, in whole but not in part, at any time at a redemption price (the "Series A Redemption Price") per share equal to the ------------------------- Liquidation Preference as of the redemption date; (ii) Notice of any redemption of the Series A Preferred Stock shall be mailed at least ten, but not more than 60, days prior to the date fixed for redemption to each holder of Series A Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series A Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series A Preferred Stock to be redeemed, or may cause the transfer books of the Corporation to be closed for the transfer of the Series A Preferred Stock, not more than 60 days prior to the date fixed for such redemption; (iii) Within two Business Days after the redemption date specified in the notice given pursuant to paragraph (ii) above and the surrender of the certificate(s) representing shares of Series A Preferred Stock, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and -7- (iv) Effective upon the date of the notice given pursuant to paragraph (ii) above, notwithstanding that any certificate for such shares shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the rights to receive dividends thereon shall cease to accrue from and after the date of redemption designated in the notice of redemption and all rights of the holders of the shares of the Series A Preferred Stock called for redemption shall cease and terminate, excepting only the right to receive the Series A Redemption Price therefor in accordance with paragraph (iii) above and the right to convert such shares into shares of Class A Common Stock until the close of business on the third Business Day preceding the redemption date, as provided in Section 4.3(i). (f) Redemption at Option of Holder. ------------------------------ (i) No holder of shares of Series A Preferred Stock shall have any right to require the Corporation to redeem any shares of Series A Preferred Stock prior to, with respect to any share of the Series A Preferred Stock, the 30th day after the twentieth anniversary of the issuance of such share. Thereafter, subject to the restrictions set forth in Section 4.3(c)(i), each holder of shares of Series A Preferred Stock shall have the right, at the sole option and election of such holder, to require the Corporation to redeem all (but not less than all) of the shares of Series A Preferred Stock owned by such holder at a price per share equal to the Series A Redemption Price; (ii) The holder of any shares of the Series A Preferred Stock may exercise such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series A Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.3(f), which notice may specify an account for delivery of the Series A Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series A Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series A Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series A Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (g) Reacquired Shares. Any shares of the Series A Preferred Stock ----------------- redeemed or purchased or otherwise acquired by the Corporation in any manner whatsoever shall be -8- retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued pursuant to Section 4.2(c) as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions or restrictions on issuance set forth herein. (h) Liquidation, Dissolution or Winding Up. -------------------------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, before any distribution or payment to holders of Junior Stock, the holders of shares of Series A Preferred Stock shall be entitled to be paid an amount equal to the Liquidation Preference with respect to each share of Series A Preferred Stock. (ii) If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to the holders of Series A Preferred Stock shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to holders of the Series A Preferred Stock and Series B Preferred Stock shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full. (iii) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.3(h). (i) Conversion. ---------- (i) Stockholders' Right To Convert. No holder of shares of Series A ------------------------------ Preferred Stock shall have any right to convert any shares of Series A Preferred Stock into Class A Common Stock or any other securities of the Corporation prior to July 17, 2006. Thereafter, each share of Series A Preferred Stock held by the Initial Holders or a Qualified Transferee shall be convertible, at the sole option and election of the Initial Holders or Qualified Transferee, into fully paid and non-assessable shares of Class A Common Stock. (ii) Number of Shares of Class A Common Stock Issuable upon Conversion. ----------------------------------------------------------------- The number of shares of Class A Common Stock to be issued upon conversion of shares of Series A Preferred Stock pursuant to paragraph (i) above shall be equal to the product of (A) the Series A Conversion Rate as of the date of the applicable notice pursuant to paragraph (iv) below, multiplied by (B) the number of shares of Series A Preferred Stock to be converted. (iii) Fractional Shares. Notwithstanding any other provision of this ----------------- Restated Certificate of Incorporation, the Corporation shall not be required to issue fractions of -9- shares upon conversion of any shares of Series A Preferred Stock or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Corporation may pay therefor, at the time of any conversion of shares of Series A Preferred Stock as herein provided, an amount in cash equal to such fraction multiplied by the Market Price of a share of Class A Common Stock on such date. (iv) Mechanics of Conversion. The Initial Holders or Qualified ----------------------- Transferee may exercise its option to convert by surrendering for such purpose to the Corporation, at its principal office or such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series A Preferred Stock to be converted, accompanied by a written notice, delivered in accordance with the terms of the Stockholders Agreement, stating that such holder elects to convert such shares in accordance with this Section 4.3(i). The date of receipt of such certificates and notice by the Corporation at such office shall be the conversion date (the "Series A -------- Conversion Date"). If equired by the Corporation, certificates surrendered for - --------------- conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. Within ten Business Days after the Series A Conversion Date (or, if at the time of such surrender the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, within ten Business Days of the determination of the Market Price pursuant to the Appraisal Procedure), the Corporation shall issue to such holder a number of shares of Class A Common Stock into which such shares of Series A Preferred Stock are convertible pursuant to paragraph (ii) above. Certificates representing such shares of Class A Common Stock shall be delivered to such holder at such holder's address as it appears on the books of the Corporation. (v) Termination of Rights. All shares of Series A Preferred Stock --------------------- which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Series A Conversion Date, except only the right of the holders thereof to receive shares of Class A Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. (vi) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Class A Common Stock upon the conversion of shares of Series A Preferred Stock shall be made without charge to the holder of shares of Series A Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there ------------------------------------------------------ occurs any capital reorganization or any reclassification of the Class A Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the -10- continuing corporation and which does not result in any reclassification or change of outstanding shares of its Class A Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Series A Preferred Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Class A Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Class A Common Stock into which such share of Series A Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Corporation, whose determination shall be conclusive) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the conversion of the Series A Preferred Stock. (viii) Notice of Adjustment. Whenever the securities or other property -------------------- deliverable upon the conversion of the Series A Preferred Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall promptly give written notice thereof to each holder of shares of Series A Preferred Stock at such holder's address as it appears on the transfer books of the Corporation and shall forthwith file, at its principal executive office and with any transfer agent or agents for the Series A Preferred Stock and the Class A Common Stock, a certificate, signed by the Chairman of the Board, President or one of the Vice Presidents of the Corporation, and by its Chief Financial Officer, Treasurer or one of its Assistant Treasurers, stating the securities or other property deliverable per share of Series A Preferred Stock calculated to the nearest cent or to the nearest one-hundredth of a share and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. (ix) Reservation of Class A Common Stock. The Corporation shall at all ----------------------------------- times reserve and keep available for issuance upon the conversion of the shares of Series A Preferred Stock the maximum number of its authorized but unissued shares of Class A Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action required to increase the authorized number of shares of Class A Common Stock if at any time there shall be insufficient authorized but unissued shares of Class A Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series A Preferred Stock. (j) Qualified Transfer. If at any time an Initial Holders or ------------------ Qualified Transferee desires to sell, transfer or otherwise dispose of shares of Series A Preferred Stock pursuant to a Qualified Transfer, it shall, with respect to each such proposed transfer, give written notice (a "Qualified --------- Transfer Notice") to the Corporation at its principal executive office - --------------- specifying up to ten prospective transferees. Upon receipt of such -11- notice, the Corporation shall have ten days to give written notice to the Initial Holders or Qualified Transferee specifying its disapproval of (A) any or all of such prospective transferees if it has good reason for such disapproval and specifying such reason and (B) up to two of such prospective transferees with or without good reason. (k) Notice of Certain Events. In case the Corporation shall propose at ------------------------ any time or from time to time (i) to declare or pay any dividend payable in stock of any class to the holders of Common Stock or to make any other distribution to the holders of Common Stock, (ii) to offer to the holders of Common Stock rights or warrants to subscribe for or to purchase any additional shares of Common Stock or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Common Stock, (iv) to effect any consolidation, merger or sale, transfer or other disposition of all or substantially all of the property, assets or business of the Corporation which would, if consummated, adjust the Series A Conversion Rate or the securities issuable upon conversion of shares of Series A Preferred Stock, or (v) to effect the liquidation, dissolution or winding up of the Corporation, then, in each such case, the Corporation shall mail to each holder of shares of Series A Preferred Stock, at such holder's address as it appears on the transfer books of the Corporation, a written notice of such proposed action, which shall specify (A) the date on which a record is to be taken for the purpose of such dividend or distribution of rights or warrants or, if a record is not to be taken, the date as of which the holders of shares of Common Stock of record to be entitled to such dividend or distribution of rights or warrants are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up is expected to become effective, and such notice shall be so given as promptly as possible but in any event at least ten Business Days prior to the applicable record, determination or effective date, specified in such notice. (l) Certain Remedies. Any registered holder of shares of Series A ---------------- Preferred Stock shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Restated Certificate of Incorporation and to enforce specifically the terms and provisions of this Restated Certificate of Incorporation in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which such holder may be entitled at law or in equity. 4.4 Powers, Preferences and Rights of the Series B Preferred Stock. The -------------------------------------------------------------- Series B Preferred Stock shall rank on a parity with the Series A Preferred Stock, and the powers, preferences and rights of the Series B Preferred Stock, and the qualifications, limitations, and restrictions thereof, shall be identical to those of the Series A Preferred Stock, except that (a) shares of Series B Preferred Stock shall not be, pursuant to the terms of Section 4.3(i) or otherwise, convertible into shares of Common Stock or any other security issued by the Corporation, (b) the Corporation may redeem shares of Series B Preferred Stock in accordance with the terms of Section 4.3(e) at any time without regard to whether the redemption date is before, on or after the date referred to in Section 4.3(e)(i), (c) shares of Series B Preferred Stock may be issued by the Corporation in accordance with the terms of Section 4.12, (d) holders of Series B Preferred Stock shall not, pursuant to Section 4.3(d) or otherwise, have the right to elect any directors of the Corporation and (e) the words "Series B Preferred Stock" and "Series A -12- Preferred Stock" shall be substituted for all references in Section 4.3 to Series A Preferred Stock and Series B Preferred Stock, respectively. 4.5 Powers, Preferences and Rights of the Series C Preferred Stock. The -------------------------------------------------------------- powers, preferences and rights of the Series C Preferred Stock and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series C Preferred Stock shall rank (i) junior to the ------- Series A Preferred Stock and the Series B Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) junior to the Series D Preferred Stock with respect to the distribution of assets on a Statutory Liquidation, (iii) on a parity with the Series D Preferred Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) on a parity with the Series D Preferred Stock and the Common Stock with respect to the payment of dividends, and (v) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock), with respect to the distribution of assets on liquidation, dissolution and winding up. (b) Dividends. Holders of Series C Preferred Stock shall be entitled to --------- dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation; provided that, in no event shall dividends in -------- excess of the Liquidation Preference be declared or paid. So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of any class of common stock or series of preferred stock ranking junior to or on a parity with the Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock or Preferred Stock at a price not greater than the Market Price as of such date. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Series D Preferred Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, shares of Series C Preferred Stock ratably in accordance with the number of shares of Series C Preferred Stock and Series D Preferred Stock then outstanding. (c) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up (including, in the case of a Statutory Liquidation, the Series D Preferred Stock), but -13- before any payment shall be made or any assets distributed to the holders of Common Stock or any series of preferred stock ranking junior to the Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Series C Preferred Stock and any other series of preferred stock ranking on a parity with Series C Preferred Stock with respect to rights on liquidation, dissolution or winding up (including, in the case of a liquidation, dissolution or winding up other than a Statutory Liquidation, the Series D Preferred Stock), to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Series C Preferred Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.5(c). (d) Voting Rights. ------------- (i) The holders of shares of Series C Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Series C Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraph (ii) below or as otherwise required by law). (ii) The affirmative vote of holders of not less than a majority of Series C Preferred Stock shall be required to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of stock ranking senior to or pari passu with the Series C Preferred Stock or any additional shares of Series C Preferred Stock, (B) authorize, adopt or approve each amendment to this Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series C Preferred Stock, alter or change the powers, preferences or rights of the shares of Series C Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock ranking senior to or pari passu with the Series C Preferred Stock, (C) amend, alter or repeal any provision of this Restated Certificate of Incorporation so as to affect the shares of Series C Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock senior to or pari passu with the Series C Preferred Stock. -14- (e) Conversion. The shares of Series C Preferred Stock shall be ---------- convertible into shares of Common Stock as follows: (i) Optional Conversion. On the IPO Date, each share of Series C ------------------- Preferred Stock then outstanding shall be convertible, at the option of the Corporation, into the number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Liquidation Preference of the Series C Preferred Stock as of the IPO Date by the IPO Price; provided, that the foregoing option, if exercised, shall be exercised with respect to all shares of Series C Preferred Stock then outstanding. (ii) Fractional Shares. No fractional shares of Common Stock shall be ----------------- issued upon conversion of shares of Series C Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled after determination of the aggregate full number of shares of Common Stock issuable in respect of the Series C Preferred Stock then being converted, the Corporation shall pay cash equal to such fraction multiplied by the IPO Price. (iii) Mechanics of Conversion. All holders of record of shares of Series ----------------------- C Preferred Stock will be given at least 30 but not more than 60 days' prior written notice of the IPO Date and the place designated for conversion of all shares of Series C Preferred Stock pursuant to this Section 4.5(e). Such notice will be sent by first class or registered mail, postage prepaid, to each record holder of Series C Preferred Stock at such holder's address last shown on the records of the transfer agent for the Series C Preferred Stock (or the records of the Corporation if it serves as its own transfer agent). Within ten days after the date of such notice, each holder of shares of Series C Preferred Stock shall notify the Corporation as to whether it desires to receive shares of Class A Common Stock or Class B Common Stock. Any holder who fails to give such notice shall be deemed to have selected Class A Common Stock. On or before the IPO Date, each holder of shares of Series C Preferred Stock shall surrender his or its certificate(s) for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. As soon as practicable after the IPO Date and the surrender of the certificate(s) representing shares of Series C Preferred Stock, the Corporation shall issue and deliver to such holder, or on his or its written order to his or its nominees, one or more certificates for the number of whole shares of Common Stock issuable upon such conversion in accordance with the provisions hereof, together with cash in lieu of fractional shares calculated in accordance with paragraph (ii) above. (iv) Reservation of Shares. The Corporation shall at all times when the --------------------- Series C Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series C Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series C Preferred Stock. Before taking any action which would cause Common Stock, upon the conversion -15- of Series C Preferred Stock, to be issued below the then par value of the shares of Common Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock to the holders of Series C Preferred Stock. (v) Termination of Rights. All shares of Series C Preferred Stock --------------------- which are subject to conversion pursuant to this paragraph (e), which have not been surrendered prior to the IPO Date, shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the IPO Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. On and as of the IPO Date, the shares of Common Stock issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Common Stock, including the rights, if any, to receive notices and to vote. Shares of Series C Preferred Stock converted into Common Stock will be restored to the status of authorized but unissued shares of preferred stock without designation as to series, and may thereafter be issued, whether or not designated as shares of Series C Preferred Stock. (vi) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Common Stock upon the conversion of shares of Series C Preferred Stock shall be made without charge to the holder of shares of Series C Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reservation of Class A Common Stock. The Corporation shall at all ----------------------------------- times reserve and keep available for issuance upon the conversion of the shares of Series C Preferred Stock the maximum number of its authorized but unissued shares of Class A Common Stock as is reasonably anticipated to be sufficient to permit the conversion of all outstanding shares of Series C Preferred Stock, and shall take all action required to increase the authorized number of shares of Class A Common Stock if at any time there shall be insufficient authorized but unissued shares of Class A Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Series C Preferred Stock. (f) Redemption at Option of the Corporation. The Corporation shall have --------------------------------------- the right to redeem shares of Series C Preferred Stock pursuant to the following provisions: (i) Subject to the restrictions set forth in Section 4.5(h)(i), the Corporation shall have the right, at its sole option and election, to redeem the shares of the Series C Preferred Stock, in whole but not in part, at any time at a redemption price per share equal to the Liquidation Preference thereof as of the redemption date; provided, that concurrently with such redemption, the Corporation shall redeem the shares of Series D Preferred Stock, in whole and not in part, at a redemption price per share equal to the -16- Liquidation Preference thereof as of the redemption date; provided, further, that if the funds legally available to the Corporation are insufficient to effect the redemption of the Series C Preferred Stock and the Series D Preferred Stock in full, such funds shall be allocated among the shares of Series C Preferred Stock and Series D Preferred Stock ratably in accordance with the number of shares of each Series outstanding as of the redemption date; (ii) Notice of any redemption of the Series C Preferred Stock and Series D Preferred Stock shall be mailed at least ten but not more than 60 days prior to the date fixed for redemption to each holder of Series C Preferred Stock and Series D Preferred Stock to be redeemed, at such holder's address as it appears on the books of the Corporation. In order to facilitate the redemption of the Series C Preferred Stock and Series D Preferred Stock, the Board of Directors may fix a record date for the determination of holders of Series C Preferred Stock and Series D Preferred Stock to be redeemed, or may cause the transfer books of the Corporation to be closed for the transfer of the Series C Preferred Stock and Series D Preferred Stock, not more than 60 days prior to the date fixed for such redemption; (iii) Within two Business Days after the redemption date specified in the notice given pursuant to paragraph (ii) above and the surrender of the certificate(s) representing shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, the Corporation shall pay to the holder of the shares being redeemed the Series C Redemption Price or the Series D Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Effective upon the date of the notice given pursuant to paragraph (ii) above, notwithstanding that any certificate for such shares shall not have been surrendered for cancellation, the shares represented thereby shall no longer be deemed outstanding, the rights to receive dividends thereon shall cease to accrue from and after the date of redemption designated in the notice of redemption and all rights of the holders of the shares of the Series C Preferred Stock or Series D Preferred Stock, as the case may be, called for redemption shall cease and terminate, excepting only the right to receive the Series C Redemption Price or the Series D Redemption Price therefor in accordance with paragraph (iii) above. (g) Redemption at Option of Holder. ------------------------------ (i) No holder of shares of Series C Preferred Stock shall have any right to require the Corporation to redeem any shares of Series C Preferred Stock prior to, with respect to any share of Series C Preferred Stock, the 30th day after the twentieth anniversary of the issuance of such share. Thereafter, subject to the restrictions set forth in Section 4.5(h)(i), each holder of shares of Series C Preferred Stock shall have the right, at the sole option and election of such holder, to require the Corporation to redeem all (but not less than all) of the shares of Series C Preferred Stock owned by such holder at a -17- price per share equal to the Series C Redemption Price; (ii) The holder of any shares of the Series C Preferred Stock may exercise such holder's right to require the Corporation to redeem such shares by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, certificates representing the shares of Series C Preferred Stock to be redeemed, accompanied by a written notice stating that such holder elects to require the Corporation to redeem all (but not less than all) of such shares in accordance with the provisions of this Section 4.5(g), which notice may specify an account for delivery of the Series C Redemption Price; (iii) Within two Business Days after the surrender of such certificates, the Corporation shall pay to the holder of the shares being redeemed the Series C Redemption Price therefor. Such payment shall be made by wire transfer of immediately available funds to an account designated by such holder or by overnight delivery (by a nationally recognized courier) of a bank check to such holder's address as it appears on the books of the Corporation; and (iv) Such redemptions shall be deemed to have been made at the close of business on the date of the receipt of such notice and of such surrender of the certificates representing the shares of the Series C Preferred Stock to be redeemed and the rights of the holder thereof, except for the right to receive the Series C Redemption Price therefor in accordance herewith, shall cease on such date of receipt and surrender. (h) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.5(b), (e) or (f), cash dividends on the Series C Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series C Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) So long as shares of Series C Preferred Stock are outstanding or dividends payable on shares of Series C Preferred Stock have not been paid in full in cash, the Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock, except with the prior written consent of holders of a majority of the outstanding shares of Series C Preferred Stock, except that the Corporation may acquire, in accordance with the terms of any agreement between the Corporation and its employees, shares of Common Stock from its employees at a price equal to such employee's purchase price therefor -18- without such consent. (iii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series C Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. 4.6 Powers, Preferences and Rights of the Series D Preferred Stock. -------------------------------------------------------------- (a) General. The powers, preferences and rights of the Series D ------- Preferred Stock, and the qualifications, limitations, and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (i) the Series D Preferred Stock shall rank with respect to the other series and classes of capital stock of the Corporation as provided in paragraph (b) below, (ii) the Series D Preferred Stock shall not be convertible into Common Stock, but shall be convertible into Senior Common Stock as provided in paragraph (c) below, (iii) the shares of Series D Preferred Stock shall be subject to redemption, pro rata with the Series C Preferred Stock, in accordance with Section 4.5(f), and (iv) the words "Series D Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series D Preferred Stock, respectively. (b) Ranking. The Series D Preferred Stock shall rank (i) junior to the ------- Series A Preferred Stock and the Series B Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) senior to the Series C Preferred Stock with respect to the distribution of assets on a Statutory Liquidation, (iii) on a parity with the Series C Preferred Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) on a parity with the Series C Preferred Stock and the Common Stock with respect to the payment of dividends, and (v) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock), with respect to the distribution of assets on liquidation, dissolution and winding up. (c) Conversion. In the event that the shares of Series C Preferred Stock ---------- are converted into shares of Common Stock in accordance with Section 4.5(e), the shares of Series D Preferred Stock shall be convertible into shares of Senior Common Stock as follows: (i) Automatic Conversion. On the IPO Date, each share of Series D -------------------- Preferred Stock then outstanding shall automatically be converted into a number of fully paid and non-assessable shares of Senior Common Stock as is determined by dividing the Liquidation Preference of the Series D Preferred Stock as of the IPO Date by the IPO Price. -19- (ii) Fractional Shares. No fractional shares of Senior Common Stock ----------------- shall be issued upon conversion of shares of Series D Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled after determination of the aggregate full number of shares of Senior Common Stock issuable in respect of the Series D Preferred Stock then being converted, the Corporation shall pay cash equal to such fraction multiplied by the Liquidation Preference of the Series D Preferred Stock. (iii) Mechanics of Conversion. All holders of record of shares of Series ----------------------- D Preferred Stock will be given at least 30 but not more than 60 days' prior written notice of the IPO Date and the place designated for conversion of all shares of Series D Preferred Stock pursuant to this Section 4.6(c). Such notice will be sent by first class or registered mail, postage prepaid, to each record holder of Series D Preferred Stock at such holder's address last shown on the records of the transfer agent for the Series D Preferred Stock (or the records of the Corporation if it serves as its own transfer agent). On or before the IPO Date, each holder of shares of Series D Preferred Stock shall surrender his or its certificate(s) for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. As soon as practicable after the IPO Date and the surrender of the certificate(s) representing shares of Series D Preferred Stock, the Corporation shall issue and deliver to such holder, or on his or its written order to his or its nominees, one or more certificates for the number of shares of Senior Common Stock issuable upon such conversion in accordance with the provisions hereof. (iv) Reservation of Shares. The Corporation shall at all times when the ---------------------- Series D Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series D Preferred Stock, such number of its duly authorized shares of Senior Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series D Preferred Stock. Before taking any action which would cause Senior Common Stock, upon the conversion of Series D Preferred Stock, to be issued below the then par value of the shares of Senior Common Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Senior Common Stock to the holders of Series D Preferred Stock. (v) Adjustments for Dividends. Upon any conversion of Series D ------------------------- Preferred Stock, no adjustment to the conversion ratio shall be made for declared and unpaid dividends on the Series D Preferred Stock surrendered for conversion or on the Senior Common Stock delivered upon conversion. (vi) Termination of Rights. All shares of Series D Preferred Stock ---------------------- which shall be subject to conversion as herein provided, which have not been so surrendered prior to the IPO Date, shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately -20- cease and terminate on the IPO Date, except only the right of the holders thereof to receive shares of Senior Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. On and as of the IPO Date, the shares of Senior Common Stock issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Senior Common Stock, including the rights, if any, to receive notices and to vote. Shares of Series D Preferred Stock converted into Senior Common Stock will be restored to the status of authorized but unissued shares of preferred stock without designation as to series, and may thereafter be issued, whether or not designated as shares of Series D Preferred Stock. (vii) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Senior Common Stock upon the conversion of shares of Series D Preferred Stock shall be made without charge to the holder of shares of Series D Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. 4.7 Powers, Preferences and Rights of the Series E Preferred Stock. -------------------------------------------------------------- The powers, preferences and rights of the Series E Preferred Stock, and the qualifications, limitations and restrictions thereof, shall be identical to those of the Series C Preferred Stock, except that (a) the Series E Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and (ii) senior to the Series F Preferred Stock, Senior Common Stock and the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock), (b) the provisos to Section 4.5(f)(i) shall not apply to a redemption of the Series E Preferred Stock, and (c) the words "Series E Preferred Stock" and "Series C Preferred Stock" shall be substituted for all references in Section 4.5 to Series C Preferred Stock and Series E Preferred Stock, respectively. 4.8 Powers, Preferences and Rights of the Series F Preferred Stock. The -------------------------------------------------------------- powers, preferences and rights of the Series F Preferred Stock, and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Series F Preferred Stock shall rank (i) junior to the ------- Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (ii) on a parity with the Senior Common Stock with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (iii) on a parity with the Common Stock with respect to the distribution of assets on liquidation, dissolution or winding up (other than on a Statutory Liquidation), (iv) senior to the Common Stock with respect to the distribution of assets on a Statutory Liquidation (v) on a parity with the Common Stock with respect to the payment of dividends, and (vi) senior to any series or -21- class of the Corporation's common or preferred stock hereafter authorized (other than Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Senior Common Stock or Common Stock), with respect to the payment of dividends and the distribution of assets on liquidation, dissolution and winding up. (b) Dividends. Holders of Series F Preferred Stock shall be entitled to --------- dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation. (c) Liquidation Preference. ---------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Series F Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, but before any payment shall be made or any assets distributed to the holders of Common Stock or any series of preferred stock ranking junior to the Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Series F Preferred Stock and any other series of preferred stock ranking on a parity with Series F Preferred Stock with respect to rights on liquidation, dissolution or winding up, to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Series F Preferred Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) After payment to the holders of Series F Preferred Stock of the amounts set forth in paragraph (i) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Participating Stock in proportion to the shares of Participating Stock then held by them as of the date of the liquidation, dissolution or winding up of the Corporation. (iv) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.8(c). (d) Voting Rights. ------------- (i) The holders of shares of Series F Preferred Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Series -22- F Preferred Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraph (ii) below or as otherwise required by law). (ii) The affirmative vote of holders of not less than a majority of Series F Preferred Stock shall be required to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of stock ranking senior to or pari passu with the Series F Preferred Stock or any additional shares of Series F Preferred Stock, (B) authorize, adopt or approve each amendment to this Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Series F Preferred Stock, alter or change the powers, preferences or rights of the shares of Series F Preferred Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock ranking senior to or pari passu with the Series F Preferred Stock, (C) amend, alter or repeal any provision of this Restated Certificate of Incorporation so as to affect the shares of Series F Preferred Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock senior to or pari passu with the Series F Preferred Stock. (e) Conversion. The shares of Series F Preferred Stock shall be ---------- convertible into shares of Common Stock or Senior Common Stock as follows: (i) Optional Conversion. Each share of Series F Preferred Stock shall ------------------- be convertible, at the option of the holder thereof, at any time and from time to time, into one fully paid and non-assessable share of Non-Tracked Common Stock; provided that, unless and until the Tracked Common Stock shall be convertible into Class A Common Stock or Class B Common Stock in accordance with Section 4.10(e)(iii), each of the first 631.27 shares of Series F Preferred Stock converted pursuant to this paragraph shall be convertible into one fully paid and non-assessable share of Class D Common Stock. (ii) Automatic Conversion. In the event that the Series C Preferred -------------------- Stock is converted into Common Stock in accordance with Section 4.5(e), then on the IPO Date, each share of Series F Preferred Stock then outstanding shall automatically be converted into one fully paid and non-assessable share of Senior Common Stock. (iii) Mechanics of Optional Conversion. In order for a holder of Series F Preferred Stock to convert such shares into shares of Common Stock, such holder shall surrender the certificate(s) for such shares of Series F Preferred Stock at the office of the transfer agent for the Series F Preferred Stock (or if the Corporation serves as its own transfer agent, at the principal office of the Corporation), together with written notice that such holder elects to convert all or any number of the shares of the Series F Preferred Stock represented by such certificate(s). If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the -23- registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date (the "Optional Conversion Date"). The Corporation shall, within ------------------------- ten Business Days after the Optional Conversion Date, issue and deliver at such office to such holder of Series F Preferred Stock, or to his or its nominees, one or more certificates for the number of whole shares of Common Stock (and any shares of Series F Preferred Stock represented by the certificate delivered to the Corporation by the holder thereof that are not converted into Common Stock) issuable upon such conversion in accordance with the provisions hereof. (iv) Mechanics of Automatic Conversion. All holders of record of shares --------------------------------- of Series F Preferred Stock will be given at least 30 but not more than 60 days' prior written notice of the IPO Date and the place designated for conversion of all shares of Series F Preferred Stock pursuant to this Section 4.8(e). Such notice will be sent by first class or registered mail, postage prepaid, to each record holder of Series F Preferred Stock at such holder's address last shown on the records of the transfer agent for the Series F Preferred Stock (or the records of the Corporation if it serves as its own transfer agent). On or before the IPO Date, each holder of shares of Series F Preferred Stock shall surrender his or its certificate(s) for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. As soon as practicable after the IPO Date and the surrender of the certificates representing shares of Series F Preferred Stock, the Corporation shall issue and deliver to such holder, or on his or its written order to his or its nominees, one or more certificates for the number of whole shares of Senior Common Stock issuable upon such conversion in accordance with the provisions hereof. (v) Reservation of Shares. The Corporation shall at all times when the --------------------- Series F Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series F Preferred Stock, such number of its duly authorized shares of Common Stock and Senior Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series F Preferred Stock. Before taking any action which would cause Common Stock or Senior Common Stock, upon the conversion of Series F Preferred Stock, to be issued below the then par value of the shares of Common Stock or Senior Common Stock, as the case may be, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock or Senior Common Stock, as the case may be, to the holders of Series F Preferred Stock. (vi) Adjustments for Dividends. Upon any conversion of Series F ------------------------- Preferred Stock, no adjustment to the conversion ratio shall be made for declared and unpaid dividends on the Series F Preferred Stock surrendered for conversion or on the Common Stock or Senior Common Stock delivered upon conversion. -24- (vii) Termination of Rights. All shares of Series F Preferred Stock --------------------- which shall have been surrendered for conversion as herein provided or, as to shares of Series F Preferred Stock which are subject to automatic conversion pursuant to paragraph (ii) above, which have not been so surrendered prior to the IPO Date, shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Optional Conversion Date or the IPO Date, as the case may be, except only the right of the holders thereof to receive shares of Common Stock or Senior Common Stock, as the case may be, in exchange therefor and payment of any declared and unpaid dividends thereon. On and as of the Optional Conversion Date or the IPO Date, the shares of Common Stock or Senior Common Stock, as the case may be, issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Common Stock or Senior Common Stock, including the rights, if any, to receive notices and to vote. Shares of Series F Preferred Stock converted into Common Stock or Senior Common Stock will be restored to the status of authorized but unissued shares of Common Stock or preferred stock without designation as to class or series, and may thereafter be issued, whether or not designated as shares of Class A Common Stock or Series F Preferred Stock. (viii) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Common Stock or Senior Common Stock upon the conversion of shares of Series F Preferred Stock shall be made without charge to the holder of shares of Series F Preferred Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (ix) Reorganization, Reclassification and Merger Adjustment. If there ------------------------------------------------------ occurs any capital reorganization or any reclassification of the Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Series F Preferred Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Common Stock into which such share of Series F Preferred Stock might have been converted immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Corporation, whose determination shall be conclusive) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the conversion of the Series F Preferred Stock. -25- (f) Certain Restrictions. -------------------- (i) Notwithstanding the provisions of Sections 4.8(b), cash dividends on the Series F Preferred Stock may not be declared, paid or set apart for payment, nor may the Corporation redeem, purchase or otherwise acquire any shares of Series F Preferred Stock, if (A) the Corporation is not solvent or would be rendered insolvent thereby or (B) at such time the terms and provisions of any law or agreement of the Corporation, including any agreement relating to its indebtedness, specifically prohibit such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition, or provide that such declaration, payment or setting apart for payment or such redemption, purchase or other acquisition would constitute a violation or breach thereof or a default thereunder. (ii) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to make any distribution with respect to, or purchase or otherwise acquire for consideration, any shares of Common Stock or other shares of capital stock of the Corporation ranking junior to or on a parity basis with the Series F Preferred Stock unless the Corporation could, pursuant to paragraph (i) above, make such distribution or purchase or otherwise acquire such shares at such time and in such manner. (g) Redemption. The Series F Preferred Stock is not redeemable. ---------- (h) Sinking Fund. There shall be no sinking fund for the payment of ------------ dividends or Liquidation Preferences on the Series F Preferred Stock. 4.9 Powers, Preferences and Rights of the Senior Common Stock. The --------------------------------------------------------- powers, preferences and rights of the Senior Common Stock, and the qualifications, limitations and restrictions thereof are as follows: (a) Ranking. The Senior Common Stock shall rank, with respect to the ------- payment of dividends and the distribution of assets on liquidation, dissolution or winding up, (i) junior to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, (ii) on a parity with the Series F Preferred Stock, and (iii) senior to the Common Stock and any series or class of the Corporation's common or preferred stock, now or hereafter authorized (other than the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock). (b) Dividends. Holders of Senior Common Stock shall be entitled to --------- dividends in cash or property when, as and if, declared by the Board of Directors of the Corporation. (c) Liquidation Preference. ---------------------- (i) In the event of any liquidation, dissolution or winding up of the Corporation, the holders of Senior Common Stock shall be entitled to receive out of the assets of the Corporation, whether such assets are capital or surplus of any nature, after payment is made to holders of all series of preferred stock ranking senior to the Senior -26- Common Stock with respect to rights on liquidation, dissolution or winding up, but before any payment shall be made or any assets distributed to the holders of Common Stock or any series of preferred stock ranking junior to the Senior Common Stock with respect to rights on liquidation, dissolution or winding up, an amount equal to the Liquidation Preference and no more. (ii) If upon any liquidation, dissolution or winding up of the Corporation the assets of the Corporation to be distributed are insufficient to permit the payment to all holders of Senior Common Stock and any other series of preferred stock ranking on a parity with Senior Common Stock with respect to rights on liquidation, dissolution or winding up, to receive their full preferential amounts, the entire assets of the Corporation shall be distributed among the holders of Senior Common Stock and all such other series ratably in accordance with their respective Liquidation Preference. (iii) After payment to the holders of Senior Common Stock of the amounts set forth in paragraph (i) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Participating Stock in proportion to the shares of Participating Stock then held by them as of the date of the liquidation, dissolution or winding up of the Corporation. (iv) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 4.9(c). (d) Voting Rights. ------------- (i) The holders of shares of Senior Common Stock shall not have any right to vote on any matters to be voted on by the stockholders of the Corporation, except as otherwise provided in paragraph (ii) below or as provided by law, and the shares of Senior Common Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters (other than the matters described in paragraph (ii) below or as otherwise required by law). (ii) The affirmative vote of holders of not less than a majority of Senior Common Stock shall be required to (A) authorize, increase the authorized number of shares of or issue (including on conversion or exchange of any convertible or exchangeable securities or by reclassification) any shares of any class or classes of stock ranking senior to or pari passu with the Senior Common Stock or any additional shares of Senior Common Stock, (B) authorize, adopt or approve each amendment to this Restated Certificate of Incorporation that would increase or decrease the par value of the shares of Senior Common Stock, alter or change the powers, preferences or rights of the shares of Senior Common Stock or alter or change the powers, preferences or rights of any other capital stock of the Corporation if such alteration or change results in such capital stock ranking senior to or pari passu with the Senior Common Stock, (C) amend, alter or repeal any provision of this Restated Certificate of Incorporation so as to affect the shares of -27- Senior Common Stock adversely, or (D) authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock senior to or pari passu with the Senior Common Stock. (e) Conversion. The shares of Senior Common Stock shall be convertible ---------- into shares of Common Stock as follows: (i) Optional Conversion. Each share of Senior Common Stock shall be ------------------- convertible, at the option of the holder thereof, at any time and from time to time, into one fully paid and non-assessable share of Non-Tracked Common Stock; provided that, unless and until the Tracked Common Stock shall be convertible into Class A Common Stock or Class B Common Stock in accordance with Section 4.10(e)(iii), each of the first 631.27 shares of Senior Common Stock converted pursuant to this paragraph shall be convertible into one fully paid and non- assessable share of Class D Common Stock; provided, further that, if the Corporation shall effect any change in the Senior Common Stock, whether through stock dividends, stock splits, reverse stock splits, combinations or otherwise, without payment to the Corporation of any consideration therefor in money, services or property, then the terms of this proviso shall be adjusted by a corresponding amount. (ii) Mechanics of Optional Conversion. In order for a holder of Senior --------------------------------- Common Stock to convert such shares into shares of Common Stock, such holder shall surrender the certificate(s) for such shares of Senior Common Stock at the office of the transfer agent for the Senior Common Stock (or if the Corporation serves as its own transfer agent, at the principal office of the Corporation), together with written notice that such holder elects to convert all or any number of the shares of the Senior Common Stock represented by such certificate(s). If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date. The Corporation shall, within ten Business Days after the conversion date, issue and deliver at such office to such holder of Senior Common Stock, or to his or its nominees, one or more certificates for the number of whole shares of Common Stock (and any shares of Senior Common Stock represented by the certificate delivered to the Corporation by the holder thereof that are not converted into Common Stock) issuable upon such conversion in accordance with the provisions hereof. (iii) Reservation of Shares. The Corporation shall at all times when the --------------------- Senior Common Stock shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Senior Common Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Senior Common Stock. Before taking any action which would cause Common Stock, upon the conversion of Senior Common Stock, to be issued below the then par value of the shares of Common -28- Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock to the holders of Senior Common Stock. (iv) Adjustments for Dividends. Upon any conversion of Senior Common ------------------------- Stock, no adjustment to the conversion ratio shall be made for declared and unpaid dividends on the Senior Common Stock surrendered for conversion or on the Common Stock delivered upon conversion. (v) Termination of Rights. All shares of Senior Common Stock which --------------------- shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the conversion date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any declared and unpaid dividends thereon. On and as of the conversion date, the shares of Common Stock issuable upon such conversion shall be deemed to be outstanding, and the holder thereof shall be entitled to exercise and enjoy all rights with respect to such shares of Common Stock, including the rights, if any, to receive notices and to vote. Shares of Senior Common Stock converted into Common Stock will be restored to the status of authorized but unissued shares of preferred stock without designation as to series, and may thereafter be issued, whether or not designated as shares of Senior Common Stock. (vi) No Conversion Charge or Tax. The issuance and delivery of --------------------------- certificates for shares of Common Stock upon the conversion of shares of Senior Common Stock shall be made without charge to the holder of shares of Senior Common Stock for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. (vii) Reorganization, Reclassification and Merger Adjustment. If there ------------------------------------------------------ occurs any capital reorganization or any reclassification of the Common Stock of the Corporation, the consolidation or merger of the Corporation with or into another Person (other than a merger or consolidation of the Corporation in which the Corporation is the continuing corporation and which does not result in any reclassification or change of outstanding shares of its Common Stock) or the sale or conveyance of all or substantially all of the assets of the Corporation to another Person, then each share of Senior Common Stock shall thereafter be convertible into the same kind and amounts of securities (including shares of stock) or other assets, or both, which were issuable or distributable to the holders of outstanding Common Stock of the Corporation upon such reorganization, reclassification, consolidation, merger, sale or conveyance, in respect of that number of shares of Common Stock into which such share of Senior Common Stock might have been converted immediately prior to such reorganization, reclassification, consolidation, merger, sale or conveyance; and, in any such case, appropriate adjustments (as determined in good faith by the Board of Directors of the Corporation, whose -29- determination shall be conclusive) shall be made to assure that the provisions set forth herein shall thereafter be applicable, as nearly as reasonably may be practicable, in relation to any securities or other assets thereafter deliverable upon the conversion of the Senior Common Stock. 4.10 Common Stock. ------------ (a) General. Except as otherwise provided herein, all shares of Common ------- Stock issued and outstanding shall be identical, and shall entitle the holders thereof to the same rights, powers and privileges of stockholders under Delaware law. For purposes of this Section 4.10 (and the definitions relating thereto), the Class A Common Stock and the Class B Common Stock are herein collectively referred to as the "Non-Tracked Common Stock" and the Class C Common Stock and the Class D Common Stock are herein collectively referred to as the "Tracked Common Stock". (b) Dividends. Subject to Section 4.11(b) and the express terms of any --------- outstanding series of Preferred Stock, dividends may be paid in cash or otherwise with respect to each class of Common Stock out of the assets of the Corporation, upon the terms, and subject to the limitations, provided in this Section 4.10(b), as the Board of Directors may determine. (i) Dividends on the Non-Tracked Common Stock. Dividends on the Non- ----------------------------------------- Tracked Common Stock may be declared and paid only out of the excess of (A) the funds of the Corporation legally available therefor over (B) the Tracked Business Available Dividend Amount (the "Non-Tracked Business Available Dividend Amount"). (ii) Dividends on Tracked Common Stock. Dividends on the Tracked Common --------------------------------- Stock may be declared and paid only out of the lesser of (A) the funds of the Corporation legally available therefor and (B) the Tracked Business Available Dividend Amount. The Corporation shall not declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Tracked Common Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, on the same terms, all shares of Tracked Common Stock ratably in accordance with the number of shares of each class of Tracked Common Stock then outstanding. (iii) Discrimination in Dividends Among the Tracked and Non-Tracked ------------------------------------------------------------- Common Stock. The Board of Directors may at any time, subject to the provisions - ------------ of Sections 4.10(b)(i) and (ii) and Section 4.11, declare and pay dividends exclusively on the Non-Tracked Common Stock, exclusively on the Tracked Common Stock or on both such categories of Common Stock in equal or unequal amounts, notwithstanding the relative amounts of the Non-Tracked Business Available Dividend Amount and the Tracked Business Available Dividend Amount. (c) Voting. ------ -30- (i) The holders of shares of Common Stock shall be entitled to such voting rights as hereinafter provided, and shall be entitled to notice of any stockholders' meeting and to vote upon such matters as provided herein and in the by-laws of the Corporation, and as may be provided by law. Holders of any class of Common Stock shall not be entitled to cumulate their votes for any purpose. Except as otherwise required by law or provided herein, regardless of the number of shares of any class of Common Stock then outstanding, each class of Common Stock shall be entitled to the number of votes enumerated below and the number of votes or fractional votes to which each share of a particular class of Common Stock shall be entitled shall be the quotient determined by dividing the aggregate number of votes to which such class of Common Stock is entitled by the number of shares of such class of Common Stock then outstanding. Except as otherwise required by law or provided herein, the Class A Common Stock shall have 4,990,000 votes; the Class B Common Stock shall have no votes; the Class C Common Stock shall have no votes; the Class D Common Stock shall have no votes; and the Voting Preference Common Stock shall have 5,010,000 votes. (ii) A quorum for the transaction of business shall be present when a majority of the shares of Voting Preference Common Stock outstanding as of the record date are present and when shares of all classes of Common Stock with at least 5,010,000 votes are present, except that (x) with respect to actions requiring a majority vote of the Class A Common Stock, the presence of a majority of the outstanding shares of Class A Common Stock shall also be required for a quorum to be present, (y) with respect to actions requiring the vote of a majority vote of the Class C Common Stock, the presence of a majority of the outstanding shares of Class C Common Stock shall also be required for a quorum to be present and (z) with respect to actions requiring the vote of a majority vote of the Class D Common Stock, the presence of a majority of the outstanding shares of Class D Common Stock shall also be required for a quorum to be present. Except as otherwise required by law or provided herein, the majority vote of the Voting Preference Common Stock present at any meeting at which a quorum is present shall be sufficient to approve any action required to be approved by the holders of the Common Stock. (iii) In any matter requiring a separate class vote of holders of any class of Common Stock or a separate vote of two or more classes of Common Stock voting together as a single class, for the purposes of such a class vote, each share of Common Stock of such classes shall be entitled to one vote per share. (iv) In the event that the Corporation shall have received an opinion of regulatory counsel of nationally recognized standing to the effect that the rules, regulations or policies of the Federal Communications Commission (the "FCC") permit the Class A Common Stock and the Voting Preference Common Stock --- (x) to be voted as a single class on all matters, (y) to be treated as a single class for purposes of all quorum requirements and (z) to have one vote per share, then, unless the Board of Directors of the Corporation shall have determined, within 30 days after the date of receipt of such opinion, that obtaining the FCC consent described below would be reasonably expected to have a significant detrimental effect on the Corporation, the Corporation shall, upon the affirmative vote of 66-2/3% or more of the Class A Common Stock, seek consent -31- from the FCC to permit the Class A Common Stock and Voting Preference Common Stock to vote and act as a single class in the manner described above. From and after the date that such consent is obtained, the Class A Common Stock and the Voting Preference Common Stock shall be voted as a single class on all matters, shall be treated as a single class for purposes of all quorum requirements, and shall have one vote per share; provided, that the voting rights of the Class B Common Stock, Class C Common Stock and Class D Common Stock and the Preferred Stock shall remain unaffected. (v) The holders of shares of Class B Common Stock shall be entitled to vote as a separate class on any amendment, repeal or modification of any provision of this Restated Certificate of Incorporation that adversely affects the powers, preferences or special rights of the holders of the Class B Common Stock. (d) Dissolution, Liquidation or Winding Up. Upon the dissolution, -------------------------------------- liquidation or winding up of the Corporation, after any preferential amounts to be distributed to the holders of the Preferred Stock and any other class or series of stock having a preference over the Common Stock then outstanding have been paid or declared and funds sufficient for the payment thereof in full set apart for payment, (i) the holders of the Tracked Common Stock shall be entitled to receive pro rata the Tracked Business Available Liquidation Amount and (ii) the holders of the Non-Tracked Common Stock shall be entitled to receive pro rata the excess of (A) all the remaining assets of the Corporation available for distribution to its stockholders over (B) the Tracked Business Available Liquidation Amount. (e) Conversion. ---------- (i) Each share of Class B Common Stock may, at the option of the holder thereof, at any time, be converted into one fully paid and non-assessable share of Class A Common Stock. (ii) Each share of Class A Common Stock may, at the option of the holder thereof, at any time, be converted into one fully paid and non-assessable share of Class B Common Stock. (iii) In the event that the Corporation shall have received an opinion of regulatory counsel of nationally recognized standing to the effect that the rules, regulations or policies of the FCC permit the conversion of shares of Tracked Common Stock into Class A Common Stock or Class B Common Stock, then, unless the Board of Directors of the Corporation shall have determined, within 30 days after receipt of such opinion, that permitting such conversion would be reasonably expected to have a significant detrimental effect on the Corporation, shares of Class C Common Stock and Class D Common Stock shall, upon the affirmative vote of 66-2/3% or more of the Class A Common Stock, be convertible as follows: (x) each share of Class C Common Stock may, at the option of the holder thereof, be converted into one fully paid and non- -32- assessable share of Class A Common Stock or Class B Common Stock, and (y) each share of Class D Common Stock may, at the option of the holder thereof, be converted into one fully paid and non-assessable share of Class A Common Stock or Class B Common Stock. 4.11 Participating Stock. ------------------- (a) Changes in Capital Stock. The Corporation shall not effect any ------------------------ change in or reclassification of any class or series of the outstanding Participating Stock, whether through stock dividends, stock splits, reverse stock splits, combinations or otherwise, without the payment to the Corporation of any consideration therefor in money, services or property, unless concurrently therewith the Corporation shall effect a corresponding change in each other class and series of the outstanding Participating Stock. (b) Dividends and Distributions. The Corporation shall not declare or --------------------------- pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, any shares of Participating Stock unless concurrently therewith the Corporation shall declare or pay cash dividends on, or redeem, purchase or otherwise acquire for consideration, as the case may be, on the same terms, all shares of Participating Stock ratably in accordance with the number of shares of each class and series of Participating Stock then outstanding. (c) Notices. Any written notice or communication by the Corporation to ------- holders of any class or series of Participating Stock shall be sent to all holders of Participating Stock. 4.12 Exchange of Capital Stock. Notwithstanding any other provision of ------------------------- this Restated Certificate of Incorporation to the contrary, in the event that AT&T Wireless PCS, Inc. terminates its obligations under Section 8.6 of the Stockholders Agreement pursuant to Section 8.8(c) thereof with respect to any Overlap Territory (as defined therein) (any such termination being referred to hereinafter as the "Exchange Event"), the following provisions shall apply: -------------- (a) Right to Exchange. The Corporation shall have the right, exercisable in its sole discretion by written notice (the "Exchange Notice") given to the --------------- Initial Holders and Section 4.12 Transfers within 60 days after the Exchange Event, to: (i) require the Initial Holders and each Section 4.12 Transferee to exchange for an equivalent number of shares of Series B Preferred Stock either (A) all of the shares of Series A Preferred Stock then owned by the Initial Holders and each Section 4.12 Transferee or (B) a number of shares of Series A Preferred Stock then owned by each such holder equal to the product of (x) the number of shares of Series A Preferred Stock then owned by such holder multiplied by (y) a fraction, the numerator of which is equal to the number of POPs (as defined in the Stockholders Agreement) in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory (as defined in the Stockholders Agreement); and -33- (ii) require the Initial Holders and each Section 4.12 Transferee to exchange, for a number of shares of Series B Preferred Stock determined in accordance with paragraph (b) below, either (A) all of the shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock owned by the Initial Holder on the date hereof (or shares of Common Stock or Senior Common Stock into which such shares of Series D Preferred Stock, Series F Preferred Stock and Senior Common Stock shall have been converted) and that the Initial Holders or a Section 4.12 Transferee continues to own on the date of delivery of the Exchange Notice (any such shares of Series D Preferred Stock, Series F Preferred Stock or Common Stock being referred to hereinafter collectively as "Original Shares") or (B) a number of Original Shares of Series D Preferred Stock, Series F Preferred Stock and Common Stock equal to the product of (x) the number of Original Shares of Series D Preferred Stock, Series F Preferred Stock, Senior Common Stock and Common Stock, as the case may be, then owned by each such holder, multiplied by (y) a fraction, the numerator of which is equal to the number of POPs in the Overlap Territory and the denominator of which is equal to the total number of POPs in the Territory; provided, that (x) if the Corporation exercises its right under clause (i)(A) of this paragraph (a), it shall be required to exercise its right under clause (ii)(A) of this paragraph (a), and vice-versa; and if the Corporation exercises its right under clause (i)(B) of this paragraph (a), it shall be required to exercise its right under clause (ii)(B) of this paragraph (a), and vice-versa and (y) the provisions of this Section 4.12(a) shall not apply to any Section 4.12 Transferee which is a Cash Equity Investor. (Shares of Series A Preferred Stock, Series D Preferred Stock, Series F Preferred Stock and Series G Preferred Stock (and shares of Common Stock and Senior Common Stock into which such shares shall have been converted) and shares of Common Stock subject to exchange pursuant to this Section 4.12 are hereinafter referred to collectively as "Exchange Shares.") --------------- (b) Number of Shares of Series B Preferred Stock Issuable in Exchange. ----------------------------------------------------------------- The number of shares of Series B Preferred Stock issuable in exchange for Original Shares pursuant to clause (ii) of paragraph (a) above shall be equal to the quotient of the aggregate purchase price paid by the Initial Holders for the Original Shares being exchanged, divided by $1,000. (c) Fractional Shares. Notwithstanding any other provision of this ----------------- Restated Certificate of Incorporation, the Corporation shall not be required to issue fractions of shares upon exchange of any Exchange Shares or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Corporation may pay therefor, at the time of any exchange of Exchange Shares as herein provided, an amount in cash equal to such fraction multiplied by the Market Price of a share of Common Stock on such date. (d) Mechanics of Exchange. The Exchange Notice shall specify the date --------------------- fixed for the exchange (the "Exchange Date"), which shall be at least ten but no more than 60 days following delivery of the Exchange Notice, and the place designated for exchange of the Exchange Shares pursuant to this Section 4.12. Such notice will be sent by first class or registered mail, postage prepaid, to the Initial Holders and each Section 4.12 Transferee -34- at such holder's address last shown on the records of the transfer agent for the Exchange Shares (or the records of the Corporation if it serves as its own transfer agent). On or before the Exchange Date, the Initial Holders and each Section 4.12 Transferee shall surrender its certificate or certificates for all such shares to the Corporation at the place designated in such notice. If required by the Corporation, certificates surrendered for exchange shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the Initial Holders and each Section 4.12 Transferee or its attorney duly authorized in writing. (e) Termination of Rights. On and after the Exchange Date (whether or --------------------- not the applicable certificates have theretofore been surrendered), all rights with respect to the Exchange Shares, including the rights, if any, to receive notices and to vote, will terminate, except only the rights of the Initial Holders and Section 4.12 Transferees to receive certificates for the number of shares of Series B Preferred Stock into which such Exchange Shares have been exchanged, upon surrender of its certificate or certificates therefor, and payment of any declared but unpaid dividends thereon (which shall accrue and be payable at the times and on the other terms applicable to such dividends when declared) and payment of any deferred dividends in respect of Series A Preferred Stock which shall be payable as set forth in Section 4.3(b)(iii). Within ten Business Days after the Exchange Date, the Corporation shall issue and deliver to the Initial Holders and each Section 4.12 Transferee, or on its written order to its nominees, a certificate or certificates for the number of whole shares of Series B Preferred Stock issuable upon such exchange in accordance with the provisions hereof, together with cash in lieu of fractional shares calculated in accordance with paragraph (c) of this Section 4.12. (f) Reservation of Shares. The Corporation shall at all times reserve and --------------------- keep available for issuance upon the exchange of Exchange Shares the maximum number of its authorized but unissued shares of Series B Preferred Stock as is reasonably anticipated to be sufficient to permit the exchange of all outstanding Exchange Shares, and shall take all action required to increase the authorized number of shares of Series B Preferred Stock if at any time there shall be insufficient authorized but unissued shares of Series B Preferred Stock to permit such reservation or to permit the exchange of all outstanding Exchange Shares. (g) Adjustments for Dividends. Upon any exchange of Exchange Shares, no ------------------------- adjustment to the rate of conversion shall be made for accrued and unpaid dividends (whether or not declared) on the Exchange Shares, as the case may be, surrendered for exchange or on the Series B Preferred Stock delivered upon exchange. (h) No Exchange Charge or Tax. The issuance and delivery of certificates ------------------------- for shares of Series B Preferred Stock upon the exchange of Exchange Shares shall be made without charge to the Initial Holder for any issue or transfer tax, or other incidental expense in respect of the issuance or delivery of such certificates or the securities represented thereby, all of which taxes and expenses shall be paid by the Corporation. 4.13 Redemption of Capital Stock; FCC Approval. ----------------------------------------- -35- (a) Redemption. Notwithstanding any other provision of this Restated ---------- Certificate of Incorporation to the contrary, outstanding shares of capital stock of the Corporation held by Disqualified Holders shall always be subject to redemption by the Corporation, by action of the Board of Directors, if, in the judgment of the Board of Directors, such action should be taken, pursuant to Section 151(b) of the GCL or any other applicable provision of law, to the extent necessary to prevent the loss or secure the reinstatement of any license or franchise from any governmental agency held by the Corporation or any of its subsidiaries to conduct any portion of the business of the Corporation or any of its subsidiaries, which license or franchise is conditioned upon some or all of the holders of the Corporation's stock possessing prescribed qualifications. The terms and conditions of such redemption shall be as follows: (i) the redemption price of the shares to be redeemed pursuant to this Section 4.13 shall be equal to the lesser of (x) the Market Price or (y) if such stock was purchased by such Disqualified Holder within one year of the Section 4.13 Redemption Date, such Disqualified Holder's purchase price for such shares; (ii) the redemption price of such shares may be paid in cash, Redemption Securities or any combination thereof; (iii) if less than all the shares held by Disqualified Holders are to be redeemed, the shares to be redeemed shall be selected in such manner as shall be determined by the Board of Directors, which may include selection first of the most recently purchased shares thereof, selection by lot or selection in any other manner determined by the Board of Directors; (iv) at least 30 days' written notice of the Section 4.13 Redemption Date shall be given to the record holders of the shares selected to be redeemed (unless waived in writing by any such holder); provided, however, that only 10 days' written notice of the Redemption Date shall be given to record holders if the cash or Redemption Securities necessary to effect the redemption shall have been deposited in trust for the benefit of such record holders and subject to immediate withdrawal by them upon surrender of the stock certificates for their shares to be redeemed; provided, further, that the record holders of the shares selected to be redeemed may transfer such shares prior to the Section 4.13 Redemption Date to any holder that is not a Disqualified Holder and, thereafter, for so long as such shares are not held by a Disqualified Holder, such shares shall not be subject to redemption by the Corporation; (v) from and after the Section 4.13 Redemption Date, any and all rights of whatever nature (including without limitation any rights to vote or participate in dividends declared on stock of the same class or series as such shares) with respect to the shares selected from redemption held by Disqualified Holders on the Section 4.13 Redemption Date shall cease and terminate and such Disqualified Holders thenceforth shall be entitled only to receive the cash or Redemption Securities payable upon redemption; and -36- (vi) such other terms and conditions as the Board of Directors shall determine. (b) FCC Approval. Notwithstanding anything herein to the contrary, if ------------ Federal Communications Commission or other regulatory approval is required to be obtained prior to the conversion of shares of any series or class of Preferred Stock or Common Stock, the holder thereof may nevertheless elect to convert any or all of its shares by written notice given to the Corporation in accordance with the applicable provision hereof, provided, that such conversion shall not become effective until the close of business on the date of the receipt of the last of any such approvals and of the surrender of the certificates representing the shares of the applicable Preferred Stock or Common Stock to be converted, and the rights of the holder thereof shall continue in full force and effect pending the receipt of all such approvals, except that, in the case of the Series A Preferred Stock, no dividends shall be payable in respect of the period following the Series A Conversion Date, unless the required approvals are not obtained and the conversion has not been effected within one year of the Series A Conversion Date and the applicable conversion notice is withdrawn, in which event the obligation to pay dividends from and after the Series A Conversion Date shall be payable in accordance with the terms of Section 4.3(b). 4.14 Definitions. For the purposes of this Restated Certificate of ----------- Incorporation, the following terms shall have the meanings indicated: "Affiliate" means, with respect to any Person, any other Person that --------- directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with that Person. For purposes of this definition, "control" (including the terms "controlling" and "controlled") means the power to direct or cause the direction of the management and policies of a Person, directly or indirectly, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. "Appraisal Procedure" means the following procedure for determining ------------------- the Market Price, for the purpose of calculating the Series A Conversion Rate, in the event that the shares of Class A Common Stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service: (i) Two independent accounting or investment banking firms of nationally recognized standing (each, an "Appraiser"), one chosen by the Corporation --------- and one by the holders of a majority of the outstanding shares of Series A Preferred Stock, shall each determine and attempt to mutually agree upon, the Market Price. Each party shall deliver a notice to the other appointing its Appraiser within 15 days after the applicable notice and surrender pursuant to Section 4.3(iv). If either the Corporation or such holders fail to appoint an appraiser within such 15-day period, the Market Price shall be determined by the Appraiser that has been so appointed. (ii) If within 30 days after appointment of the two Appraisers they are unable to agree upon the Market Price, an independent accounting or investment banking firm of nationally recognized standing shall within ten days thereafter be chosen to serve as a -37- third Appraiser by the mutual consent of such first two Appraisers. The determination of the Market Price by the third Appraiser so appointed and chosen shall be made within 30 days after the selection of such third Appraiser. (iii) If three Appraisers shall be appointed and the determination of one Appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such Appraiser shall be excluded, the remaining two determinations shall be averaged, and such average shall be binding and conclusive on the Corporation and the holders of the Series A Preferred Stock; otherwise the average of all three determinations shall be binding and conclusive on the Corporation and the holders of the Series A Preferred Stock. (iv) In connection with any appraisal conducted pursuant to this Appraisal Procedure, the Appraiser shall adhere to the guidelines provided in the definition of "Market Price" set forth below, including the proviso thereto. (v) The fees and expenses of each Appraiser shall be borne by the Corporation. "Board of Directors" has the meaning specified in Section 4.2(a). "Business Day" shall mean any day other than a Saturday, Sunday or ------------ other day on which commercial banks in the City of New York are authorized or required by law or executive order to close. "Class A Common Stock" has the meaning specified in Section 4.1. -------------------- "Class B Common Stock" has the meaning specified in Section 4.1. -------------------- "Class C Common Stock" has the meaning specified in Section 4.1. -------------------- "Class D Common Stock" has the meaning specified in Section 4.1. -------------------- "Closing Price" shall mean, with respect to each share of any class ------------- or series of capital stock for any day, (i) the last reported sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case as reported on the principal national securities exchange on which such class or series of capital stock is listed or admitted for trading or (ii) if such class or series of capital stock is not listed or admitted for trading on any national securities exchange, the last reported sale price or, in case no such sale takes place on such day, the average of the highest reported bid and the lowest reported asked quotation for such class or series of capital stock, in either case as reported on NASDAQ or a similar service if NASDAQ is no longer reporting such information. "Common Stock" has the meaning specified in Section 4.1. ------------ -38- "Disqualified Holder" shall mean any holder of shares of capital stock ------------------- of the Corporation whose holding of such stock, either individually or when taken together with the holding of shares of capital stock of the Corporation by any other holders, may result, in the judgment of the Board of Directors, in the loss of, or the failure to secure the reinstatement of, any license or franchise from any governmental agency held by the corporation or any of its subsidiaries or affiliates to conduct any portion of the business of the corporation or any of its subsidiaries or affiliates. "Dividend Payment Date" shall mean the last day of each March, June, --------------------- September and December, except that if any Dividend Payment Date is not a Business Day, then the next succeeding Business Day shall be the Dividend Payment Date. "Fully Diluted Basis" shall mean, with respect to the outstanding ------------------- shares of Common Stock, the number of shares of Common Stock outstanding assuming the conversion of all outstanding convertible securities (other than the Series A Preferred Stock) and the exercise of all outstanding warrants, options or other rights to subscribe for or purchase any shares of Common Stock. "Initial Holder" means AT&T Wireless PCS Inc., a Delaware corporation, -------------- TWR Cellular, Inc., a Delaware corporation, and/or any of their respective Affiliates that is a Subsidiary of AT&T Corp. "Invested Amount" means, as of any date with respect to each share of --------------- Series C Preferred Stock held by any stockholder, an amount equal to the quotient of (i) the aggregate paid-in capital actually paid with respect to all shares of Series C Preferred Stock held by such stockholder as of such date divided by (ii) the total number of shares of Series C Preferred Stock held by such stockholder. "IPO Date" shall mean the first date on which (a) the Common Stock -------- shall have been registered pursuant to an effective Registration Statement under the Securities Act of 1933, as amended, (b) the aggregate gross proceeds received by the Corporation in connection with such Registration Statement(s) equals or exceeds $20 million, and (c) the Common Stock shall be listed for trading on the New York Stock Exchange or the American Stock Exchange or authorized for trading on NASDAQ, including without limitation its National Market System. "IPO Price" shall mean the price per share at which shares of Common --------- Stock are offered to the public in the Corporation's initial public offering of Common Stock. "Junior Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation, including without limitation the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock and the Common Stock, ranking junior to the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. -39- "Liquidation Preference" shall mean, as of any date, and subject to ---------------------- adjustment for subdivisions or combinations affecting the number of shares of the applicable series of Preferred Stock: (i) with respect to each share of Series A Preferred Stock and Series B Preferred Stock, $1,000 plus accrued and unpaid dividends thereon; (ii) with respect to each share of Series C Preferred Stock, the Invested Amount plus accrued and unpaid dividends on such share (if any), plus an amount equal to interest on the Invested Amount at the rate of six percent (6%) per annum, compounded quarterly, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iii) with respect to each share of Series D Preferred Stock, $1,000 plus accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (iv) with respect to each share of Series E Preferred Stock, accrued and unpaid dividends thereon (if any), plus an amount equal to interest on $1,000 at the rate of six percent (6%) per annum, compounded quarterly, from the date of issuance of such share to and including the date of the calculation, less the amount of dividends (if any) theretofore declared and paid in respect of such share; (v) with respect to each share of Series F Preferred Stock, $.01 plus accrued and unpaid dividends thereon; and (vi) with respect to each share of Senior Common Stock, the quotient of (a) the sum of (i) the Liquidation Preference with respect to each share of Series D Preferred Stock, multiplied by the aggregate number of shares of Series D Preferred Stock converted into shares of Senior Common Stock in accordance with Section 4.6(c) and (ii) the Liquidation Preference with respect to each share of Series F Preferred Stock, multiplied by the aggregate number of shares of Series F Preferred Stock converted into shares of Senior Common Stock in accordance with Section 4.8(e)(ii), divided by the aggregate number of shares of Senior Common Stock issued upon conversion of shares of Series D Preferred Stock and Series F Preferred Stock. "Market Price" shall mean, with respect to each share of any class or ------------ series of capital stock for any day, (i) the average of the daily Closing Prices for the ten consecutive trading days commencing 15 days before the day in question or (ii) if on such date the shares of such class or series of capital stock are not listed or admitted for trading on any national securities exchange and are not quoted on NASDAQ or any similar service, the cash amount that a willing buyer would pay a willing seller (neither acting under compulsion) in an arm's-length transaction without time constraints per share of such class or series of capital stock as of such date, viewing the Corporation on a going concern basis, as determined (A) in the case of a -40- determination of "Market Price" for the purpose of calculating the Series A Conversion Rate, pursuant to the Appraisal Procedure and (B) in the case of a determination of Market Price for any other purpose, in good faith by the Board of Directors, whose determination shall be conclusive; provided that, in determining such cash amount, the following shall be ignored: (i) any contract or legal limitation in respect of shares of Common Stock or Preferred Stock, including transfer, voting and other rights, (ii) the "minority interest" or "control" status of shares of Common Stock into which shares of Series A Preferred Stock would be converted, and (iii) any illiquidity arising by contract in respect of the shares of Common Stock and any voting rights or control rights amongst the stockholders. "NASDAQ" shall mean the National Association of Securities Dealers ------ Automated Quotations System. "Non-Tracked Common Stock" has the meaning specified in Section ------------------------ 4.10(a). "Non-Tracked Business Available Dividend Amount" has the meaning ---------------------------------------------- specified in Section 4.10(b)(i). "Optional Conversion Date" has the meaning specified in 4.6(c)(iii). ------------------------ "Parity Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, any capital stock of the Corporation ranking on a parity with the Series A Preferred Stock or Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Participating Stock" shall mean, collectively, the Series F Preferred ------------------- Stock, the Senior Common Stock and the Non-Tracked Common Stock. "Person" shall mean any individual, firm, corporation, partnership, ------ trust, incorporated or unincorporated association, joint venture, joint stock company, governmental agency or political subdivision thereof or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "Preferred Stock" has the meaning specified in Section 4.1. --------------- "Qualified Transfer" shall mean a sale, transfer or other disposition ------------------ of shares of Series A Preferred Stock to any prospective transferee specified in a Qualified Transfer Notice, other than a prospective transferee as to which the Corporation disapproves in accordance with the terms of the second sentence of Section 4.3(j), provided such sale, transfer or other disposition is made pursuant to a binding agreement entered into no later than 180 days after the applicable Qualified Transfer Notice is given. "Qualified Transferee" shall mean, with respect to any shares of -------------------- Series A Preferred Stock, (i) any Cash Equity Investor that acquired such shares pursuant to Section 4.2 of the Stockholders Agreement or (ii) any other holder that acquired such shares in a Qualified Transfer from an Initial Holders or Qualified Transferee. -41- "Qualified Transfer Notice" has the meaning specified in Section ------------------------- 4.3(i)(x). "Redemption Securities" shall mean any debt or equity securities of --------------------- the Corporation, any of its subsidiaries or affiliates or any other corporation, or any combination thereof, having such terms and conditions as shall be approved by the Board of Directors and which, together with any cash to be paid as part of the redemption price payable pursuant to Section 4.13, in the opinion of any nationally recognized investment banking firm selected by the Board of Directors (which may be a firm which provides investment banking, brokerage or other services to the Corporation), has a value, at the time notice of redemption is given pursuant to Section 4.13(d) at least equal to the price required to be paid pursuant to Section 4.13(a) (assuming, in the case of Redemption Securities to be publicly traded, that such Redemption Securities were fully distributed and subject only to normal trading activity). "Section 4.12 Transferee" shall mean any transferee of shares of ------------------------ Series A Preferred Stock, Series D Preferred Stock and Series F Preferred Stock issued to the Initial Holder on the date hereof (or any shares of Senior Common Stock or Common Stock into which any such shares are converted) that are acquired in a private transaction. "Section 4.13 Redemption Date" shall mean the date fixed by the Board ---------------------------- of Directors for the redemption of any shares of stock of the corporation pursuant to Section 4.13. "Senior Common Stock" has the meaning specified in Section 4.1. ------------------- "Senior Stock" shall mean, with respect to shares of Series A ------------ Preferred Stock or Series B Preferred Stock, as the case may be, any capital stock of the Corporation ranking senior to the Series A Preferred Stock or the Series B Preferred Stock, as the case may be, with respect to dividends, distribution in liquidation or any other preference, right or power. "Series A Conversion Date" has the meaning specified in Section ------------------------ 4.3(i)(iv). "Series A Conversion Rate" shall mean, as of any date of ------------------------ determination, a fraction in which the numerator is the Liquidation Preference of one share of Series A Preferred Stock as of such date, and the denominator is the Market Price of Class A Common Stock as of such date. "Series A Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series A Redemption Price" has the meaning specified in Section ------------------------- 4.3(e)(i). "Series B Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series C Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series D Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Series E Preferred Stock" has the meaning specified in Section 4.1. ------------------------ -42- "Series F Preferred Stock" has the meaning specified in Section 4.1. ------------------------ "Statutory Liquidation" means the liquidation of the Corporation --------------------- pursuant to Section 275 of the GCL, as amended. "Stockholders Agreement" means the July 1998 Stockholders Agreement by ---------------------- and among the Corporation, the Initial Holders and the other stockholders of the Corporation named therein, as the same may be amended, modified or supplemented in accordance with the terms thereof, a copy of which is available for inspection by any stockholder at the principal executive offices of the Corporation. "Subsidiary" shall mean, with respect to any Person, a corporation or ---------- other entity of which 50% or more of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Tracked Business Available Dividend Amount" shall mean, on any date, ------------------------------------------ the excess (if any) of (i) the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary), less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles, over (ii) the aggregate par value of, or any greater amount determined in accordance with GCL to be capital in respect of, all outstanding shares of the Tracked Common Stock. "Tracked Business Available Liquidation Amount" shall mean, on any --------------------------------------------- date, the fair market value of the total assets of Tracked Subsidiary (including, without limitation, investments held by Tracked Subsidiary, less the total amount of the liabilities of Tracked Subsidiary, in each case as of such date determined in accordance with generally accepted accounting principles. "Tracked Common Stock" has the meaning specified in Section 4.10(a). -------------------- "Tracked Subsidiary" shall mean TeleCorp Holding Corp., Inc. ------------------ ARTICLE V Election of Directors need not be by written ballot. ARTICLE VI Subject to the separate class vote requirements relating to any class or series of Preferred Stock, the holders of shares of Common Stock representing at least two-thirds (2/3) of the votes entitled to be cast for the election of directors of the Corporation, voting together as a single class, in person or by proxy, at a special or annual meeting of stockholders called for the purpose, or by written consent, may amend, alter or repeal this Restated Certificate of Incorporation or the bylaws of the Corporation (the "Bylaws"). ------ -43- ARTICLE VII 7.1 Indemnification. Any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding (a "Proceeding"), whether civil, criminal, administrative, or ---------- investigative (whether or not by or in the right of the Corporation), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director, officer, incorporator, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, incorporator, employee, partner, trustee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), shall be entitled to be indemnified by the ------------ Corporation to the full extent then permitted by law against expenses (including counsel fees and disbursements), judgments, fines (including excise taxes assessed on a person with respect to an employee benefit plan), and amounts paid in settlement incurred by him in connection with such Proceeding. Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity at the request of the Corporation to the extent the Board of Directors at any time specifies that such persons are entitled to the benefits of this Article VII. 7.2 Advancement of Expenses. The Corporation shall, from time to time, ----------------------- reimburse or advance to any Director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys' fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding; provided, however, that, if (and only if) required by the GCL, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such Director, officer or other person is not entitled to be indemnified for such expenses. 7.3 Rights Not Exclusive. The rights to indemnification and -------------------- reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, this Restated Certificate of Incorporation, the Bylaws, any agreement, any vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7.4 Continuing Rights. The rights to indemnification and reimbursement ----------------- or advancement of expenses provided by, or granted pursuant to, this Article VII shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder), shall inure to the benefit of the executors, administrators, legatees and distributees of such person, and in either case, shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Article VII. 7.5 Insurance. The Corporation shall have power to purchase and maintain --------- insurance on -44- behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VII, the Bylaws or under Section 145 of the GCL or any other provision of law. 7.6 Contract Rights; No Repeal. The provisions of this Article VII shall -------------------------- be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Article VII is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer, or other person intend to be legally bound. No repeal or modification of this Article VII shall affect any rights or obligations with respect to any state of facts then or, heretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. 7.7 Enforceability; Burden of Proof. The rights to indemnification and ------------------------------- reimbursement or advancement of expenses provided by, or granted pursuant to, this Article VII shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses in any court of competent jurisdiction. The burden of proving that such indemnification or reimbursement or advancement of expenses is not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in the circumstances nor an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such Proceeding. 7.8 Service at the Request of the Corporation. Any Director or officer ----------------------------------------- of the Corporation serving in any capacity in (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation. 7.9 Right to Be Covered by Applicable Law. Any person entitled to be ------------------------------------- indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Article VII may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted on the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, that if no such notice is given, the right to indemnification or reimbursement or -45- advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought. ARTICLE VIII No Director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a Director, provided that this provision does not eliminate the liability of the Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL or (iv) for any transaction from which the Director derived an improper personal benefit. For purposes of the prior sentence, the term "damages" shall, to the extent permitted by law, include without limitation, any judgment, fine, amount paid in settlement, penalty, punitive damages, excise or other tax assessed with respect to an employee benefit plan, or expense of any nature (including, without limitation, counsel fees and disbursements). Each person who serves as a Director of the Corporation while this Article VIII is in effect shall be deemed to be doing so in reliance on the provisions of this Article VIII, and neither the amendment or repeal of this Article VIII, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article VIII, shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for, arising out of, based upon, or in connection with any acts or omissions of such Director occurring prior to such amendment, repeal, or adoption of an inconsistent provision. The provisions of this Article VIII are cumulative and shall be in addition to and independent of any and all other limitations on or eliminations of the liabilities of Directors of the Corporation, as such, whether such limitations or eliminations arise under or are created by any law, rule, regulation, bylaw, agreement, vote of stockholders or disinterested Directors, or otherwise. -46- EX-27.1 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 80410108 0 18874679 1022267 12125650 112888753 377349610 (30001216) 754783178 72163145 629750071 250004100 149128 749704 (204691575) 754783178 48200705 48200705 23086816 163673188 160188 1022267 33247810 (144075348) 0 (144075348) 0 0 0 (144075348) (2.30) (2.30) The Eps is adjusted to reflect a 100-for-1 stocksplit effected by the Company on August 27, 1999 and a 3.09-for-1 stocksplit effected by the Company on November 8, 19999. Prior Financial Data Schedules have not been restated to reflect either of these stocksplits.
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